2023 (4) TMI 164 - HC - VAT and Sales Tax

Assessment of turnover of the applicant as per Section 4(3) of the Value Added Tax Act or as per Rule 9 of the Value Added tax Rules - applicability of provision of Section 4(3) of the VAT Act in the case of work contract - estimation of value of goods imported out of State on the basis of pro-rata basis against the actual import provided under Rule 9(1) and Clause (e) of the U.P. VAT Act Rules, 2008 - HELD THAT - The combined reading of Rule 8 and 9 establishes that Rule 8 prescribes the methodology for computation of taxable turnover for all classes of dealer while Rule 9 is applicable for determination of taxable turnover of sales of tax involved in execution of works contract and specifies deductions only for the dealers who are involved in execution of works contract, thus, provisions of Rule 9 are considered to be grant of deductions. This leads to an inevitable conclusion that levy of tax on turnover of sale has to be done in the manner provided in Section 4(3) of the Act and Rules 8 and 9 do not restrict the power of the assessing authority in doing so. Section 4(3) read in harmony with Rule 8 and 9 and the interpretation given by the Tribunal while extending the benefit of Rule 9(1)(e) to the dealer and denying the benefit of computation of tax as per the formula provided under Section 4(3) of the Act does not hold good. The finding recorded by the Tribunal to the extent of non-applicability of Section 4(3) of the Act is hereby set aside and the revisions filed by the assessee/dealer challenging the order passed by the Tribunal are hereby allowed. The revisions filed by the Revenue challenging the benefit extended to the dealer/assessee under Rule 9(1)(e) stand dismissed - matter is remitted back to the Tribunal to compute the tax component as per Section 4(3) of the Act giving the benefit to the dealer/assessee under Rule 9(1)(e) - the question of law raised through these revisions stands answered i.e. in favour of the assessee and against the revenue.

Summary

Issues Involved:
1. Applicability of Section 4(3) of the Value Added Tax Act versus Rule 9 of the Value Added Tax Rules for turnover assessment.
2. Estimation of value of goods imported out of State under Rule 9(1)(e) of the U.P. VAT Act Rules, 2008.

Summary of Judgment:

Issue 1: Applicability of Section 4(3) of the VAT Act versus Rule 9 of the VAT Rules for turnover assessment

The revisions filed by the assessee questioned whether the Commercial Tax Tribunal was legally justified in holding that the turnover of the applicant should not be assessed as per Section 4(3) of the VAT Act but should be assessed as per Rule 9 of the VAT Rules. The Tribunal found that the computation of turnover of sale cannot be done under Section 4(3) of the Act and can only be done under Rule 9. However, the High Court observed that Section 4 is the charging section for the levy of tax on turnover of sale, and Sub-Section (3) of Section 4 prescribes the formula for calculating the amount of tax payable by a dealer on the turnover of sale. Rule 8(ix) and Rule 9(1)(e) provide for the determination of taxable turnover of sales, and deductions for goods brought into the State for execution of works contracts. The Court concluded that the combined reading of Rule 8 and Rule 9 establishes that Rule 8 prescribes the methodology for computation of taxable turnover for all classes of dealers, while Rule 9 specifies deductions for dealers involved in execution of works contracts. Thus, the Tribunal's interpretation denying the benefit of computation of tax as per the formula provided under Section 4(3) of the Act does not hold good. The revisions filed by the assessee challenging the Tribunal's order were allowed, and the matter was remitted back to the Tribunal to compute the tax component as per Section 4(3) of the Act.

Issue 2: Estimation of value of goods imported out of State under Rule 9(1)(e) of the U.P. VAT Act Rules, 2008

The revisions filed by the State questioned whether the Commercial Tax Tribunal was legally justified in estimating the value of goods imported out of State on a pro-rata basis against the actual import provided under Rule 9(1)(e) of the U.P. VAT Act Rules, 2008. The High Court observed that Rule 9(1)(e) provides for the deduction of all amounts representing the value of goods in which property has been transferred in the execution of works contracts as a result of sale in the course of inter-State trade or commerce. The transactions of the dealer of bringing goods from outside U.P. are covered under Section 3, 4, 5 of the Central Sales Tax Act, 1956 read with Rule 9(1)(e) of the Rules. The Court upheld the benefit extended to the dealer under Rule 9(1)(e) and dismissed the revisions filed by the Revenue challenging this benefit.

Conclusion:

The High Court allowed the revisions filed by the assessee, set aside the Tribunal's finding on the non-applicability of Section 4(3) of the Act, and remitted the matter back to the Tribunal to compute the tax component as per Section 4(3) of the Act, giving the benefit to the dealer under Rule 9(1)(e). The revisions filed by the Revenue were dismissed. The question of law raised through these revisions was answered in favor of the assessee and against the revenue.