2014 (4) TMI 328 - HC - VAT and Sales Tax

Refund of deposit Levy of Tax - Composite Scheme - withdrawal from the composition scheme - Held that - Clause 16 of the agreement specifically provides that it would not be open to the dealer to pay a reduced amount or to resile therefrom as that clause clearly contemplated that once a dealer agreed to pay the tax in lump sum, they cannot insist on payment of the tax on the basis of actual turnover or any other reason for e.g. started production very late - Assessee himself voluntarily applied under the compounding scheme deposited the requisite tax and submitted the form on the proforma, it implies that the petitioner had accepted the terms and conditions voluntarily - As scheme specifically provided that there would not be reduction in the composition money. Object of Scheme - Held that - Relying upon Bhadauria Gram Sewa Sansthan, Fatehpur Vs. Assistant Commissioner, Sales Tax, Allahabad and others 2006 (1) TMI 554 - ALLAHABAD HIGH COURT This Court has considered Section 7-D and explained the object of it - The object of introducing such a scheme under a taxing statute is well established as so many advantages are attached to such scheme besides being hassle free to the dealer - It also avoids unnecessary litigation - The department in its turn receives a fixed amount of tax without undertaking the assessment work and, thus, saves a lot of time - It also facilitates the speedy recovery of tax. Agreement to Scheme - Held that - Relying upon Venkateshwara Theatre v. State of Andhra Pradesh 1993 (5) TMI 157 - SUPREME COURT OF INDIA - Liability of payment of tax is dependent upon the agreement entered into by the parties and the amount so agreed would continue to be payable by the company notwithstanding the fact that the company could not produce during the period for which it had opted for composition under Section 7-D - The said scheme is not relatable to any actual turn over but depends upon the agreement under the scheme - The company once exercise its option under compounding scheme cannot be permitted to turn around and resile from its liability mere on the ground that it had no turn over or had not produced during the said period - Government Orders dated 12.01.2007, 30.07.2007 and 22.05.2009 are fully justified and sustainable in the eyes of law No need to interfere with orders - Writ petition, being devoid of merits, fails and is dismissed Decided against assessee.

Summary

Issues Involved:
1. Validity of Government Orders denying the claim of refund.
2. Proportionality of compounding fees for partial production periods.
3. Legality of retaining excess compounding fees.
4. Applicability of Section 7-D of U.P. Trade Tax Act.
5. Interpretation of the Compounding Scheme.

Issue-wise Detailed Analysis:

1. Validity of Government Orders Denying the Claim of Refund:
The petitioner sought to quash the Government Orders dated 12.01.07, 30.07.07, and 22.05.09, which denied their refund claim. The court upheld these orders, stating that the petitioner had voluntarily opted for the compounding scheme and was bound by its terms. The orders were found to be fully justified and sustainable in law.

2. Proportionality of Compounding Fees for Partial Production Periods:
The petitioner argued that they should only pay compounding fees proportionate to the period they were actually producing, i.e., from 23.10.2003. However, the court noted that Clause 16 of the Compounding Scheme clearly stated that no reduction in the composition money would be allowed for late or non-production. The court found this clause to be binding, and thus, the petitioner was liable for the entire year's fees.

3. Legality of Retaining Excess Compounding Fees:
The petitioner contended that retaining fees for the period when no production occurred was unreasonable and discriminatory. The court disagreed, stating that the compounding scheme was a voluntary and hassle-free method of tax payment, which the petitioner had opted for without any conditions. Once opted, the petitioner could not later claim a refund based on actual production.

4. Applicability of Section 7-D of U.P. Trade Tax Act:
Section 7-D allows traders to pay a lump sum in lieu of tax. The court emphasized that this section provides a convenient and fixed method of tax payment, independent of actual turnover. The petitioner had entered into an agreement under this section and was therefore bound by its terms, which did not allow for any reduction in the agreed amount.

5. Interpretation of the Compounding Scheme:
The court referred to the Full Bench decision in M/s Bhadauria Gram Sewa Sansthan, which held that the liability under a compounding scheme is not related to actual turnover but to the agreed lump sum amount. The court reiterated that the scheme's objective is to provide a hassle-free tax payment method, and once opted for, it binds both the department and the dealer. The petitioner could not resile from this agreement merely because they had no turnover or started production late.

Conclusion:
The court dismissed the writ petition, finding no error in the impugned orders. The petitioner was bound by the terms of the compounding scheme, which did not allow for any refund or reduction in the composition money, regardless of actual production periods. The Government Orders were upheld as fully justified and lawful.