2014 (8) TMI 861 - HC - VAT and Sales Tax

Computation of Deferred tax - Denial of input tax credit - payment of half of deferred tax upfront - HVAT - Whether the tax deferred would be calculated as the amount of tax payable on the taxable turnover of the goods manufactured by the unit without deducting the input tax paid by the unit on the goods used in the manufacture of the goods or after deducting the input tax - Held that - what is required to be paid by a unit opting for payment of 50% of deferred tax, is the payment of half of the amount of the deferred tax upfront.The provision nowhere provides that deferred tax would be calculated after computation of tax payable is determined according to the returns. It only provides that if half of the deferred tax is paid, then it would be assumed that the tax due according to returns is deemed to have been paid in full. Thus what is required to be paid, is 50% of the deferred tax which would be computed on the basis of tax on sale of the goods manufactured by the industrial unit and the benefit of the payment of tax on the purchase of the goods used in manufacture i.e. input tax shall be allowed as the tax paid in advance. In other words, the amount of tax payable according to the returns is the amount of tax calculated on the sales of the goods manufactured minus the input tax credit. - Decided in favor of assessee. Binding force of Circular / Clarification issued by the department - Held that - circulars, instructions and clarifications issued by the competent authority granting administrative relief in exercise of power conferred under statutory provision are binding on subordinate officers. It is not open to the subordinate officers to contend that the circulars, instructions and clarifications are erroneous and not binding on them as long as they remain in force. However, they would not be binding on the courts and the assessees. - it will be open for the assessees to plead that the circular, instructions and clarification issued by an authority which is not of beneficient nature to them runs counter to the statutory provision and is ultra vires and bad in law and thus, ineffective qua their rights. - Decided in favor of assessee. On the basis of clarification dated 12.7.2004 issued under Section 56(3) of the HVAT Act which is binding on the authorities for the administration of tax, the state cannot deny the benefit of input tax credit to the dealer for determining the tax payable by it. Thus, viewed from any angle, the dealer is entitled to the benefit of input tax credit while calculating the 50% deferred tax upfront to be paid by it. - the eligibility criteria is to be construed strictly but a liberal approach may be adopted in construing other conditions. - Similar was the position in Creative Handicrafts and M/s Mahabir Vegetable Oils Pvt. Limited s cases (2011 (2) TMI 7 - Supreme Court) - Decided in favor of assessee.

Issues Involved:
1. Calculation of 'deferred tax' under Section 61(2)(d)(iii) of the Haryana Value Added Tax Act, 2003.
2. Counting of tax benefit towards exhausting the capping limit on the amount of deferment of payment of tax.
3. Binding nature of the clarification issued under Section 56(3) of the HVAT Act.
4. Liability to pay interest under Section 14(6) of the HVAT Act on short payment of deferred tax.

Detailed Analysis:

Issue 1: Calculation of 'Deferred Tax'
The primary question was whether the deferred tax should be calculated without deducting the input tax paid on goods used in manufacturing. The appellant argued that the entire input tax should be treated as tax paid in advance and adjusted against the deferred tax. The court referred to Section 61(2)(d)(iii) and Rule 69(2) of the HVAT Rules, which allow a unit to pay half of the deferred tax upfront along with tax returns, deeming the tax due as fully paid. The court concluded that the deferred tax should be calculated without deducting the input tax, treating the input tax as an advance payment.

Issue 2: Counting of Tax Benefit
The court examined how the tax benefit should be counted towards exhausting the capping limit on the deferment of payment of tax. It was clarified that the amount of tax payable according to the returns is the tax calculated on the sales of the manufactured goods minus the input tax credit. If the unit opts to pay half of the deferred tax upfront, the deferred tax would be computed without deducting the input tax paid on the goods used in manufacture. The input tax paid would be counted towards the payment of 50% of the deferred tax upfront.

Issue 3: Binding Nature of Clarification under Section 56(3)
The Financial Commissioner issued a clarification under Section 56(3) of the HVAT Act, which was binding on all authorities administering the tax. The court emphasized that such circulars and clarifications are binding on subordinate officers but not on courts and assessees. The clarification in question, which allowed the input tax credit to be counted towards the payment of 50% of the deferred tax upfront, was held binding on the authorities.

Issue 4: Liability to Pay Interest
The question of interest liability under Section 14(6) became academic once it was established that the dealer is entitled to input tax credit for calculating the 50% deferred tax upfront. The court did not delve into this issue further, as the primary contention regarding the calculation of deferred tax was resolved in favor of the appellant.

Conclusion:
The court concluded that the deferred tax should be calculated without deducting the input tax paid on goods used in manufacture, and the input tax paid should be counted towards the payment of 50% of the deferred tax upfront. The clarification issued under Section 56(3) was binding on the authorities. The question of interest liability was rendered academic due to the resolution of the primary issue. All cases were disposed of in these terms.

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