2014 (11) TMI 80 - HC - VAT and Sales Tax

Liability of the petitioner to pay the interest on its turnover of sale of jewellery articles and bullion - petitioner had opted for payment of composition fee as envisaged under section 7-D of the U.P. Trade Tax Act and the said composition scheme after three years was turned down by the State of Uttar Pradesh - Whether petitioner having deposited the requisite amount in lieu of the tax under the scheme, can be held as defaulter in payment of admitted tax due so as to hold him liable to pay interest - Held that - Petitioner has deposited the tax payable by him under the composition scheme i.e. under section 7-D of the Act. In other words, tax which is payable under the Act. Even the Explanation which defines the tax payable provides that it means the tax which is payable under this Act. Logically, it follows that it will include the amount of tax payable under section 7-D paid in lieu of tax payable under the Act. The aforesaid relied upon judgment fully supports the stand of the petitioner. The aforesaid decision of the Apex Court is a constitution bench decision and has been followed subsequently in Frik India Limited and another vs. State of Haryana and others, (1994) 5 SCC 559, a case under Haryana General Sales Tax Act holding that the additional amount of tax found due after the dealer had deposited the entire tax due as per return without wilfully omitting any material information, interest charged to such amount is not proper. Dealer disputed its liability to pay the tax on realized rental charges for glass, bottles and crates. Subsequently, it was found that the stand of the dealer is not justified in view of the decision of Apex Court in the case of State of Orissa vs. Asiatic Gases Limited 2007 (5) TMI 322 - SUPREME COURT OF INDIA . The dealer then urged that as he was bonafidely disputing the liability of payment of tax on the aforesaid item, the interest should be charged under section 8(1B) of the Act i.e. from the date of the assessment. In this factual background, the Apex Court held that the tax becomes admittedly payable once it has been held that the tax is payable under the Act, the interest would be payable in the terms of sub-section (1) of section 8 and not in terms of sub-section (1B) of section of the Act. We may point out that the U.P. Trade Tax Act provides for the payment of interest on different rates under different circumstances. Under section 8(1) interest @ 2 per cent per mensem is payable when the admitted tax is not paid or short paid. While under section 8(1B) interest at the rate of 1.5 per cent per mensem is payable if the tax assessed is not paid within the specified time. The scheme provides that the State Government shall review the scheme from time to time to ascertain the fact as to whether it has been opted for by the requisite number of dealers or not. It further provides that the scheme can be cancelled by the State Government without giving any prior notice. The condition No. Ta provides that unless 30000 dealers opt for the scheme within a period of three months from the date of its commencement, the scheme shall be effective only then. None of the conditions in the scheme can be read in isolation. The scheme should be read as a whole and its every condition should be given harmonious construction. While giving meaning to the various conditions of the scheme, one should also bear in mind the liability which was incurred by such dealers who opted for the scheme. The condition No. Jha provides that a dealer who has opted for the scheme has been injuncted to realise the tax from the purchasers. Such dealer has been denied any other type of concession which might be available otherwise under the Act. It also casts an obligation on the State Government to review the situation periodically to find out the response of the scheme. 04th of November, 2005 is the cut off date fixed under the scheme beyond which no dealer could opt for the scheme even after the payment of late fee, interest etc. The least which could be expected from the State Government to have given consideration to the number of applicants who opted for the scheme and the amount collected under the scheme on the cut off date i.e. 04th of November, 2005 or shortly thereafter within a reasonable period of time. It appears that the State Government slept over the matter and did nothing. State Government failed to adhere the cut off date and to review the scheme periodically, which resulted such lapse of time solely on account of inaction at the end of the State Government, the petitioner who has changed his position by opting the scheme cannot be asked to pay the interest on the differential amount even if the scheme is held to be still born. There can hardly be any dispute with the right of the State Government either to withdraw any such scheme or not to enforce it any further but it does not mean that such dealer who has complied with the letter and spirit of the scheme, may be saddled with the liability to pay the interest on the differential amount of tax. The scheme captured the attention of the dealers but it failed as it could not achieve the target, for no fault of the persons like the petitioner. - Decided in favour of assessee.

Summary

Issues Involved:
1. Liability of the petitioner to pay interest on turnover of sale of jewellery articles and bullion.
2. Validity and effect of the composition scheme under Section 7-D of the U.P. Trade Tax Act.
3. Whether the petitioner can be held as a defaulter for payment of admitted tax due under the composition scheme.

Detailed Analysis:

Issue 1: Liability to Pay Interest on Turnover
The core issue is whether the petitioner, who deposited the requisite amount under a composition scheme, can be held liable to pay interest on the admitted tax due. The petitioner argued that since the tax was paid under the scheme, no additional interest should be levied. The court analyzed Section 8(1) of the U.P. Trade Tax Act, which mandates interest on unpaid admitted tax, and concluded that the petitioner had complied with the tax payment under the scheme. The court referenced the Supreme Court's decision in J.K. Synthetics Ltd. vs. Commercial Tax Officer, which clarified that "tax payable" means the tax due based on the returns filed by the dealer. The court held that the petitioner was not liable to pay interest since the tax was paid as per the scheme, and any additional tax due to the scheme's withdrawal was not the petitioner's fault.

Issue 2: Validity and Effect of the Composition Scheme
The petitioner had opted for a composition scheme issued under Section 7-D of the U.P. Trade Tax Act, which allowed dealers to pay a lump-sum amount in lieu of tax. The scheme was later withdrawn by the State Government due to insufficient participation. The court examined the scheme's terms, which included provisions for its cancellation if less than 30,000 dealers opted for it. The court found that the State Government failed to review the scheme's response in a timely manner and only decided to cancel it after three years. This delay was attributed to the State Government's inaction. The court concluded that the petitioner's compliance with the scheme's terms meant that the petitioner should not be penalized with interest due to the State Government's delayed decision to cancel the scheme.

Issue 3: Default in Payment of Admitted Tax Due
The court considered whether the petitioner could be held as a defaulter for not paying the admitted tax due under the composition scheme. The petitioner had deposited the tax as required by the scheme and later paid the additional amount when the scheme was withdrawn. The court held that the petitioner had fulfilled the tax obligations under the scheme and was not a defaulter. The court emphasized that the liability to pay interest could not be imposed on the petitioner due to the State Government's delayed action in canceling the scheme.

Conclusion:
The court allowed the writ petition, quashing the impugned order/notice dated 3rd September 2008, which demanded interest from the petitioner. The court found that the petitioner had complied with the tax payment under the composition scheme and was not liable for interest on the differential amount of tax due to the scheme's withdrawal after three years. The court also highlighted the State Government's responsibility for the delay in canceling the scheme and ruled that the petitioner should not be penalized for this delay.