2015 (4) TMI 571 - HC - VAT and Sales Tax

Levy of tax on public sector undertaking - scope and ambit of Section 25(5) - whether a public sector undertaking which does not deposit tax at the requisite rate can escape levy of interest by alleging a bona fide error - Held that - A perusal of Section 25(5) of the Act reveals that where an assessee defaults in payment of the requisite tax, payment of interest is a necessary consequence of such a default. Section 25(5) of the Act does not admit to any exception much less on a plea that the assessee is a public sector undertaking or that it committed a bona fide error. Even otherwise the assessee does not deny the default. We cannot but reject the plea based upon a bona fide error as there is no ambiguity in the notification. The failure to deposit tax was the result of gross negligence that cannot be condoned. - Where an assessee, whether a public sector undertaking or otherwise, defaults in payment of tax without a bona fide explanation or there is no dispute pending as to the levy of tax, a necessary consequence of such default shall in levy of interest under Section 25(5) of the Act. - Decided against assessee.

Summary

Issues:
Interpretation of liability to pay interest under Section 9(2) of the Central Sales Tax Act and Section 25(5) of the Haryana General Sales Tax Act for failure to pay tax at the correct rate by a public sector undertaking.

Analysis:
The judgment by the High Court of Punjab & Haryana involved the disposal of multiple Vat Reference Nos. concerning the liability of a public sector undertaking to pay interest under the Central Sales Tax Act and the Haryana General Sales Tax Act for not paying tax at the correct rate. The core question revolved around whether the public sector undertaking was liable to pay interest for failing to pay tax at 4% on inter-State sales of tractors, despite the rate being increased from 2% to 4% as per a rescinded notification. The appellant argued that the shortfall in tax at 2% was deposited in good faith, and there was no objection raised during previous assessments. The appellant contended that the interest should not be levied as it would essentially act as a penalty. The appellant relied on a judgment in J.K. Synthetics Ltd. Vs. Commercial Taxes Officer, (1994) 4 SCC 276 to support their argument.

On the contrary, the revenue argued that the notification specifying the tax rate had been rescinded, and the public sector undertaking should have paid tax at 4% for the relevant years instead of 2%. The revenue contended that the obligation to pay tax at 4% was not absolved by any oversight from the Assessing Officer, and interest was automatically applicable for delayed tax payments as per Section 25(5) of the Act. The revenue distinguished the J.K. Synthetics case, stating it was based on unique circumstances and primarily related to penalties.

The High Court analyzed the facts and legal provisions, emphasizing that the public sector undertaking had indeed paid tax at 2% instead of the required 4% for the specified years. The court highlighted the provisions of Section 9(2) of the Central Sales Tax Act and Section 25(5) of the Haryana General Sales Tax Act, which mandated the collection of tax, penalty, and interest in case of default. The court noted that the failure to pay the correct tax rate was not disputed and rejected the appellant's argument of a bona fide error, attributing the default to gross negligence that could not be excused.

In conclusion, the High Court ruled against the appellant, stating that any default in tax payment, whether by a public sector undertaking or not, without a valid explanation, would lead to the imposition of interest under Section 25(5) of the Act. The judgment clarified that the absence of a pending tax dispute and the absence of a bona fide error meant that interest must be levied as a consequence of the default, emphasizing the strict application of the statutory provisions.