2019 (12) TMI 1246 - HC - VAT and Sales Tax

Principles of 'Substantial Compliance' or 'Substantial Justice' - Benefit of compounded rate of tax - works contract - allegation that the assessee not filed the formal application to the assessing authority along with the first monthly return in prescribed Form No.'L' as required under Section 6(2) of the Tamil Nadu Value Added Tax Act, 2006 - however, Assessee had filed the regular monthly returns in Form 'L' and had satisfied the condition of Section 6 of the Act to the effect that it had not made any purchase of the goods from outside the State of Tamil Nadu - HELD THAT - The Assessee had complied with the substantial conditions for availing the benefit of payment of tax at the compounded rates under Section 6 of the Act. The substantial condition to be satisfied in the said provision of Section 6(2) of the TNVAT Act was that the Assessee does not effect any purchases of goods from outside the State (or) imports the goods from outside the State and therefore, he can opt to pay the tax at the Compounding Rates under Section 6(2) of the Act and also file the monthly return in Form 'L' as prescribed under the Rules. In the impugned Assessment Order passed, the Assessing Authority himself has admitted this position of compliance of the substantial condition by the Assessee - there is no dispute that the Assessee also filed monthly returns in terms of Section 6 in prescribed Form 'L' and not in Form 'I' applicable to the payment of regular tax under Section 5 of the Act. The terms of Sub-section (2) to Section 6, which employs the terms may apply to the assessing authority prima facie indicates that the said requirement is of a directory nature and not mandatory. The words used are not shall but may . The words may' usually would render compliance of the provision directory and not mandatory - Therefore, the said requirement of exercise of option by way of application cannot be said to be a condition precedent for availing the benefit of payment of compounded rate of tax under Section 6 of the Act. The substantial compliance with the provisions of the Act in the form of not making any purchases from outside the State and payment of tax under monthly returns under Form 'L' has been satisfied by the Assessee. Merely lapse of making a formal application, though no such form is prescribed under the Rules, cannot be said to be fatal to apply Section 6 of the Act to the Assessee in the present case - the learned Single Judge had rightly allowed the benefit of Section 6 to the Assessee in the present case and the present appeal filed by the Revenue, assailing the said order of the learned Single Judge deserves to be dismissed. Appeal dismissed.

Issues Involved:
1. Compliance with Section 6(2) of the Tamil Nadu Value Added Tax Act, 2006 (TNVAT Act).
2. Requirement of formal application for compounded tax rate.
3. Substantial compliance vs. strict compliance in fiscal statutes.

Issue-wise Detailed Analysis:

1. Compliance with Section 6(2) of the TNVAT Act:
The primary issue revolves around whether the Assessee, who executed a Works Contract, complied with Section 6(2) of the TNVAT Act. The Assessee did not file a formal application to the assessing authority along with the first monthly return in the prescribed Form 'L', as required under Section 6(2). However, the Assessee filed regular monthly returns in Form 'L' and did not make any purchases from outside Tamil Nadu, thus satisfying the substantial condition of Section 6.

2. Requirement of Formal Application for Compounded Tax Rate:
The Revenue contended that the specific provision in Section 6(2) mandates the dealer to apply formally to the assessing authority to opt for the compounded tax rate. In contrast, the Assessee argued that the requirement of filing a formal application is directory and not mandatory. The Assessee's compliance with the substantial conditions—filing monthly returns in Form 'L' and not purchasing goods from outside the State—should suffice for availing the compounded tax rate benefit.

3. Substantial Compliance vs. Strict Compliance in Fiscal Statutes:
The Court examined the doctrine of substantial compliance, emphasizing that it is designed to avoid hardship where a party has met the essential requirements but failed in minor procedural aspects. The Supreme Court's judgment in "Commissioner of Central Excise vs. Hari Chand Shri Gopal and Others" was cited, which distinguished between substantial compliance and strict compliance. The Court determined that the Assessee's actions met the substantial compliance criteria, as the essential objectives of Section 6 were fulfilled.

Judgment Analysis:
The Court found no merit in the Revenue's appeal, emphasizing that the Assessee had complied with the substantial conditions for availing the compounded tax rate under Section 6. The requirement to apply formally to the assessing authority was deemed directory, not mandatory. The Court highlighted that the Assessee's compliance with the substantial conditions—filing monthly returns in Form 'L' and not making purchases from outside Tamil Nadu—was sufficient.

The Court also referenced a similar view taken in "GE T & D India Ltd vs. Commissioner of Central Excise & Service Tax," where the Tribunal's denial of the Composition Scheme benefit due to the absence of a formal option letter was overturned. The Court reiterated that the absence of a prescribed format for the application under Section 6(2) further supports the directory nature of the requirement.

The judgment concluded that the learned Single Judge rightly allowed the benefit of Section 6 to the Assessee. The appeal by the Revenue was dismissed, affirming that substantial compliance with the provisions of the Act should prevail to meet the ends of substantial justice, even in fiscal statutes.

Conclusion:
The High Court upheld the Assessee's entitlement to the compounded tax rate under Section 6 of the TNVAT Act, emphasizing substantial compliance over strict procedural adherence. The appeal by the Revenue was dismissed, reinforcing the principle that minor procedural lapses should not overshadow the fulfillment of substantial statutory conditions.

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