2025 (2) TMI 617 - HC - VAT / Sales Tax

Demand of surcharge despite the absence of an assessment and recovery mechanism - demand of purchase tax without establishing that the Petitioner has violated the condition precedent namely that the goods purchased have been used for purposes other than for use in manufacture or for resale - HELD THAT - Though ordinarily it is agreed that recovery of taxes ought not to be stayed and which is stipulated in Section 21 (7) it is found that there is an inherent inconsistency in the argument canvassed on behalf of the State. If the State contends that surcharge is different from tax then the statutory bar as referred to in Section 21 (7) cannot apply because the Section clearly stipulates that what should not be stayed is only the recovery of tax. On the other hand if one were to treat surcharge as tax then at least prima facie the Petitioner would be entitled to the benefits set out in Rule 15 (2) (b) and would make the recovery itself vulnerable to challenge. The Petitioner has certainly made out a case to have the recovery proceedings stayed pending the disposal of the Reference Applications filed by it before the MSTT. This is said because the Petitioner-HPCL is a Public Sector Undertaking and it is not as if the Petitioner would be unable to pay the tax if finally decided either by the Tribunal or by this Court. In these circumstances it is opined that even the balance of convenience lies in favour of the Petitioner. Conclusion - The MSTT is directed to decide the Reference Applications filed by the Petitioner expeditiously and stay the recovery proceedings until a decision is reached. Petition disposed off.

Summary

The issues presented and considered in the judgment are as follows:1. Whether the surcharge demanded by the State of Maharashtra is valid without an assessment and recovery mechanism?2. Whether the demand for purchase tax is justified without establishing that the goods purchased have been used for purposes other than for use in manufacture or resale?3. Whether the Recovery Notice dated 21st January 2025 should be stayed until the Reference Applications filed by the Petitioner are decided by the Maharashtra Sales Tax Tribunal (MSTT)?Issue-wise detailed analysis:1. The relevant legal framework and precedents were discussed, including the Bombay Sales of Motor Spirit Taxation Act, 1958, and the Bombay Sales of Motor Spirit Taxation Rules, 1958. The Court interpreted the provisions of the Act and Rules to determine the applicability of surcharge and tax. Key evidence and findings included arguments from both parties regarding the interpretation of surcharge and tax under the Act. The Court reasoned that if surcharge is considered a separate entity from tax, the recovery proceedings cannot be stayed under Section 21(7) of the Act. However, if surcharge is deemed a part of tax, the Petitioner may be entitled to benefits under Rule 15(2)(b) of the Rules, making the recovery vulnerable to challenge.2. The Court considered the arguments presented by both parties regarding the stay of recovery proceedings. While acknowledging the statutory bar under Section 21(7) of the Act, the Court found an inconsistency in the State's argument regarding the distinction between surcharge and tax. The Court concluded that the Petitioner, being a Public Sector Undertaking, had made a case for the recovery proceedings to be stayed until the Reference Applications are decided. The balance of convenience was found to favor the Petitioner in this instance.Significant holdings:- The Court directed the MSTT to decide the Reference Applications filed by the Petitioner expeditiously and stay the recovery proceedings until a decision is reached.- The Court rejected the argument that the Writ Petition was not maintainable, emphasizing that it was filed for specific purposes related to the Reference Applications and the stay of recovery proceedings.- The Court clarified that its observations were prima facie and that the merits of the matter would be decided by the MSTT independently.In conclusion, the Court granted the relief sought by the Petitioner, directing the MSTT to decide the Reference Applications promptly and staying the recovery proceedings until a decision is made. The Writ Petition was disposed of without any order as to costs.