2004 (9) TMI 380 - SC - VAT / Sales Tax

Assessee held liable under Finance Act, 1981 for entry tax but can credit tax paid under Entry Tax Act

SC held the assessee-appellant remained liable under the Bihar Finance Act, 1981 for entry tax on scheduled goods despite having not paid tax on a portion ... Adjustment of entry tax against sales tax liability - exemption from sales tax under industrial policy and statutory notification - liability to tax as distinct from exigibility or payment - interpretation of notification S.O. No. 37 dated February 25, 1993 - clause (2) - charging provision under the Bihar Finance Act, 1981Adjustment of entry tax against sales tax liability - exemption from sales tax under industrial policy and statutory notification - liability to tax as distinct from exigibility or payment - interpretation of notification S.O. No. 37 dated February 25, 1993 - clause (2) - charging provision under the Bihar Finance Act, 1981 - Entitlement of the appellant to reduction of its liability under the Bihar Finance Act, 1981 to the extent of entry tax paid under the Entry Tax Act despite exemption claimed under the State Industrial Policy. - HELD THAT: - The Court examined clause (2) of Notification S.O. No. 37/1993 and the charging and exemption provisions of the Bihar Finance Act, 1981. The notification provides that where an importer of scheduled goods (including cement) becomes liable to pay tax under the Bihar Finance Act by virtue of sale of such goods, his liability under that Act shall be reduced to the extent of tax paid under the Entry Tax Act. The Court emphasised the conceptual distinction between liability to tax (which arises from the charge created by section 3 of the Bihar Finance Act) and exigibility or actual payment; exemption operates as an exception to liability but presupposes that, but for the exemption, tax would have been payable. Relying on that principle and authorities cited, the Court held that portions of turnover exempted by the Industrial Policy did not negate the existence of a liability in law for the purposes of the notification: the appellant was liable to tax under the Act but for the exemption and therefore was entitled to have its liability reduced by the tax paid under the Entry Tax Act in terms of the notification. Consequently, notices issued proposing assessment to disallow such adjustment were without legal sanction. [Paras 19, 20, 21, 22, 23]Not entitled to levy as proposed; appellant's liability under the Bihar Finance Act is to be reduced to the extent of entry tax paid and the impugned notices are quashed; High Court judgment set aside.Final Conclusion: The appeal is allowed: the appellant was entitled to adjustment of tax paid under the Entry Tax Act against its liability under the Bihar Finance Act, 1981 in terms of Notification S.O. No. 37/1993, the assessment notices are quashed and the High Court judgment upholding them is set aside. Issues Involved:1. Legality of notices issued by the Deputy Commissioner, Commercial Taxes, Patna.2. Entitlement to adjustment of tax paid under the Entry Tax Act while computing tax payable under the Bihar Finance Act.3. Interpretation of exemption provisions under the Bihar Finance Act and the Entry Tax Act.4. Applicability of exemption notification S.O. No. 37 dated February 25, 1993.5. Concept of liability and exemption in tax laws.Detailed Analysis:1. Legality of Notices Issued by the Deputy Commissioner, Commercial Taxes, Patna:The appellant challenged the legality of the notices dated May 30, 2002, and June 24, 2002, issued by the Deputy Commissioner, Commercial Taxes, Patna, proposing to levy tax for the assessment years 1998-99, 1999-2000, and April 1, 2000, to November 14, 2000. The High Court upheld the validity of these notices, which was contested by the appellant.2. Entitlement to Adjustment of Tax Paid under the Entry Tax Act:The appellant argued that it was entitled to adjust the entry tax paid under the Entry Tax Act while computing the tax payable under the Bihar Finance Act. The High Court dismissed the writ petition, holding that there was no scope for such adjustment. The appellant contended that the High Court failed to notice the clear language used in the Act and the Entry Tax Act, asserting that bifurcation of goods that suffered tax and those exempted from tax was not legally permissible.3. Interpretation of Exemption Provisions under the Bihar Finance Act and the Entry Tax Act:The Court examined the relevant provisions of the Entry Tax Act and the Bihar Finance Act, including Section 3(1) of the Entry Tax Act and the exemption notification S.O. No. 37 dated February 25, 1993. The Court held that 'tax' as defined under clause 2(x) of the Act includes additional tax, and that the appellant was entitled to the benefit under the notification, adjusting its liability for additional tax against the payment of tax under the Entry Tax Act.4. Applicability of Exemption Notification S.O. No. 37 dated February 25, 1993:The notification stipulated that the liability under the Bihar Finance Act shall be reduced to the extent of tax paid under the Entry Tax Act. The respondents argued that since there was no liability in respect of a portion of sales due to an exemption granted under the Industrial Policy, 1995, no adjustment could be made. The Court rejected this argument, stating that the appellant had a liability under the Act, but for the exemption.5. Concept of Liability and Exemption in Tax Laws:The Court emphasized that liability to pay tax and actual payment of tax are conceptually different. Exemption pre-supposes a liability, and unless there is a liability, the question of exemption does not arise. The Court concluded that the appellant was liable to pay tax under the Act, but for the exemption, and was entitled to reduction to the extent of tax paid under the Entry Tax Act while working out tax payable under the Bihar Finance Act.Conclusion:The Supreme Court quashed the notices issued by the respondent, set aside the judgment of the High Court, and allowed the appeal with no order as to costs. The Court held that the notices lacked legal sanction and affirmed the appellant's entitlement to adjust the entry tax paid under the Entry Tax Act against the tax payable under the Bihar Finance Act.