2006 (1) TMI 554 - HC - VAT / Sales Tax

Dealers must pay fixed composition scheme tax amounts regardless of actual sales or production activity under section 7-D

Bhadauria Gram Sewa Sansthan Versus Assistant Commissioner, Sales Tax, Allahabad and others

The HC upheld liability to pay lump sum trade tax under composition scheme despite absence of sales or production. Court interpreted section 7-D's 'in ... Liability to pay lump sum trade tax under the composition scheme even when there are no sales or production - Interpretation of provisions of section 7-D - words “in lieu of” - non obstante clause - Correctness of the law laid down by previous judgments - HELD THAT:- A plain reading of section 7-D of the Act shows that an option has been given to a dealer who is covered by a scheme issued by the State Government from time to time to opt for payment of lump sum amount in lieu of the amount of tax. It excludes the applicability of other provisions of the Act which deal with the assessment and payment of tax. A non obstante clause, as observed by the apex court in the case of State of Bihar v. Bihar M. S. E. S. K. K. Mahasangh[2004 (10) TMI 579 - SUPREME COURT], is generally appended to a section with a view to give the enacting part of the section, in case of a conflict, an overriding effect over the provision in the same or other Act mentioned in the non obstante clause. It is equivalent to saying that in spite of the provisions or Act mentioned in the non obstante clause, the provision following it will have its full operation or the provisions embraced in the non obstante clause will not be an impediment for the operation of the enactment or the provision in which the non obstante clause occurs. The object of introducing such a scheme under a taxing statute is well established as so many advantages are attached to such scheme besides being hassle-free to the dealer. It also avoids unnecessary litigation. The department in its turn receives a fixed amount of tax without undertaking the assessment work and, thus, saves a lot of time. It also facilitates the speedy recovery of tax. There cannot be any dispute that there cannot be any estoppel against a statute. However, where the demand is being made under the terms of the contract which specifically provides that there would be no reduction or change in the composition money even if the firing has not been done in brick kiln or it has been started late or for any other reason, the petitioner is bound by the said clause and he cannot be permitted to challenge the same in view of the law laid down by the apex court in the cases of Har Shankar[1975 (1) TMI 89 - SUPREME COURT], Narain Prasad[1996 (9) TMI 599 - SUPREME COURT] and Bharathi Knitting Co.[1996 (5) TMI 415 - SUPREME COURT]. Thus, we are of the considered opinion that the division Bench in the case of Jaya Bhatta Udyog [1990 (7) TMI 368 - ALLAHABAD HIGH COURT] (Civil Misc. Writ Petition No. 858 of 1990, decided on July 17, 1990), subsequently followed by other division Benches in the cases of Sri Durga Brick Field[1991 (1) TMI 440 - ALLAHABAD HIGH COURT] and Jai Sharma Int. Udyog [1990 (7) TMI 368 - ALLAHABAD HIGH COURT], lay down the correct law. Let the matter be placed before the appropriate Bench for further orders. Issues Involved:1. Correctness of the law laid down by previous judgments regarding the liability to pay lump sum trade tax under the composition scheme even when there are no sales or production.2. Interpretation of Section 7-D of the U.P. Trade Tax Act, 1948.3. Validity of the demand for balance composition money, interest, and penalty from the petitioner who did not produce or sell bricks during the specified period.Issue-wise Detailed Analysis:1. Correctness of Previous Judgments:The Full Bench was constituted to reconsider the correctness of the judgments rendered by division benches in the cases of Jaya Bhatta Udyog, Sri Durga Brick Field, and Jai Sharma Int Udyog. These cases held that once a dealer opts for the composition scheme under Section 7-D of the U.P. Trade Tax Act, they are liable to pay the agreed lump sum amount regardless of actual sales or production. The division Bench referred the matter to a larger Bench, expressing disagreement with the previous rulings, arguing that sales tax is payable only when there is a sale.2. Interpretation of Section 7-D of the U.P. Trade Tax Act, 1948:Section 7-D allows dealers to opt for paying a lump sum amount in lieu of the tax that may be payable on their turnover. The division Bench argued that Section 7-D is merely a convenient mode of tax realization and should not apply if there are no sales. However, the Full Bench noted that Section 7-D starts with a non obstante clause, indicating that it overrides other provisions of the Act. The section provides a hassle-free method of tax assessment, where the dealer agrees to pay a fixed sum, independent of actual turnover.3. Validity of Demand for Balance Composition Money:The petitioner, who did not produce or sell bricks during the specified period, challenged the demand for the balance composition money, interest, and penalty. The Full Bench emphasized that once a dealer opts for the composition scheme and it is accepted by the authorities, the agreed lump sum amount becomes binding. The scheme's terms, including Clause 19, explicitly state that the composition money is not subject to reduction even if the brick kiln does not operate. The Bench upheld the contractual obligation, stating that the dealer cannot resile from the agreement based on non-production or no sales.Conclusion:The Full Bench concluded that the division Bench in the case of Jaya Bhatta Udyog, followed by other division Benches in Sri Durga Brick Field and Jai Sharma Int. Udyog, laid down the correct law. The liability to pay the composition money under Section 7-D is not dependent on actual sales or production but on the agreement made under the scheme. The demand for the balance composition money, interest, and penalty from the petitioner was valid, and the petitioner was bound by the terms of the composition scheme. The matter was directed to be placed before the appropriate Bench for further orders.