2008 (3) TMI 638 - HC - VAT and Sales Tax

High Court clarifies writ petition rules on tax liability, deems leases not retroactively taxable under Orissa Sales Tax Act

Srei International Finance Ltd. Versus State of Orissa and others

The High Court addressed the maintainability of a writ petition without exhausting statutory remedies, emphasizing that relief under Article 226 can be ... Whether the non-exhaustion of statutory remedy can be a bar in this case for this court to exercise its jurisdiction under article 226 of the Constitution? Whether a dealer is liable to pay tax on the ground that he admitted to pay tax on a certain transaction even if the said transaction is not taxable within the provisions of the OST Act? Whether the lease rental received by the petitioner from IMFA is exigible to tax under the provisions of the OST Act? Held that:- It is not possible for a statutory Tribunal to read down the provision of an Act in order to save it from being struck down. A statutory Tribunal is to give a literal interpretation of the statute. That is why in this case the writ petition is maintainable even without the exhaustion of the statutory remedy. Coming to question No. (ii), this court holds that there is no estoppel against statute. If a person is not liable, within the four corners of statute, to pay tax on any transaction, he cannot be assessed to tax merely because he previously admitted his liability on a wrong notion. Liability to pay tax has always to be imposed by law: it cannot be imposed on admission. Deemed sales including leases were to be treated exactly on the same footing as ordinary sales and were subjected to the same restrictions contained in article 286 of the Constitution of India. Neither ordinary sale nor deemed sale could be subjected to tax by a particular State if such sale or deemed sale was either in the course of inter-State trade or was effected outside the State. Therefore, the Explanation to section 2(g)(iv)(a)(i) of the Orissa Sales Tax Act which stipulated that the sale or purchase of goods shall be deemed to take place inside the State if the goods are within the State at the relevant time would have to be read down to the effect that it would not be applicable to a deemed sale which was an outside-State sale or an inter-State sale or a sale in course of import of the goods into or export of the goods outside India. For the reasons aforesaid, the order of assessment dated March 31, 2004 for the assessment year 2000-2001 challenged in W.P. (C) No. 9062 of 2004, order of assessment dated February 25, 2005 for the assessment year 2001-2002 challenged in W.P. (C) No. 4716 of 2005 and orders of assessment dated March 20, 2006 for the assessment years 2002-2003 and 2003-2004 challenged in W.P. (C) Nos. 10544 and 10550 of 2006 are all quashed. Issues Involved:1. Maintainability of the writ petition without exhausting statutory remedies.2. Liability to pay tax based on admission versus statutory provisions.3. Taxability of lease rentals under the Orissa Sales Tax Act (OST Act).Issue-wise Analysis:1. Maintainability of the Writ Petition:The court addressed the preliminary objection raised by the Revenue regarding the maintainability of the writ petition due to the non-exhaustion of statutory remedies. Citing precedents from the Supreme Court, the court held that the existence of an alternative remedy is not always a sufficient reason to refuse relief under Article 226 of the Constitution, especially when the executive authority acts without jurisdiction or subjects a person to unnecessary harassment. The court referred to cases like *Calcutta Discount Co. Ltd. v. Income-tax Officer* and *Tata Engineering and Locomotive Company Ltd. v. Assistant Commissioner of Commercial Taxes*, emphasizing that questions involving constitutional interpretation or jurisdictional issues can be decided by the High Court without relegating the petitioner to alternative remedies.2. Liability to Pay Tax Based on Admission:The court held that there is no estoppel against statute. If a person is not liable to pay tax within the statutory provisions, they cannot be assessed merely based on previous admissions. Article 265 of the Constitution mandates that taxes must be imposed by law and not by admission.3. Taxability of Lease Rentals under the OST Act:The court examined the relevant constitutional and statutory provisions, including Article 366(29A) and entries 92A of List I and 54 of List II of the Seventh Schedule to the Constitution. The court also referred to Sections 3 and 4 of the Central Sales Tax Act (CST Act), which define inter-State trade and commerce.The court noted that the lease agreement and the tripartite agreement were executed in Calcutta, and the movement of goods from Haryana to Orissa was occasioned by these agreements. The court relied on precedents such as *20th Century Finance Corporation Ltd. v. State of Maharashtra* and *ITC Classic Finance and Services v. Commissioner of Commercial Taxes* to conclude that the lease in question was an inter-State lease, falling under Section 3 of the CST Act. The court emphasized that the situs of the transaction is immaterial in determining the inter-State character of the sale or lease.The court further held that the amendment to the CST Act in 2002, which included leases as deemed sales, was not retrospective and did not apply to transactions executed before 2002. Therefore, the State of Orissa could not levy tax on the lease rentals under the OST Act. The court also addressed the argument that the boiler became immovable property after installation, stating that if it were considered immovable property, no tax could be charged under Section 2(g) of the OST Act.Conclusion:The court quashed the assessment orders for the relevant assessment years, holding that the lease rentals were not exigible to tax under the OST Act. The writ petitions were allowed, and there was no order as to costs.