2008 (8) TMI 820 - HC - VAT and Sales Tax

High Court overturns Tribunal decision annulling tax order, deems assessee's actions evasive. Upholds KGST Act interpretation.

The High Court set aside the Tribunal's decision annulling the first appellate authority's order, reinstating the demand for tax remittance by the ... Whether the Appellate Tribunal is right in law in annulling the well considered order of the appellate authority which has sustained the demand of the Assessing Authority to collect and forfeit the admitted tax collections of the assessee for the month of August 2004, especially when the assessee has admittedly not reimbursed the amount to the buyers from whom they have collected tax? Held that:- The assessee cannot retain the tax collected by it from its customers, and the same requires to be remitted to the State Government within the time prescribed under the Act, along with its monthly returns. In the instant case, as we have already stated in detail, the assessee, in fact, had collected tax for the month of August, 2004, but failed to remit the same with the Sales Tax Department and it is only as an afterthought it has issued the so-called credit notes and debit notes to its customers. This colourable device adopted by the assessee, in our view, is only a sham transaction and the same cannot be sustained. In that view of the matter, the Tribunal was wholly unjustified in merely relying on the so-called credit notes and debit notes to grant relief to the assessee. In that view of the matter the revision petition requires to be allowed and the orders passed by the Tribunal requires to be set aside. Decided against the assessee Issues Involved:1. Legitimacy of annulling the first appellate authority's order.2. Interpretation of Section 22 and Section 46A of the KGST Act.3. Maintainability of the appeal filed by the assessee before the first appellate authority.Issue-wise Detailed Analysis:1. Legitimacy of Annulling the First Appellate Authority's Order:The Tribunal annulled the first appellate authority's order, which sustained the demand of the assessing authority to collect and forfeit the tax collections of the assessee for August 2004. The Tribunal believed the assessee had issued credit and debit notes to customers, adjusting the sales price to include the tax collected. However, the High Court found this approach flawed, noting that the assessee had initially collected tax despite being exempt and only issued credit and debit notes after receiving demand notices. The court emphasized that the assessee's actions were a 'colourable device' to evade tax liability, and thus, the Tribunal's decision was unjustified.2. Interpretation of Section 22 and Section 46A of the KGST Act:The High Court examined whether the Tribunal correctly interpreted Sections 22 and 46A of the KGST Act. Section 22 mandates that any tax collected must be remitted to the government, and Section 46A deals with the forfeiture of tax collected unlawfully. The court concluded that the assessee's retention of collected tax, even after being granted an exemption, violated these sections. The court highlighted that the assessee's issuance of credit and debit notes was a fraudulent act intended to retain the tax collected, thus contravening the statutory provisions.3. Maintainability of the Appeal Filed by the Assessee Before the First Appellate Authority:The High Court addressed whether the appeal filed by the assessee before the first appellate authority was maintainable. The court noted that the assessee had not initially disclosed the issuance of debit notes in its appeal and only mentioned it later as a defense against the demand notices. The court found that the first appellate authority correctly identified the assessee's actions as a 'colourable device' and upheld the demand for tax remittance. Thus, the appeal was maintainable, but the grounds raised were found to be without merit.Conclusion:The High Court allowed the revision petition, set aside the Tribunal's order, and reinstated the first appellate authority's decision. The court affirmed that the assessee must remit the collected tax to the government, rejecting the fraudulent use of credit and debit notes as a means to retain the tax. The court emphasized the legal obligation to remit collected taxes and condemned the use of subterfuges for tax evasion.