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of <h1>Supreme Court Invalidates Circular on State Development Tax</h1> <h3>State of Uttar Pradesh and others Versus Systematic Conscom Limited</h3> State of Uttar Pradesh and others Versus Systematic Conscom Limited - [2014] 75 VST 267 (SC) Issues Involved:1. Validity of the circular issued by the Commissioner of Trade Tax, Uttar Pradesh dated 04.06.2007.2. Interpretation of Section 7-D of the Uttar Pradesh Trade Tax Act, 1948.3. Application of State Development Tax under Section 3-H of the Act.Detailed Analysis:1. Validity of the Circular Issued by the Commissioner of Trade Tax, Uttar Pradesh Dated 04.06.2007:The core issue addressed by the Supreme Court was the validity of the circular dated 04.06.2007 issued by the Commissioner of Trade Tax, Uttar Pradesh. The circular directed the assessing authorities to recover State Development Tax from dealers under Section 3-H of the Uttar Pradesh Trade Tax Act, 1948, in addition to the composition money payable under the scheme of composition.The respondents challenged this circular before the Allahabad High Court, which annulled the circular instructions and set aside the orders of assessment passed pursuant to the circular. The Supreme Court upheld the High Court's decision, stating that the introduction of the State Development Tax did not constitute a change in the rate of tax as envisaged under the proviso to Section 7-D of the Act.2. Interpretation of Section 7-D of the Uttar Pradesh Trade Tax Act, 1948:Section 7-D of the Act provides for the composition of tax liability, allowing the state government to accept a lump sum amount in lieu of tax payable by the dealer. The proviso to Section 7-D states that any change in the rate of tax will proportionately affect the lump sum or the rate agreed upon.The Supreme Court clarified that the term 'change in the rate of tax' refers to a modification in the existing tax rate rather than the introduction of a new kind of tax. The Court concluded that the introduction of the State Development Tax under Section 3-H did not alter the existing tax rate but introduced a separate tax, thus not triggering the proviso to Section 7-D.3. Application of State Development Tax under Section 3-H of the Act:Section 3-H of the Act, introduced by Act No. 9 of 2005, levies a State Development Tax at a rate not exceeding one percent on dealers whose aggregate turnover exceeds fifty lakh rupees. This tax is in addition to the tax payable under other provisions of the Act and is applicable for a period of five years from the date of notification.The Supreme Court noted that the State Development Tax is a separate and independent charge on the taxable turnover, distinct from the composition money agreed upon under Section 7-D. The Court held that the Commissioner of Trade Tax's circular erroneously conflated the introduction of a new tax with a change in the rate of an existing tax.Conclusion:The Supreme Court set aside the circular instructions issued by the Commissioner of Trade Tax dated 04.06.2007, affirming the High Court's judgment. The Court left it open to the assessing authorities to demand the State Development Tax from dealers who had opted for the composition scheme, provided such demand notices are issued in accordance with law. The affected dealers retain the right to challenge such demand notices before the appropriate forum. The appeals were disposed of with parties bearing their respective costs.
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