2015 (7) TMI 1081 - HC - VAT and Sales Tax

Court directs tax authorities to comply with Bihar VAT Act, emphasizes deductions only on taxable amount.

The court directed the tax authorities, including IRCON International Ltd., to strictly comply with Section 41 of the Bihar VAT Act and Rule 29 of the ... Deduction of tax at source - proviso to sub section(2) of Section 41 of the Bihar Value Added Tax Act, 2005 - proviso to sub rule(2) of Rule 29 of the Bihar Value Added Tax Rules, 2005 - obligation of deducting authorities to comply with statutory provisos - adjustment of excess tax deducted in future bills - prohibition on compelled full deduction contrary to statutory exemptionsDeduction of tax at source - proviso to sub section(2) of Section 41 of the Bihar Value Added Tax Act, 2005 - proviso to sub rule(2) of Rule 29 of the Bihar Value Added Tax Rules, 2005 - obligation of deducting authorities to comply with statutory provisos - Deducting authorities must comply with the proviso to Section 41(2) and proviso to Rule 29(2) and cannot make flat deductions of VAT where the statute exempts or excludes specified heads. - HELD THAT: - The Court held that where the Act and the Rules specify that deduction shall not be made with regard to certain items, the person making deduction of tax at source is bound to follow those statutory provisos. It is impermissible for deducting authorities to continue making full or blanket deductions from contractors' bills when details qualifying for exemption or non deduction are provided or are otherwise available. Such statutory exceptions operate as an injunction against unlawful deduction and the authorities are obliged to apply the provisos in Rule 29(2) and Section 41 of the Act when the requisite particulars are furnished.Deducting authorities directed to strictly comply with Section 41 and Rule 29 and to refrain from making flat 4% VAT deductions where statutory non deduction applies.Adjustment of excess tax deducted in future bills - prohibition on compelled full deduction contrary to statutory exemptions - Where authorities have earlier failed to give benefit of non deduction, excess deductions must be adjusted in future bills and future compliance must reflect the statutory exemptions. - HELD THAT: - The Court observed that if the deducting authorities have not given the benefit of non deduction despite details being provided by the contractors and despite interim directions, they are obliged to ensure that (a) going forward they make deductions only to the extent permitted by the provisos, and (b) past instances where benefit was wrongly denied must be rectified by adjusting the excess deducted against future bills. The Court condemned any attempt by tax officials to compel full deduction contrary to law and emphasised that statutory provisions must be strictly followed.Authorities directed to adjust past excess deductions against future bills and to apply correct deductions in future in accordance with the Act and Rules.Final Conclusion: Writ petitions disposed of: respondents directed to comply strictly with the proviso to Section 41 and proviso to Rule 29 - refraining from unlawful blanket VAT TDS, giving benefit where details are furnished, and adjusting any past excess deductions in future bills. Issues:- Dispute over the deduction of value-added tax at source from bills related to works contract under Bihar Value Added Tax Act, 2005 and Bihar Value Added Tax Rules, 2005.- Refusal by tax authorities to fix a specific rate of tax deduction at source.- Allegations of unjustified and illegal deductions by tax authorities including IRCON International Ltd.- Non-compliance with the provisions of Section 41 of the Bihar VAT Act and Rule 29 of the Bihar VAT Rules by the deducting authorities.- Continuation of full deductions by State authorities despite interim court order.- Direction sought for strict compliance with the law by the tax authorities.Detailed Analysis:The petitioners sought direction against the respondents to refrain from making flat deductions at source of value-added tax at a rate of 4% from bills related to works contract, citing contravention of specific provisions of the Bihar Value Added Tax Act and Rules. During the hearing, a suggestion was made to fix the rate of tax deduction to simplify the process for contractors, but the tax authorities refused, citing the validity of the relevant provisions based on a previous judgment. The petitioners argued that tax deducting authorities, including IRCON International Ltd., should strictly adhere to the rules and not make unjustified deductions based on different categories, as currently being done.The counsel for IRCON International Ltd. expressed concerns over threats by tax officials to proceed against them if full deductions were not made. However, the court emphasized the obligation of authorities to comply with the law, stating that if certain items are exempt from deduction as per the rules, then the deducting authorities must follow these guidelines. The court directed strict compliance with Section 41 of the Bihar VAT Act and Rule 29 of the Bihar VAT Rules, emphasizing that deductions should only be made on the remaining amount after excluding the exempted heads.Despite an interim order prohibiting deductions without providing benefit to the petitioners, the State authorities continued full deductions. The court ordered that if authorities failed to provide the benefit of deductions based on details provided, adjustments should be made in future bills. The judgment concluded by disposing of the writ applications with directions for strict adherence to the law by the tax authorities, condemning any attempts to compel full tax deduction at source and emphasizing the importance of following legal provisions diligently.