Composition scheme limits additional levy demands where State Development Tax is treated as an independent charge.

A composition scheme under the U.P. Trade Tax Act operates on an agreed tax substitute in lieu of tax otherwise payable, so a circular cannot require additional payment of State Development Tax unless there is a genuine change in the rate of tax. The text states that State Development Tax under Section 3-H was treated as an independent levy, not an altered rate of existing tax, making the circular unsustainable. It further states that related demand orders for the assessment years concerned could not stand in their present form, while the revenue authorities retained liberty to proceed in accordance with law through fresh notices.

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Issues: (i) Whether the circular dated 04.06.2007 could be sustained for requiring payment of State Development Tax in addition to composition amount under the composition scheme; (ii) Whether the orders imposing State Development Tax for the assessment years 2005-06 and 2006-07 could be sustained.

Issue (i): Whether the circular dated 04.06.2007 could be sustained for requiring payment of State Development Tax in addition to composition amount under the composition scheme.

Analysis: The Court noted that composition under Section 7-D of the U.P. Trade Tax Act operates on an agreed rate in lieu of tax payable under the Act. It accepted the view that a mere introduction of State Development Tax under Section 3-H of the U.P. Trade Tax Act did not amount to a change in the rate of tax on goods. The circular could be issued only where there was a change in the rate of tax, and the new levy created an independent charge rather than an altered rate of the existing tax.

Conclusion: The circular was quashed and could not be sustained.

Issue (ii): Whether the orders imposing State Development Tax for the assessment years 2005-06 and 2006-07 could be sustained.

Analysis: In light of the earlier High Court decision and the Supreme Court judgment confirming quashing of the circular, the Court held that the impugned demand orders could not stand in their present form. At the same time, the assessing authorities were left free to proceed in accordance with law by issuing appropriate demand notices, and the assessee was left at liberty to challenge any such notices before the appropriate forum.

Conclusion: The impugned demand orders were set aside, subject to the liberty reserved to the assessing authorities to proceed in accordance with law.

Final Conclusion: The writ petition was allowed in part: the impugned circular and demand orders were annulled, while the revenue authorities retained liberty to initiate fresh proceedings in accordance with law.

Ratio Decidendi: A composition scheme under a tax statute cannot be expanded by a circular to include a new levy that creates an independent charge unless the statutory rate of tax itself changes; such a circular is unsustainable, and related demands cannot survive except through lawful fresh proceedings.

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