2017 (4) TMI 1157 - HC - VAT and Sales Tax

Court upholds entry tax liability, dismisses constitutional challenge, sets aside interest recovery orders.

The court dismissed the challenge to the constitutional validity of the second proviso to Section 3(2) of the Entry Tax Act, upheld the liability to pay ... Imposition of entry tax - It is a case of the petitioner that for the periods in question, they had submitted the returns as per the statutory provisions well within the time period prescribed, assessments were completed and all tax dues paid. Appellant claimed that by virtue of the powers available under Section 33 of the VAT Act read with Section 8 of the Entry Tax Act, the demand raised is wholly illegal, the action is contrary to certain judgments and challenge was made to the show cause notice - vires of Section 3(2) of the Entry Tax Act - Whether the second proviso to Section 3(2) of the Entry Tax Act is ultra vires to the Constitution? - Held that: - It has been held in the matter of taxing provision, simple inequality or unequal is not sufficient to interfere but hostile treatment or hostile discrimination should be established showing unreasonable, discriminatory attitude of the State between the persons similarly situated - The learned Court took note of various principles in this regard and held that even imposition of tax more than once cannot be prevented nor prohibited under the Constitution. If that be the position, we see no reason or ground to hold the provision to be ultra vires or unreasonable. Whether interest can be levied in the matter of late payment of entry tax under the Entry Tax Act, by virtue of the provisions of the Bihar Finance Act, and, with the aid of Section 8 of the Entry Tax Act? - Held that: - If Section 8 of the Entry Tax Act is analyzed, it would be seen that it makes applicable the provisions of the Bihar Finance Act to the Entry Tax Act in the matter of assessment, reassessment, collection and enforcement of payment of tax and penalty payable by a dealer under the Bihar Finance Act. Nowhere in the provisions of Section 8 is there any mention of recovery or imposition of interest - in the absence of there being any specific provision authorizing the revenue to assess interest under the Entry Tax Act and in the absence of Section 8 of the Entry Tax Act contemplating a provision for recovery of interest, recovery of interest is not permissible and to that extent, relief has to be granted to the petitioner. We hold that charging of interest and proposing to recover interest on the duty or the tax determined is unsustainable. Whether based on audit objection as contemplated under the provisions of Section 33 of the VAT Act, assessment can be re-opened with the aid of Section 8 of the Entry Tax Act? - Held that: - the authority empowered to assess, reassess, collect and enforce payment of tax and penalty by a dealer under the Bihar Finance Act is also empowered under the Entry Tax Act to assess, reassess, collect and enforce payment of tax and penalty payable under the Entry Tax Act and for that purpose, they are further empowered to exercise all the powers assigned under the Bihar Finance Act and the Rules framed thereunder pertaining to provisions relating to returns, assessment, reassessment, escaped assessment, escaped assessment, recovery of tax, special mode of recovery, maintenance of accounts etc. The provisions of assessment, reassessment, escaped assessment as is applicable under the Bihar Finance Act and the Bihar VAT Act having been made applicable, the provisions of reassessment under Section 33 of the VAT Act would apply and, therefore, to that extent, we find no error in the act of the respondents. Whether entry tax is liable to be paid when the goods only enter the local area and after such entry is subjected to sell only without there being any use of consumption of the goods in the local area? - Held that: - To attract liability for payment of entry tax, apart from the fact that there is entry of goods into the local area, there has to be sale, use and consumption in the local area. Mere entry or sale of the goods into the local area without its consumption or use in the local area will not make the goods liable for payment of entry tax and to that effect, we are of the considered view that there is no dispute with regard to the legal principles applicable - this issue is a mixed question of law and fact and cannot be interfered into this proceeding. In case, the petitioner has remedy of assailing the assessment order on factual aspect before any statutory appellate authority, liberty may be available to the petitioner to raise this ground and, if permissible, the appellate authority may go into this aspect of the matter - no relief can be granted to the petitioner. Whether the assessment undertaken under Section 33 of the VAT Act is permissible after a period of four years in view of the provision of Section 31 of the VAT Act? - Held that: - Section 31 of the VAT Act contemplates a provision for assessment or reassessment of tax which has escaped turn over and Section 33 provides for assessment of tax based on audit objection. However, a perusal of Section 31 would go to show that when proceedings are held under Section 31, period of limitation of four years from the expiry of the date of original order is indicated therein, but the last part of the Section provides that in a case where the dealer has concealed, omitted or failed to disclose such sale or purchase or input tax credit, so far as may be applicable, the same shall be decided in accordance to as if the proceeding under this sub- section was a notice under Section 27. This Section 27 provides for assessment of a dealer not filing return. It is a case where the proceedings were held against the petitioner after issuing notice under Section 27 and in this provision, there is no provision for issuing notice within four years. This Section only contemplates that the proceedings shall be completed within a period of two years from the date of initiation. Accordingly, we see no reason to interfere on this ground - The question of delay in initiating a proceeding again being a mixed question of law and fact, we are of the considered view that it cannot be permitted to be raised now at this stage in these proceedings. Accordingly, this ground is also rejected. Petition allowed - decided partly in favor of petitioner. Issues Involved:1. Constitutional validity of the second proviso to Section 3(2) of the Entry Tax Act.2. Levy of interest on delayed payment of entry tax under the Entry Tax Act.3. Liability to pay entry tax when goods enter the local area but are not used or consumed therein.4. Reopening of assessment based on audit objections under Section 33 of the VAT Act.5. Permissibility of assessment under Section 33 of the VAT Act after a period of four years.Issue-wise Detailed Analysis:1. Constitutional Validity of the Second Proviso to Section 3(2) of the Entry Tax Act:The petitioner challenged the second proviso to Section 3(2) of the Entry Tax Act, claiming it was ultra vires to the Constitution due to discriminatory treatment in the matter of non-grant of set off. The court noted that the purpose of the provision is to grant set off to those who incur liability for VAT and entry tax on imported goods. Since the petitioner did not pay VAT, they could not claim the set off. The court emphasized the principles of judicial restraint in taxation matters and held that the provision is not discriminatory or arbitrary. The court also referenced the binding precedent from a similar case involving the petitioner (CWJC No.21535 of 2011), where the provision was upheld. Thus, the court dismissed the challenge to the constitutional validity of the provision.2. Levy of Interest on Delayed Payment of Entry Tax:The petitioner argued that the Entry Tax Act does not provide for the levy of interest and that such interest cannot be imposed by referencing the VAT Act. The court examined Section 8 of the Entry Tax Act and concluded that it does not authorize the recovery of interest. The court relied on the Supreme Court's judgments in J. K. Synthetics Ltd. and India Carbon Ltd., which established that provisions for charging interest are substantive and cannot be implied. The court also noted that an amendment in 2015 explicitly included provisions for interest, indicating that prior to this, there was no such provision. Consequently, the court held that the imposition of interest was unsustainable and set aside the orders to the extent they directed the recovery of interest.3. Liability to Pay Entry Tax When Goods Enter the Local Area but Are Not Used or Consumed Therein:The court acknowledged that for entry tax to be applicable, goods must be used or consumed in the local area. The petitioner claimed that the goods sold to Oil Marketing Companies (OMCs) were not used or consumed in Patna but were taken to other districts. However, the court found that the petitioner did not provide sufficient evidence to support this claim during the assessment proceedings. The court emphasized that this issue is a mixed question of law and fact, which should have been established before the assessing authority. Therefore, the court held that no relief could be granted on this ground in the writ petitions.4. Reopening of Assessment Based on Audit Objections Under Section 33 of the VAT Act:The petitioner contended that Section 33 of the VAT Act should not apply to the Entry Tax Act for reopening assessments based on audit objections. The court referred to Section 8 of the Entry Tax Act, which incorporates the provisions of the Bihar Finance Act and the VAT Act for assessment, reassessment, and recovery of tax and penalty. The court concluded that the provisions of reassessment under Section 33 of the VAT Act are applicable to the Entry Tax Act, and thus, the reopening of assessment based on audit objections was permissible.5. Permissibility of Assessment Under Section 33 of the VAT Act After a Period of Four Years:The petitioner argued that the reassessments were beyond the four-year limitation period prescribed by Section 31 of the VAT Act. The court noted that Section 31 pertains to escaped turnover assessments, while Section 33 deals with audit objections. The court found that the proceedings were initiated under Section 27, which does not have a four-year limitation but requires completion within two years from initiation. The court also observed that this ground was not raised in earlier proceedings and is a mixed question of law and fact. Therefore, the court rejected this ground for interference.Conclusion:The court allowed the petitions in part, holding that the imposition of interest on the entry tax was unsustainable and setting aside the orders to the extent they directed the recovery of interest. The court upheld the orders regarding the constitutional validity of the second proviso to Section 3(2) of the Entry Tax Act, the liability to pay entry tax, and the reopening of assessments based on audit objections. The challenge to the reassessments based on the limitation period was also rejected.