2017 (10) TMI 1219 - HC - VAT and Sales Tax

High Court decision on VAT exemption and refund

The High Court upheld the VAT Tribunal's decision but deemed the retrospective cancellation of the certificate of entitlement improper. The petitioner's ... Rescinding of sales tax exemption - The Government of Gujarat had provided certain exemptions from payment of sales tax in case of certified manufacturers registered under the Khadi Board. On the purchases also, the petitioner was subject to certain condition not liable to pay tax. These exemptions were granted under the Gujarat Sales Tax Act. With the replacement of the State Sales Tax Act by the VAT Act w.e.f. 01.04.2006, such exemptions stood withdrawn. Held that: - section 41 of the Act pertains to remission of tax penalty or interest. It was in exercise of powers under sub-section (1) of section 41 that the Government had issued a notification dated 27.02.2009 granting remission of whole of the tax payable on the specified products by a certified manufacturer on the sale of such goods. This was subject to limits imposed in terms of condition No.1 to the notification. Condition No.3 provided that the said certified manufacturer would issue tax invoice or retail invoice in accordance with the provisions of the VAT Act. In essence, the Government desired to waive tax component on sale of such specified goods by the certified manufacturer dealers. In whatever manner the accounting treatment may be given to such tax component, the loss to the ex-chequer would be limited to 4+1% of the tax which, under the said notification, Government had decided to forgo. If the contention of the Assessing Officer is that the assessee having shown to have collected the tax from the purchaser and not deposited with the Government refund by granting refund of such amount, the Government revenue would suffer double loss, such contention is plainly erroneous. The decision of the Assessing Authority to deny the tax remission to the petitioner is set aside. The Assessing authority shall pass fresh order granting such benefit to the assessee with further statutory benefits if any available - petition allowed by way of remand. Issues Involved:1. Challenge to the cancellation of the certificate of entitlement with retrospective effect.2. Claim for exemption of tax on sales and refund of tax paid on purchases.3. Adjustment of refund amount against other tax demands.4. Interpretation and application of the remission scheme under the VAT Act.Detailed Analysis:1. Challenge to the Cancellation of the Certificate of Entitlement with Retrospective Effect:The petitioner, a registered dealer under the Gujarat Value Added Tax Act, 2003, and a certified manufacturer with the Gujarat Khadi Gram Udhyog Board, challenged an order dated 31.03.2017 by the Deputy Commissioner of Commercial Tax. The petitioner’s certificate of entitlement, initially issued on 08.01.2010 and renewed up to 16.06.2014, was canceled retrospectively from 17.06.2008 by the Assistant Commissioner, Commercial Tax. The petitioner’s appeals to the appellate authority and the Tribunal were unsuccessful, leading to a tax appeal before the High Court. The Division Bench held that the VAT Tribunal was justified in its decision but opined that the cancellation of the certificate with retrospective effect was improper.2. Claim for Exemption of Tax on Sales and Refund of Tax Paid on Purchases:For the assessment year 2012-13, the petitioner claimed exemption from tax on sales and sought a refund of tax paid on purchases, relying on the High Court’s judgment in Shree Shiv Shakti Oil Mill. The respondent accepted the petitioner’s claim for a refund of Rs. 21,33,684 but refused to grant the refund, making it adjustable against other demands. The authority argued that the petitioner collected tax on sales, which should be surrendered to the Government, as the products were exempt from tax.3. Adjustment of Refund Amount Against Other Tax Demands:The petitioner argued that the VAT Act did not provide for the deferment of the refund amount to be adjusted against future claims. The respondent clarified that the refund was not delayed but adjusted against the Government’s larger tax claim on the petitioner’s sales. The court noted that section 40 of the VAT Act pertains to the refund of tax, while section 41 pertains to the remission of tax, penalty, or interest. The court found that the State Government’s notification authorized the Commissioner to grant refunds and remissions under specified conditions.4. Interpretation and Application of the Remission Scheme Under the VAT Act:The court examined the remission scheme, which aimed to support Khadi and Village Industries by waiving the tax component on sales. The scheme allowed the issuance of tax invoices, enabling purchasers to take tax credit. The court emphasized that the Government’s intention was to waive the tax burden on specified products, regardless of how the benefit was distributed among manufacturers, purchasers, or consumers. The court found that the petitioner’s separate accounting of the tax component did not violate the remission scheme. The court also dismissed the Assessing Officer’s objection that the petitioner collected tax separately, stating that it did not change the sale’s character and was necessary for accounting purposes.Conclusion:The court set aside the Assessing Authority’s decision to deny tax remission to the petitioner and directed the authority to pass a fresh order granting the benefit, including any further statutory benefits, within four months. The issue of adjusting the refund amount of Rs. 21,33,684 became insignificant, as the court agreed with the Assessing Authority’s point that it was not meant for future assessments but for the current assessment’s liability. The petition was disposed of with these observations and directions.