2019 (4) TMI 1322 - SC - VAT and Sales Tax

Supreme Court Appeals: Interest Demands Upheld

The Supreme Court allowed the appeals, setting aside the High Court's judgment. The writ petitions challenging demand notices for interest were not barred ... Liability of Interest on the Entry Tax - U.P. Tax on Entry of Goods into Local Areas Act, 2007 - Whether the Petitions filed by the appellant challenging the demand notices dated 04.05.2018 and 05.05.2018 issued after judgment dated 04.05.2018 of the High Court in Writ Petition No.25730 of 2017 is barred by Principle of Res-judicata, in view of the dismissal of Writ Petition No.25730 of 2017 on 04.05.2018? - HELD THAT:- Writ Tax No.474 of 2017, which de-tagged with the Bunch of Writ Petition No.25730 of 2017 is still pending for consideration before the High Court. Present is a case where the Division Bench while deciding Writ Petition No.25730 of 2017 consciously restricted the consideration to three questions as noted in the judgment of this Court dated 21.03.2017 and did not permit to raise any submission other than three questions as noted above or proceed to consider any other questions. The issue which has not been expressly permitted to be decided by judgment dated 04.05.2018 cannot operate as res judicata in subsequent writ petition filed by the appellant where the challenge to the leviability of the interest has been raised. The question relating to nature and extent of liability to pay interest on Entry Tax under the scheme of Act, 2007 need to be examined by this Court in these appeals - the High Court in the impugned judgment committed error in upholding the preliminary objection of the respondent - the question relating to nature and extent of liability of interest on Entry Tax under the scheme of Act, 2007 need to be examined and answered in these appeals. Whether Act, 2007 does contain any substantive provision for charging interest? - HELD THAT:- The liability of the interest under Section 12(3) is confined to one particular situation and does not provide for any universal application for payment of interest. Requirement of payment of interest under Section 12 (3), thus, is for a particular situation and has no application with regard to any other instance of liability to pay tax. Present is a case where appellant is not receiving any goods from any manufacturer, hence, in the present case Section 12 has no applicability. The application of provisions of VAT Act, 2008 is provided by Section 13 of Act, 2007 with certain changes in points of details. Section 33 of the VAT Act, 2008 which has been mentioned to apply under Section 13 has to be applied with respect to payment and recovery of tax. Thus, the payment of interest which is contemplated under Section 33 on the amount of tax has to be applied with regard to the payment of Entry Tax and the interest thereon. Even if provision of Section 33 of VAT Act, 2008 to be treated as machinery provision which is to be applied by virtue of Section 13 of Act, 2007, the machinery provision has to be interpreted in a manner so as to make the liability effective and treated to be substantive law. This Court in INDIA CARBON LTD. VERSUS STATE OF ASSAM (AND OTHER APPEALS) [1997 (7) TMI 566 - SUPREME COURT OF INDIA] held that the provision relating to interest in the latter part of Section 9(2) can be employed by the States’ sales tax authorities only if the Central Act makes a substantive provision for the levy and charge of interest on Central sales tax and only to that extent. Section 9(2) was considered in two parts. This Court treated the first as substantive provision whereas second part only for procedural purpose alone, due to the above reason, this Court held that any claim of interest was unfounded - In the case before us, Section 33 has been made applicable by virtue of Section 13 mutatis mutandis. There is no such dichotomy in Section 13 as was noticed in India Carbon Ltd. in Section 9(2) of the Central Sales Tax Act. There is no hesitation in rejecting the submission of the learned counsel for the appellant that Act, 2007 does not contain any substantive law for levy of the interest - question answered accordingly. Other questions and issues need to be remitted to the High Court for consideration. The questions for determining the liability of interest and various aspects including factual aspects need to be examined and considered by the High Court - appeal allowed by way of remand. Issues Involved:1. Liability to pay interest on Entry Tax under the U.P. Tax on Entry of Goods into Local Areas Act, 2007.2. Whether the writ petitions challenging the demand notices for interest are barred by the principle of res judicata.3. Substantive provisions for charging interest under the Act, 2007.4. Liability to pay interest for the period when the Act, 2000 was declared unconstitutional.5. Liability of the appellant to pay interest post-enactment of the Act, 2007.Detailed Analysis:1. Liability to Pay Interest on Entry Tax:The primary issue revolves around the liability of the appellant to pay interest on the Entry Tax under the U.P. Tax on Entry of Goods into Local Areas Act, 2007. The Supreme Court examined whether the Act, 2007 contains substantive provisions for the levy of interest. It was concluded that Section 13 of the Act, 2007, which applies certain provisions of the U.P. Value Added Tax Act, 2008, including Section 33 that deals with payment and recovery of tax, provides the necessary substantive law for the levy of interest. The court held that even if Section 33 is considered a machinery provision, it still constitutes substantive law for the purpose of levying interest.2. Principle of Res Judicata:The respondents raised a preliminary objection that the writ petitions challenging the demand notices for interest were barred by the principle of res judicata, given the dismissal of Writ Petition No. 25730 of 2017. The Supreme Court noted that the High Court, while deciding Writ Petition No. 25730 of 2017, confined its consideration to the grounds reflected in the judgment of the Supreme Court dated 21.03.2017 and did not entertain the issue of interest. Therefore, the subsequent writ petitions challenging the demand for interest could not be barred by res judicata. The court emphasized that the issue of interest was not expressly decided in the earlier judgment, and thus, the principle of constructive res judicata could not preclude the appellant from raising the question of interest in subsequent writ petitions.3. Substantive Provisions for Charging Interest:The appellant argued that the Act, 2007 lacks substantive provisions for charging interest, except for Section 12(3), which deals with the failure of manufacturers to deposit tax. The Supreme Court rejected this argument, stating that Section 13 of the Act, 2007, which applies certain provisions of the U.P. Value Added Tax Act, 2008, including Section 33, provides the necessary substantive law for the levy of interest. The court held that the provision by which the authority is empowered to levy and collect interest, even if construed as part of the machinery provisions, is substantive law.4. Liability to Pay Interest for the Period When the Act, 2000 Was Declared Unconstitutional:The appellant contended that there was no liability to pay interest for the period prior to the enactment of the Act, 2007, as the earlier Act, 2000, was declared unconstitutional. The Supreme Court did not provide a definitive answer on this issue but noted that the High Court needs to examine and consider various aspects, including the effect of the deposit of Entry Tax in a separate interest-bearing account pursuant to the interim order of the Supreme Court dated 09.02.2004.5. Liability of the Appellant to Pay Interest Post-Enactment of the Act, 2007:The Supreme Court remitted the issue of determining the liability of the appellant to pay interest post-enactment of the Act, 2007, to the High Court for consideration. The court noted that various factual aspects and questions need to be examined by the High Court, including the effect of the deposit of Entry Tax in a separate interest-bearing account and any other relevant issues.Conclusion:The appeals were allowed, and the impugned judgment of the High Court dated 22.11.2018 was set aside. The writ petitions were revived before the High Court to be considered and decided on merits. The Supreme Court emphasized that the High Court needs to examine and consider various aspects, including the liability of the appellant to pay interest under the Act, 2007, and the effect of the deposit of Entry Tax in a separate interest-bearing account. The parties were directed to bear their own costs.