Supreme Court upholds Rule 67 amendment in VAT Rules, exempts appellants from interest & penalty

The Supreme Court upheld the validity of the amendment to Rule 67 of the A.P. VAT Rules, 2005, dismissing the writ petitions challenging it. The Court confirmed the consequential demand notices for deferred sales tax, ruling that the amendment aligned with the statutory framework. It clarified that the amendment corrected an earlier mistake and exempted the appellants from interest and penalty for the period between 2005 to 2009, directing the refund of any interest paid during that time.

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Issues Involved:
1. Validity of G.O.Ms. No. 503 Revenue (CT-II) Department dated 08.05.2009.
2. Consequential demand notices for deferred sales tax.
3. Applicability of the amended Rule 67 of the A.P. VAT Rules, 2005.
4. Levy of interest and penalty for the period between 2005 to 2009.

Summary:

1. Validity of G.O.Ms. No. 503 Revenue (CT-II) Department dated 08.05.2009:
The appellants challenged the amendment of Rule 67 of the A.P. VAT Rules, 2005, which reduced the deferment period contrary to the earlier industrial policy "Target-2000" and G.O.Ms. No. 108 dated 20.05.1996. The High Court dismissed the writ petitions, upholding the amendment. The Supreme Court confirmed the validity of the amendment, stating that the illustration to Rule 67, which initially provided for 14 years deferment, was contrary to the rule itself and was rightly amended to align with the statutory provision.

2. Consequential Demand Notices for Deferred Sales Tax:
The original writ petitioners, industrial units, were issued demand notices to pay the deferred sales tax immediately following the amendment. The Supreme Court upheld these notices, confirming that the amended Rule 67 was in line with the statutory framework and not contrary to the parent act or the original industrial scheme.

3. Applicability of the Amended Rule 67 of the A.P. VAT Rules, 2005:
The Supreme Court noted that under the A.P. VAT Act, 2005, industrial units availing tax exemption were converted to units availing tax deferment, with the balance period of tax holiday doubled. The amendment to Rule 67 corrected the earlier mistake and brought the rule in line with the statutory provision. The Court held that an illustration cannot govern the rule but is meant to clarify it, and thus, the amendment was justified.

4. Levy of Interest and Penalty for the Period Between 2005 to 2009:
The Supreme Court directed that there should be no levy of interest or penalty for the period between 2005 and 2009 due to the retrospective application of the amended Rule 67. The Court ordered that any interest paid during this period should be refunded within eight weeks.

Conclusion:
The Supreme Court partly allowed the appeals, confirming the validity of the amendment to Rule 67 and the consequential demand notices but exempting the appellants from interest and penalty for the period between 2005 to 2009. The writ petition was disposed of accordingly, with no order as to costs.

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