2023 (12) TMI 242 - HC - VAT and Sales Tax

Patna HC denies set-off of entry tax on damaged cement against VAT liability under Section 3(2)

The Patna HC denied adjustment of entry tax paid on damaged cement against VAT liability. Following Supreme Court precedent in Indian Oil Corporation ... Denial of adjustment of entry tax paid on the damaged cement against VAT liability - liability to pay entry tax on damaged cement under the provisions of the Entry Tax Act - entitlement for the refund or adjustment of the same - imposition of interest under Section 39 (4) of the VAT Act. HELD THAT:- INDIAN OIL CORPORATION LIMITED VERSUS STATE OF BIHAR AND ANR. INDIAN OIL CORPORATION LIMITED VERSUS STATE OF BIHAR AND ANR. [2017 (11) TMI 747 - SUPREME COURT] is a case on point, dealing with the set-off of entry tax when the imported goods did not suffer further liability to tax within the State of Bihar at the hands of the importer itself. The assessee therein imported crude oil from outside the State of Bihar, manufactured high speed oil, petrol etc. at its refinery within the State and transferred it to its branch at Patna from where it was sold inter alia to other oil marketing companies (OMC) who in turn sold it to retailers, end consumers through its own petroleum outlets inside and outside Patna; which sales were effected by the assessee too. The appellant paid entry tax at the rate of 16% and was liable to sales tax @ 24.5%, from which total liability, set-off was claimed and accepted by the department; which later stood reversed giving rise to proceedings before the Advance Ruling Authority. After copious reference to the provisions the Hon’ble Supreme Court held as follows: Since the set-off in question depends upon the interpretation of Section 3(2) of the Entry Tax Act, it is necessary to state, at the outset, that the following conditions need to be satisfied for claim of set-off under the said provision: (i) First and foremost, under Section 3(2) itself, the tax leviable by way of entry tax can only be paid by every dealer liable to pay tax under the VAT Act; (ii) The set-off can only be granted if the assessee is an importer of scheduled goods, who is liable to pay tax under the VAT Act; (iii) The assessee must incur tax liability at the rates specified under Section 14 of the VAT Act; (iv) This must only be by virtue of the sale of imported scheduled goods; and (v) “His” tax liability under the VAT Act will then stand reduced to the extent of tax paid under the Act.” The assessee being a registered dealer under the Finance Act was found to be satisfying the first condition and though the assessee was the importer of the goods, it had no liability to pay VAT on its sales to OMCs thus not satisfying the second & third condition. The assessee also did not satisfy the fourth condition since the words employed in the provision; ‘or sale of goods manufactured by consuming such imported scheduled goods’ which connotes a sale by the importer itself, who alone is entitled to the set-off as per the fifth condition - The dictum squarely applies in the instant case where admittedly the appellant- assessee did not suffer tax on the imported goods within the State of Bihar thus disabling the appellant from claiming set-off to the extent of such imported goods which did not suffer tax within the State of Bihar. Associated Cement Company Limited [2004 (9) TMI 380 - SUPREME COURT] strongly relied on by the assessee was distinguished in Ĭndian Oil Corporation Ltd. on two counts; one, that there the question was raised of an exemption which does not efface the liability to tax and next that the words: ‘by virtue of sale of imported scheduled goods or sale of goods manufactured by consuming such imported scheduled goods’ was added to the provision granting set-off by way of an amendment, later to the ACC case. It was categorically held that set-off is a concession which none can claim as a matter of right unless the specific conditions under which it is granted are satisfied. The instant appeal by the assessee has to fail and the questions of law are answered against the assessee and in favour of the respondents. Issues Involved:1. Adjustment of Entry Tax on Damaged Cement Against VAT Liability2. Liability to Pay Entry Tax on Damaged Cement and Entitlement for Refund/Adjustment3. Imposition of Interest Under Section 39(4) of the VAT ActSummary:1. Adjustment of Entry Tax on Damaged Cement Against VAT LiabilityThe Tribunal denied the adjustment of entry tax paid on damaged cement against VAT liability. The proviso to Section 3(2) of the Entry Tax Act allows for such reduction only when the imported goods incur tax liability within the State. Since the damaged goods did not incur any tax liability, the Tribunal found no basis for reducing VAT liability by the entry tax paid on such goods.2. Liability to Pay Entry Tax on Damaged Cement and Entitlement for Refund/AdjustmentThe appellant argued, citing Supreme Court decisions, that entry tax paid should be reduced from the total VAT liability, especially when the damaged goods were not sold within the State. However, the State contended that there was no evidence of how the damaged goods were disposed of, suggesting they should have been returned to the manufacturing unit for a refund claim. The Court upheld the Tribunal's decision, emphasizing that without proof of how the goods were disposed of, no adjustment or refund of entry tax could be granted.3. Imposition of Interest Under Section 39(4) of the VAT ActThe Court did not find the imposition of interest under Section 39(4) of the VAT Act arbitrary, illegal, or without jurisdiction. The appellant's failure to provide a satisfactory explanation for the damaged goods and the lack of evidence for their disposal led to the conclusion that the interest imposition was justified.Conclusion:The High Court dismissed the appeal, upholding the Tribunal's decision. The questions of law were answered against the appellant and in favor of the respondents. The Court emphasized the importance of proving the disposal of damaged goods to claim any adjustment or refund of entry tax and upheld the imposition of interest under the VAT Act.