TaxTMI 
TaxTMI 
2019 (4) TMI 1322
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....islations enacted by different States including the State of U.P. were challenged in the High Courts questioning the very legislative competence of State Legislature to enact Entry Tax Legislations, which according to writ petitioners violated freedom of trade, commerce and intercourse guaranteed under Article 301 and other Articles of Part XIII of the Constitution of India. Some of the High courts including Allahabad High Court have struck down the initial Entry Tax Legislations on the ground that it violates rights guaranteed under Part XIII of the Constitution of India. 4. For deciding the issues, which have arisen in these appeals, it is necessary to notice the history of litigation in so far as State of U.P. is concerned. Levy of tax on entry of any goods into a local area was introduced by the U.P. Tax on Entry of Goods Ordinance, 2000, w.e.f. 01.11.1999, which Ordinance was replaced by the U.P. Tax on Entry of Goods Act, 2000, which Act was deemed to have come into force on 01.11.1999. The Entry Tax was also imposed on crude oil. The appellant filed a Writ Petition No. 251 of 2003 before the Allahabad High Court challenging the validity of levy of Entry Tax on crude oil. ....
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....ements of compensatory tax as laid down by this Court. On 17.04.2007, this Court in C.A. Nos. 997-998 of 2004 - State of U.P. & Ors. Vs. M/s. Indian Oil Corporation Ltd. & Etc., passed an order in the following terms:- "............................The High Court's orders, wherever it has been passed in favour of the tax payers, shall operate so far as the writ petitioners are concerned...................." 7. The effect in view of the above interim order was that the levy of Entry Tax in the State of U.P., thus, was held to be unsustainable. The State of U.P. promulgated the U.P. Tax on Entry of Goods into Local Areas Ordinance on 24.09.2007 (U.P. Ordinance No. 35 of 2007) with retrospective effect from 01.11.1999 repealing the earlier Act No.1 of 2000 and re-enacting the same w.e.f. 01.11.1999. The Statement of Objects and Reasons, which necessitated the issuance of the aforesaid Ordinance was as follows:- "STATEMENT OF OBJECTS AND REASONS The Uttar Pradesh Tax on Entry of Goods Act, 2000 (U.P. Act No. 12 of 2000) was enacted to provide for the levy and collection of tax on entry of goods into a local area for consumption, use or sale therein. The sai....
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....eplace the aforesaid Ordinance." 8. The Ordinance No.35 of 2007 was replaced by the U.P. Tax on Entry of goods into Local Areas Act, 2007. The appellant after enforcement of the Ordinance had filed a Writ Petition No. 1483 of 2007 in the Allahabad High Court challenging the Ordinance No. 35 of 2007. After enactment of the Act, writ petition was sought to be amended by replacing the word "Ordinance" with "Act". On 18.12.2008, a Two- Judge Bench of this Court in Jaiprakash Associates Limited Vs. State of Madhya Pradesh & Ors. (2009) 7 SCC 339 referred the issue of levy of Entry Tax in various States enactments including U.P. for determination of a Larger Bench of Nine Judges in terms of Article 145(3) of the Constitution of India. On 23.12.2011, a Division Bench of the Allahabad High Court decided the Writ Petition No. 1483 of 2007 alongwith bunch of writ petitions, leading writ petition being Writ Tax No. 1484 of 2007 - ITC Limited Vs. State of U.P. and Others. The Division Bench of the Allahabad High Court held that the State of U.P. did not lack legislative competence in enacting the U.P. Tax on Entry of Goods into Local Areas Act, 2007, imposing Entry Tax on the entry of sched....
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.... The interim orders are discharged." 9. Against the judgment of Allahabad High Court dated 23.12.2011, decision in the writ petition of the appellant, SLP (C) No. 327 of 2012 was filed by the appellant. On 10.01.2012, this Court passed an interim order in several special leave petitions filed against the judgment dated 23.12.2011 staying the operation of the impugned judgment of the High Court dated 23.12.2011 subject to the appellants in each case depositing 50% of the accrued tax liability/arrears under the Act, 2007 and furnish bank guarantee for the balance amount within four weeks. In SLP (C) No. 327 of 2012, following order was passed:- "Shri R.F. Nariman, learned Solicitor General, appearing for the petitioner in this matter, would contend that the respondents have issued demand notices, inter alia, demanding the payment of Entry Tax under the provisions of U.P. Tax on Entry of Goods into Local Areas Act, 2007 for the assessment periods 2007-2008, 2008- 2009, 2009-2010 and 2010-2011, without there being any quantification by way assessments for all these years. Faced with this situation, learned senior counsel, Shri K.K. Venugopal, appearing for the respondent-St....
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....9.4. A levy that violates Article 304(a) cannot be saved even if the procedure under Article 304(b) or the proviso thereunder is satisfied. 1159.5. The Compensatory Tax Theory evolved in Automobile Transport case, AIR 1962 SC 1406 and subsequently modified in Jindal case, (2006) 7 SCC 241 has no juristic basis and is therefore rejected. 1159.6. The decisions of this Court in Atiabari, AIR 1961 SC 232, Automobile Transport, AIR 1962 SC 1406 and Jindal, (2006) 7 SCC 241 cases and all other judgments that follow these pronouncements are to the extent of such reliance overruled. 1159.7. A tax on entry of goods into a local area for use, sale or consumption therein is permissible although similar goods are not produced within the taxing State. 1159.8. Article 304(a) frowns upon discrimination (of a hostile nature in the protectionist sense) and not on mere differentiation. Therefore, incentives, set-offs, etc. granted to a specified class of dealers for a limited period of time in a nonhostile fashion with a view to developing economically backward areas would not violate Article 304(a). The question whether the levies in the present case indeed satis....
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.....55 crores towards Entry Tax for the years 1999-2000 to 2011-2012. The appellant filed a writ petition challenging the demand notices dated 04.05.2018 and 05.05.2018 in so far as demand towards interest was concerned. In one of the writ petitions, Writ Petition No.757 of 2018 filed by the appellant, following prayers were made:- "(i) Issue a suitable writ, order or direction in the nature of certiorari calling for the records and quashing the impugned notice dated 04.05.2018 (ANNEXURE-1) issued by the Respondent No.3 demanding interest on entry tax from the petitioner. (ii) Issue a suitable writ, order or direction in the nature of Prohibition restraining the Respondents, their servants, agents or representative from in any manner realizing any interest on the entry tax from petitioner pursuant to the Act No. 30 of 2007, assessment order and the impugned notice dated 04.05.2018; (iii)Issue a suitable writ, order or direction in the nature of mandamus commanding the respondents to adjust the interest payable by the Respondents on the amounts paid by the Petitioner upto 23.09.2007 towards the entry tax together with interest; (iv) Issue any other s....
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....d senior counsel, who has appeared for appellant in S.L.P. No. 2691 of 2018 - VST Industries Limited Vs. The State of Uttar Pradesh & Ors., which is being separately decided. 16. Learned counsel for the appellant submits that under the Act, 2007 there are no substantive provisions for realisation of interest on Entry Tax. In absence of a substantive provision providing for payment of interest, no interest can be demanded from the appellant. It is submitted that in Act, 2007, wherever it provided for payment of interest, it has been so provided. Reference is made to sub-section (3) of Section 12 of Act, 2007 where liability to tax alongwith interest is created. It is submitted that Section 13 of the Act, 2007, which makes the provisions of U.P. Value Added Tax Act, 2008 mutatis mutandis, applicable adopts only machinery provisions for the purposes of Act, 2007 and Section 33 of Value Added Tax Act, 2008, which deals with demand and recovery of tax is only machinery provision, which does not entitle the respondent to claim any interest from the appellant. Apart from Section 12, there is no other substantive provision for payment of interest under the Act, 2007. No charge is create....
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....d by the appellant, where demand notices praying for payment of interest has been challenged. 17. Shri Agarwal further submits that Act, 2000 having been declared unconstitutional, there is no liability to pay any interest before 24.09.2007 on which date Act, 2007 was enacted. It is further submitted that Act, 2007 was immediately challenged by the appellant which Act was upheld by Division Bench of the High Court only on 23.12.2011. Before the aforesaid date, this Court has already referred various issues pertaining to Entry Tax legislation to a Larger Bench. A Larger Bench, i.e., Nine-Judges Bench decided the reference only on 11.11.2016. The larger Bench had reversed the law which was in operation for more than last fifty years. In wake of such uncertainty of legal position, the appellant cannot be saddled with any liability to pay interest. It is submitted that ultimately the Division Bench after liberty by this Court declared the Act valid on 04.05.2018. It is submitted that appellant be relieved from paying of any interest during the aforesaid period. It is submitted that appellant had promptly made the payment of entire Entry Tax immediately after dismissal of writ petiti....
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....007 and the U.P. Entry Tax Rules, 2007 framed thereunder. The concept of interest evolves on default in payment of Entry Tax. Shri Dwivedi also placed reliance on the Principle of Restitution. Liability accrued under Act, 2000 is deemed to be one arising under the Act, 2007. On dismissal of the Writ Petition on 04.05.2018, the issue of interest has also been closed finally. After the interim order of this Court on 10.01.2012 and 17.01.2012 Entry Tax was partly paid and remaining was paid only after the judgment of the High Court on 04.05.2018. Despite the valid levy being there the Tax was withheld by the appellant. The appellant took a chance with litigation and retained and used the amount withheld. The levy whose validity is upheld is deemed valid from date it was due and not from the date of the judgment of the High Court. The appellant is liable for payment of interest not only as per law but also on equitable grounds. Liability to pay interest for a Stay period is valid as interest does not cease running with passing of interim order. Interest is to be awarded on equitable grounds. Liability to pay interest on a tax is an accretion of tax and enlargement of tax liability. In ....
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....damus or prohibition be issued restraining/ prohibiting the Respondents from taking any further steps or action pursuant to the impugned assessment orders; (v) issue a suitable writ, order or direction for refund of the entry tax hitherto paid by the Petitioner to the Respondent pursuant to the impugned Act; (vi) that a suitable writ, order or direction be issued as this Hon'ble Court may deem fit and proper in the circumstances of the case in the facts and circumstances of the case. (vii)award the costs of the petition to the petitioner." 22. As noted above the liberty was granted by this Court to the appellant by its order dated 21.03.2017. The liberty granted to the appellant was on the issues which were left open by the Nine-Judges Constitution Bench judgment dated 21.03.2017 and noticed. Following are certain other aspects which were argued before the Constitution Bench but left open: "(1) Whether the entire State can be treated as 'local area' for the purposes of entry tax? (2) Whether entry tax can be levied on the goods which are directly imported from other countries and brought in a particular State? (3) In ....
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....e interest, if any, could not be charged from the petitioner prior to the date of passing the assessment order." 25. A perusal of the judgment of the High Court dated 04.05.2018 indicates that the Division Bench in paragraph No.40 took the view that the Division Bench is to deal with the challenge on the grounds as reflected in the judgment of the Regular Bench dated 21.03.2017. It is useful to extract paragraph No.40 of the judgment, which is to the following effect: "40. Thus, while overruling the objection to the maintainability of these petitions, we would like to confine ourselves within the forecorners of the judgment of the regular Bench dated 21 March, 2017. We further observe, once again at the cost of repetition, that the challenge to the validity of the Act, 2007 was considered by the Division Bench in ITC Limited on all grounds including the ground that the levy of tax under the Act is compensatory in nature. In view of the opinion expressed by the Nine Judges' Bench, whereby compensatory theory has been completely wiped out, we would have to, therefore, consider the challenge limited to the grounds reflected in the questions framed by the regular Bench of t....
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....1 Explanation 4 C.P.C. on which much reliance has been placed by the counsel for the appellant provides: "Section 11. Res judicata.- No Court shall try any suit or issue in which the matter directly and substantially in issue has been directly and substantially in issue in a former suit between the same parties, or between parties under whom they or any of them claim, litigating under the same title, in a Court competent to try such subsequent suit or the suit in which such issue has been subsequently raised, and has been heard and finally decided by such Court. xxx xxx xxx xxx Explanation IV.- Any matter which might and ought to have been made ground of defence or attack in such former suit shall be deemed to have been a matter directly and substantially in issue in such suit. 29. What Explanation IV provides is that a plea which might and ought to have been taken in the earlier suit, shall be deemed to have been taken and decided against person raising the plea in the subsequent suit. Present is a case where the plea of questioning the leviability of the interest was specifically raised by the appellant in the writ petition in paragraphs 33-34 as not....
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....under Act, 2007. 31. Further, what is the scheme of payment of interest under Act, 2007 is a question which depends on the interpretation of the Act, 2007 and the Rules framed thereunder. The issue needs determination for proper working of the Act and the Rules. In this context, we may refer to judgment of this Court in Shree Bhagwati Steel Rolling Mills Vs. Commissioner of Central Excise and another, (2016) 3 SCC 643, where question of levying interest under the provisions of Central Excise Act, 1944 under Rule 96- ZO, 96-ZP and 96-ZQ of Central Excise Rules, 1944 was held question of jurisdiction to levy interest and the said question was allowed to be raised. This Court laid down following in paragraph 29: "29...............We also feel that since this is a question of the very jurisdiction to levy interest and is otherwise covered by a Constitution Bench decision of this Court, it would be a travesty of justice if we would not allow Shri Aggarwal to make this submission." 32. We are, thus, of the view that 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 a....
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.... the Schedule as may be notified by the State Government, shall, at the time of taking delivery of the goods from the manufacturer, pay to the manufacturer the tax payable on entry of such goods into the local area and the manufacturer shall receive the tax so paid. The manufacturer 1[shall not deliver such goods] to the purchaser unless the amount of such tax has been paid by the purchaser. (2) The manufacture receiving the tax under sub-section (1) shall submit to the Assessing Authority a return in respect of the goods supplied, and the tax received, by him under subsection (1) and deposit the tax so received in such manner and within such time as may be prescribed. (3) Where any manufacturer fails to deposit, the tax under this section he shall be liable to pay the tax along with the interest and penalty, if any, payable thereon which shall be recoverable as arrears of land revenue. xxxx xxxx xxxx xxxx" 35. The next provision we notice is Section 13 which provides for applicability of certain provisions of U.P. Value Added Tax Act, 2008. Section 13 as far as relevant is as follows: "13. Applicability of certain provisions of the Uttar Prad....
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....est 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. 37. Learned counsel for the appellant has placed reliance on the Constitution Bench judgment of this in J.K. Synthetics Limited Vs. Commercial Taxes Officers, (1994) 4 SCC 276. In paragraph 16 of the judgment the Constitution Bench laid down following: "16. It is well-known that when a statute levies a tax it does so by inserting a charging section by which a liability is created or fixed and then proceeds to provide the machinery to make the liability effective. It, therefore, provides the machinery for the assessment of the liability already fixed by the charging section, and then provides the mode for the recovery and collection of tax, including penal provisions meant to deal with defaulters. Provision is also made for charging interest on delayed payments, etc. Ordinarily the charging section which fixes the liability is strictly construed but that rule of strict construction is not....
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....ains unpaid after expiration of the period specified in the notice of assessment and demand, simple interest at the rate of one percent per mensum on the unpaid amount calculated from the date of such expiration shall become due and be payable. xxx xxx xxx 40. Further the Constitution Bench of this Court in V.V.S Sugars Vs. Govt. of A.P. and others, (1999) 4 SCC 192, again reiterated the same principle in paragraph No.6, which is to the following effect: "6. This Court in India Carbon Ltd. v. State of Assam has held, after analysing the Constitution Bench judgment in J.K. Synthetics Ltd. v. CTO that interest can be levied and charged on delayed payment of tax only if the statute that levies and charges the tax makes a substantive provision in this behalf. There being no substantive provision in the Act for the levy of interest on arrears of tax that applied to purchases of sugarcane made subsequent to the date of commencement of the amending Act, no interest thereon could be so levied, based on the application of the said Rule 45 or otherwise." 41. What is the nature of the provision of Section 33 of the VAT Act, 2008 which has been made applicable by virtue....
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....h Court that the Act was an independent Act having nothing to do with the principal Act is not correct. The Act only levied some extra sales tax in addition to what had been levied by the principal Act. The nature of the taxes levied under the Act and under the principal Act was the same and the legislature expressly made the provisions of the principal Act mutatis mutandis applicable to the levy under the Act. The additional sales tax was in the nature of a surcharge over and above what was due and payable by an assessee under the principal Act. The Act, though it had a long title, a short title and other usual features of every statute, could not be considered as an independent statute. It had to be read together with the principal Act to be effective. In the circumstances the conclusion reached by the High Court that the two Acts were independent of each other was wrong. We are of the view that it is necessary to read and to construe the two Acts together as if the two Acts are one, and while doing so to give effect to the provisions of the Act which is a later one in preference to the provisions of the principal Act wherever the Act has manifested an intention to modify the pri....
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....on 9(2) has been extracted in the judgment in paragraph 4 which is to the following effect: "4. Section 9(2) of the Central Act, as it stood at the relevant time, read thus: "9. (2) Subject to the other provisions of this Act and the rules made thereunder, the authorities for the time being empowered to assess, reassess, collect and enforce payment of any tax under the general sales tax law of the appropriate State shall, on behalf of the Government of India, assess, reassess, collect and enforce payment of tax, including any penalty, payable by a dealer under this Act as if the tax or penalty payable by such a dealer under this Act is a tax or penalty payable under the general sales tax law of the State; and for this purpose they may exercise all or any of the powers they have under the general sales tax law of the State; and the provisions of such law, including provisions relating to returns, provisional assessment, advance payment of tax, registration of the transferee of any business, imposition of the tax liability of a person carrying on business on the transferee of, or successor to, such business, transfer of liability of any firm or Hindu undivided famil....