TaxTMI 
TaxTMI 
2019 (4) TMI 1633
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....petitioners are engaged in the business of manufacture and sale of cotton fabrics. The Industries and Mines Department of the State of Gujarat vide Resolution No.TEX/10212/65117/T dated 25.6.2013 declared the Textile Policy which was amended by Resolution No.TEX/10213/432/T dated 11.10.2013 so as to give incentive to the textile industry in the State of Gujarat. Paragraph 5.5.1 of the resolution dated 25.6.2013 of the Industries and Mines Department which is relevant of the present purpose reads as under:- "5.5.1 Refund of VAT paid by the unit on purchase of intermediate product/raw material except for certain goods and certain transactions which are not eligible for tax credit under the Gujarat VAT Act, 2003 and remission of VAT/CST collected on end product/intermediate product within entire value chain from cotton to Garment and on end made ups to the extent of 100% the eligible fixed capital investments in plant & machinery made within one year (two years in case of investment more than 500 crores) from the date of production or during the operative period of the scheme whichever is earlier." 2.1 By an amendment dated 11.10.2013, the word "remission" was replaced by ....
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.... a letter dated 6.10.2015. 2.6 In response to the show cause notice, the petitioners gave their reply dated 8.12.2015 pointing out that they were initially not aware that the textile policy required payment of tax at the first instance and thereafter, claim of refund and, therefore, they had discharged tax liability as a normal dealer. It is the case of the petitioners that this was more particularly because the eligibility certificate and certificate of entitlement were granted to the petitioners belatedly. They, however, submit that they were in any case entitled to refund of Rs. 97,07,397/- under the textile policy and if such refund was forthwith granted to the petitioners then they would be in a position to immediately discharge their tax liability under the GVAT Act. 2.7 The Commercial Tax Officer, however, issued recovery notice dated 9.10.2015 for recovery of alleged dues of Rs. 2,09,45,536/- under section 44 of the GVAT Act. A further show cause notice dated 30.10.2015 came to be issued by the Commercial Tax Officer alleging that since the petitioners had claimed input tax credit paid on purchases, they are not entitled to refund of such tax. Thus, while on the one h....
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.... protecting the interest of the revenue. Thereafter in compliance with the requirement of making predeposit of 30% of outstanding dues stipulated by the Commissioner, the petitioners made payment of Rs. 93,85,271/-. On such basis, the petitioners were granted benefit of six monthly installments for the remaining dues for which the petitioners were required to give post-dated cheques. Accordingly, the petitioners deposited post-dated cheques on 20.1.2016. Keeping in view the order of the Commissioner of Commercial Tax granting installments to the petitioners, the first appellate authority allowed the first appeal preferred against the order cancelling the registration certificate of the petitioners. Accordingly, the registration number was ordered to be restored with effect from the date of cancellation. 2.11 Immediately thereafter on 28.1.2016, the Commercial Tax Officer issued a garnishee notice under section 44 of the GVAT Act to the petitioners' bank for recovery of alleged dues of Rs. 79,36,350/-. Thereafter another notice dated 28.1.2016 was issued to the petitioners once again proposing to cancel the registration certificate of the petitioners. The petitioners wrote a ....
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....hand, the Industries Department did not process the refund claim of the petitioners, on the other hand, the Commercial Tax Officer again issued a notice proposing to cancel the registration certificate of the petitioners on 24.5.2016 on the ground that tax dues totally amounting to Rs. 1,58,09,073/- were outstanding. On 10.6.2016, the petitioners submitted an application claiming refund of input tax amounting to Rs. 2,10,48,921/- for the period from 1.1.2016 to 31.3.2016. Since the petitioners were not able to immediately make payment of outstanding dues due to severe financial crunch and because of the fact that refund was not released in time by the Industries Department as well as the Finance Department, by an order dated 14.6.2016 the registration certificate of the petitioners came to be cancelled with effect from 1.6.2016. 2.15 Against the said order, the petitioners preferred a first appeal before the Deputy Commissioner of Commercial Tax on 23.6.2016, who required the petitioners to submit challan showing payment of outstanding tax. The petitioners conveyed to the first appellate authority that their refund claim was higher than the outstanding dues and, therefore, the r....
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.... put to an end by adjusting the total refund claim against the crystallised tax liabilities. 2.19 The petitioners further submitted refund claim under the textile policy on 17.3.2017 by way of reimbursement of output tax liability from the Industries Department and the Commercial Tax Officer was requested to give certificate in this regard to the Industries Department. The petitioners further followed up with the Industries Department regarding the release of the old refund claims. A letter requesting release of refund was again addressed to the Commercial Tax Officer on 7.6.2017. The petitioners also requested the Deputy Commissioner of Commercial Tax to give necessary clarification in respect of query raised by the Industries Commissioner so that refund could be released to the petitioners at the earliest. On the same day, the Commercial Tax Officer gave clarification in this regard to the Deputy Commissioner, a copy of which was marked to the petitioners. 2.20 The Assistant Commissioner of Commercial Tax forwarded further claim of refund amounting to Rs. 79,64,378/- admissible to the petitioners under the textile policy for the year 2015-16 to the Additional Commissioner o....
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....e was served upon the petitioners on 14.5.2018. The first appellate authority dismissed the first appeal on the ground that the petitioners could not pay outstanding dues under the GVAT Act. In the meantime, the first appeals filed by the petitioners against the assessment orders for the years 2012-13 came to be summarily rejected by the first appellate authority. The petitioners filed second appeal against such rejection of first appeal. The appeal came to be admitted by the Gujarat Value Added Tax Tribunal and stay came to be granted against the assessed dues on condition of pre-deposit of Rs. 7,00,000/-. The petitioners have complied with the condition of pre-deposit on the basis of which the stay order has come into operation. 2.22 It is the case of the petitioners that the Deputy Commissioner of Commercial Tax has erred in retrospectively cancelling the certificate of entitlement of the petitioners on the ground of outstanding dues under the GVAT Act. It is the case of the petitioners that the dues are outstanding only because of extreme lethargy and inaction on the part of the Industries Department in releasing refund due under the textile policy. According to the petition....
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....ereafter there was an impasse regarding the mode of operating the scheme for the interregnum period between effective date of certificate of entitlement and the actual date of issuance of such certificate inasmuch as the dealers had filed returns as normal dealers since eligibility/entitlement certificate was yet to be granted. Ultimately on 4.10.2017, by way of an addendum to the policy, it was formally declared that only net tax would be payable for such interregnum period and that refund of input tax credit as well as the net tax paid would be granted by the Industries Department. However till date, such refund has not been released by the Industries Department. It was urged that even for the subsequent period, the petitioners are clearly entitled to refund of tax paid on purchases of raw materials used in the manufacturing process; however, the Finance Department has not released a single rupee of such refund till date nor have they given any explanation for non-release of such refund. It was submitted that retrospective cancellation of certificate of entitlement by the impugned order on the ground of arrears of tax dues under the GVAT Act without taking into consideration the ....
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....y prejudiced if the promise is enforced. In support of such submission, the learned advocate for the petitioners placed reliance upon the decision of the Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. v. State of Uttar Pradesh, (1979) 44 STC 73 (SC), wherein the court has held that the law is well settled that where the Government makes a promise knowing or intending that it would be acted on by the promisee and, in fact, the promisee, acting in reliance on it, alters his position, the Government would be held bound by the promise and the promise would be enforceable against the Government at the instance of the promisee, notwithstanding that there is no consideration for the promise and the promise is not recorded in the form of a formal contract as required by Article 299 of the Constitution. The court held that it is elementary that in a republic governed by the rule of law, no one, howsoever high or low, is above the law. Everyone is subject to the law as fully and completely as any other and the Government is no exception. 3.2 It was further submitted that the provisions of the textile policy and the notifications issued thereunder being investment linke....
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....Supreme Court in the case of State of Bihar v. Suprabhat Steel Ltd. and Others, (1999) 112 STC 258 (SC), wherein the court held thus:- "7. Coming to the second question, namely the issuance of notification by the State Government in exercise of power under Section 7 of the Bihar Finance Act, it is true that issuance of such notifications entitles the industrial units to avail of the incentives and benefits declared by the State Government in its own industrial incentive policy. But in exercise of such power it would not be permissible for the State Government to deny any benefit which is otherwise available to an industrial unit under the Incentive Policy itself. The Industrial Incentive policy is issued by the State Government after such policy is approved by the Cabinet itself. The issuance of the notification under Section 7 of the Bihar Finance Act is by the State Government in the Finance Department which notification is issued to carry out the objectives and the policy decisions taken in the industrial policy itself. In this view of the matter, any notification issued by the Government order in exercise of power under Section 7 of the Bihar Finance Act, if is found t....
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.... tax paid on purchases, the respondent authority has erred in retrospectively cancelling the certificate of entitlement on the ground of arrears of tax. 3.5 Next, it was submitted that it is an admitted position that the eligibility certificate issued by the Industries Department is still in force and, therefore, the Industries Department still considers the petitioner to be an eligible unit under the textile policy. According to the learned advocate for the petitioners, all the departments of the Government are required to speak in one voice. Since in the case of the present incentive scheme, the parent policy is floated by the Industries Department, the voice of the Industries department is paramount and, therefore, the Finance Department cannot take a contrary stand by retrospectively cancelling the certificate of entitlement even though the eligibility certificate is still in force. Reliance was placed upon the decision of the Supreme Court in the case of Vadilal Chemicals Ltd. v. State of Andhra Pradesh, (2005) 142 STC 76 (SC), wherein the court followed the principles settled in M.R.F. Ltd. (2006) 148 STC 225, and held that as the petitioner-company has made substantial in....
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....as required to be reimbursed by the Industries Department. The procedure of refund/reimbursement was probably devised only for accounting purpose and the tax liability was practically only notional inasmuch as whatever tax was paid by the eligible unit was required to be refunded/reimbursed. It was submitted that the entire mechanism would however work only if refund of tax paid on purchases was given as promised since the eligible units such as the petitioners would not consider tax element as a cost while arranging their affairs relying on the promise of the Government. It was emphatically argued that the petitioners have landed in difficulty because of reluctance on the part of the authorities to disburse refund validly due to them. It was urged that cancellation of certificate of entitlement of the petitioners on the ground of tax arrears even though ultimately the said amount of tax was to be reimbursed to the petitioners is mechanical, arbitrary and illegal. 3.9 The learned advocate for the petitioners has put forth an alternative contention without prejudice to the contentions advanced hereinabove, to the effect that retrospective cancellation of the certificate of entitl....
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....case section 33 of the GVAT Act permits dealers to correct errors committed in the monthly returns while filing self assessment annual returns. The annual returns filed by the petitioners are in accordance with law and errors committed in some of the returns have already been rectified. 3.12 In conclusion, it was urged that the petition deserves to be allowed by granting reliefs prayed for therein. 4. Opposing the petition, Mr. Utkarsh Sharma, learned Assistant Government Pleader for the respondents, submitted that the petitioners have not cleared their dues and could not comply with the conditions of the policy and, therefore, the certificate of entitlement has been cancelled. It was further submitted that by an order dated 12.12.2017, the registration number of the petitioner has also been cancelled. It was submitted that the registration under the GVAT Act has been cancelled with effect from 2016, which indicates that there has been persistent breach of the provisions of the GVAT Act and, therefore, the impugned order which is passed on the basis of clauses 7(i) and 7(ii) of the Notification dated 11.10.2013 is duly substantiated. It was submitted that there is a breach in....
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....under the CST Act. Such liability is as per self assessment returns wherein the tax is collected by the petitioner from various dealers but has not been paid in the Government treasury till today. 4.2 It is also averred in the affidavit-in-reply that for the year 2015-16, the petitioner had to file return as per incentive dealer; however, the petitioner had defaulted. After default, the petitioner was given option to make payment as per installments granted by the Commissioner of Commercial Tax, however, the total value added tax payable by the petitioner for claiming reimbursement was not at all paid. The petitioner had filed returns which were factually incorrect and that for the months of April 2015 to August 2015, the petitioner had adjusted input tax credit which comes to Rs. 1,47,95,689/- and, therefore, the petitioner had breached the conditions of the policy. It is further stated that there is also a liability of CST of Rs. 31,79,249/- for the year 2015-16 and that during the financial year 2015-16, there was a demand of Rs. 26,93,440/- for assessment year 2011-12, Rs. 49,22,047/- under the CST Act for the year 2013-14, Rs. 55,59,662/- under the CST Act for the year 2014....
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....outstanding dues, which is not possible because of non-release of refund by the Industries Department and the Finance Department under the textile policy, for which now recourse is taken by the Government to retrospective cancellation of certificate of entitlement. It was submitted that the petitioners will be able to revive the registration certificate and pay outstanding dues only if refund is released to the petitioners at least for the period prior to cancellation of registration certificate. 5.1 Mr. Sheth invited the attention of the court to the computation of Value Added Tax and Central Sales Tax payable/refundable to the petitioner year-wise as annexed along with the affidavit-in-rejoinder. It was submitted that the total payable outstanding amount as computed by the respondent is Rs. 6,22,08,565/- out of which recovery of an amount of Rs. 2,10,00,000/- has been stayed by the Tribunal. The central sales tax dues are to the tune of Rs. 1,36,73,870/-. It was submitted that if this amount is deducted from the total amount, the outstanding value added tax dues come to around Rs. 2.75 crore approximately. It was submitted that the Commercial Tax Officer in the communication t....
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....x payable by you. Besides you have made textile sales. You were required to pay VAT payable thereon. On which you are required to obtain refund from the Industries Department. During the above period, you have availed of credit for tax paid on the purchased goods against the tax payable by you. Also you have not paid any tax during that period due to which you are also a defaulter in respect of challans for more than three weeks. Therefore, you are informed to pay the entire tax by 8.10.2015, failing which an ex parte decision shall be taken." 8. Thus, by virtue of the above notice, the petitioners are called upon to discharge the output tax liability which was paid against the input tax credit on the goods purchased by it for the period 14.7.2013 to 31.8.2015, which the petitioners would otherwise not have been liable to pay under the normal provisions. 9. According to the petitioners, at the time when the show cause notice was issued they were entitled to refund of Rs. 97,07,397/- under the textile policy and if such refund would have been granted forthwith, they would have been able to discharge the tax liability immediately. The Commercial Tax Officer issued a re....
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....lity and then claim refund, on the other hand by an order dated 3.12.2015, the registration certificate came to be cancelled. Thereafter, the Additional Commissioner of Commercial Tax addressed a communication dated 29/31.12.2015 to the petitioner providing facility for payment of installments whereby 30% was to be paid immediately together with interest and hearing on facility for installments after such payment was made, was granted. Thereafter, by a communication dated 19.1.2016 of the Commissioner of Commercial Tax addressed to the Assistant Commissioner of Commercial Tax, facility of payment by six installments was granted to the petitioners in accordance with which six post-dated cheques were required to be furnished by the petitioners. Accordingly, the petitioners issued post-dated cheques in terms of the said communication. Thereafter, by an order dated 21.1.2016, the registration of the petitioners came to be restored from the date on which it was cancelled. Soon thereafter, by a notice dated 28.1.2016 the petitioners were called upon to pay the pending dues of Rs. 79,36,350/- with interest thereon within a period of seven days and to submit a receipt/challan evidencing pa....
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....unication dated 10.6.2016 addressed to the Deputy Commercial Tax Commissioner, the petitioners informed him that their company had filed an application for refund for the period January 2016 to March 2016 under textile incentive scheme for input tax of local purchases. The petitioners also enclosed therewith a local purchase statement with invoice copies for the refund application period and requested him to take note of the same and finalise their refund application. By an order dated 14.6.2016 which appears to have been received by the petitioners on 18.6.2016, the registration certificate of the petitioner came to be cancelled with effect from 1.6.2016. Thus, the cancellation of registration certificate was with prospective effect. 12. Along with a letter dated 21.6.2016, the petitioners forwarded the documents required for process of refund of commercial tax paid for the financial year 2015-16 to the Deputy Commissioner, Range - 1. 13. It appears that the petitioners had filed an appeal/application dated 23.6.2016 for restoration of their registration number, in response to which, by a communication dated 27.7.2016, the Deputy Commissioner of Commercial Tax informed the p....
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....revised statements which they had submitted. Despite the aforesaid representation, the Deputy Commissioner of Commercial Tax has rejected their on-line refund application. Moreover, the Commercial Tax Officer has raised a demand of Rs. 2,60,93,445/- for local sales for assessment year 2011-12 and Rs. 2,10,52,600/- for assessment year 2012-13 and Rs. 14,201/- towards CST. Against the said assessment order, they had preferred appeal before the Deputy Commissioner of Commercial Tax, Circle-1, Ahmedabad, which is pending adjudication. They have further stated that due to financial hardship, they are not able to discharge their tax liability and that they are entitled to get refund of approximately Rs. 4 crore from the Sales Tax Department but on account of non-receipt of the same, the company is in doldrums. The petitioner also addressed a communication to the Assistant Commercial Tax Officer to furnish a certificate of the outstanding refund in respect of the output tax paid by them. 17. On 31.7.2017, the Assistant Commissioner of Commercial Tax once again addressed a communication which is in the nature of the garnishee order to the Industries Commissioner informing him that an am....
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....contents of the impugned order dated 12.12.2017, as translated into English read thus:- "As the petitioner has not complied with the provisions of Para 7(1) and 7(2) of the Notification dated 14.7.2013 whereby the Certificate of Entitlement was issued in favour of the petitioner, its Certificate of Entitlement is required to be cancelled. For nonpayment of more than three installments of tax, the dealer's registration number had been cancelled under section 27(5) of the Gujarat Value Added Tax Act, 2003 with effect from 1.6.2016. Thus, the dealer has not paid taxes within time. Thereafter, the dealer had filed an appeal before the said office on 23.6.2018 against the cancellation of registration number. Despite adequate opportunities having been granted to the dealer, the dealer has not paid the tax payable on the statements filed for the years 2013-14 to 2016-17 and has also not paid the assessed tax for the years 2011-12 and 2012-13 of Rs. 6,22,08,565/- and the interest thereon. Since the defect had not been removed, the appeal for restoration of registration number had been dismissed vide order dated 2.8.2017. The dealer has also not complied with the provisions of ....
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....utstanding dues payable by the petitioners are to the tune of Rs. 6.22 crore, out of which, recovery of Rs. 2.10 crore has been stayed by the Tribunal. Therefore, the balance amount comes to Rs. 4.12 crore. Out of this amount, Rs. 1,36,73,870/- is payable towards CST dues, upon deducting the same, the balance amount comes to Rs. 2,75,26,130/-. Thus, it appears that approximately Rs. 2.75 crore is outstanding and payable by the petitioners towards VAT dues to the respondents. The petitioner is also entitled to refund from the respondent which from the communication addressed by the Commissioner of Commercial Tax to the Industries Department appears to be to the tune of Rs. 5 crore. 22. In the facts of the present case, on account of the circumstances narrated hereinabove, the petitioners have landed into a vicious circle where there is no way out unless the respondents find out a way to resolve the issue. The entire problem has arisen mainly on account of retrospective grant of eligibility certificate after a period of almost two years as during the period prior to the grant of certificate, the petitioners had filed returns like normal dealers and claimed input tax credit and use....
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....ficate of the petitioners with retrospective effect from 14.7.2013 suffers from the vice of non-application of mind to the relevant factors and stands vitiated as being based on incorrect facts, which renders the same unsustainable. 25. In this case, even after the entitlement certificate was granted, the Government has not released any refund for the year 2013-14. Even for the subsequent period, while the Industries Department has granted partial reimbursement, the Finance Department has not given any refund on the tax paid on the purchases. It cannot be gainsaid that when a dealer avails of benefit of an incentive scheme, he would manage his affairs accordingly. In the present case, in view of the manner in which the respondents have operated under the scheme, the petitioners were saddled with liability of tax and interest which in the ordinary course of business they would not have been liable to pay. Thus, the petitioner appears to be worse off for having availed of the benefit under the scheme. 26. From the facts as emerging from the record it is crystal clear that the mighty Government insists on the petitioners paying all the dues for the different periods prior to ava....
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....he obligation cast upon the dealer which has been taken into consideration, ignoring the fact that such failure has occasioned on account of the non-fulfillment of the reciprocal obligation cast upon the Government authorities to refund/reimburse the amounts due to the dealers. All the dice are loaded against the dealers inasmuch as it is the Government authorities who decide whether the dealer has complied with the provisions of the scheme, while turning a blind eye to the reciprocal obligations cast upon them under the scheme. Now, they take shelter behind the cancellation of the certificate of registration of the petitioners for the purpose of denying them the benefit of the addendum, which if applied in the case of the petitioners, may absolve them of the liability to pay any amount at all. 29. In Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P. (supra), the Supreme Court has held that where the Government makes a promise knowing or intending that it would be acted on by the promisee and, in fact, the promisee, acting in reliance on it, alters his position, the Government would be held bound by the promise and the promise would be enforceable against the Government at ....
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....d and unless its registration certificate is restored the petitioners would not be entitled to refund/reimbursement under the scheme. Thus, while it appears that the amount of refund/reimbursement due to the petitioners exceeds the outstanding dues payable by them, it is the petitioners who are first required to clear the outstanding dues for getting the certificate of registration restored. The ultimate effect is that the petitioners who are financially not in a position to discharge the tax dues unless they receive the refund/reimbursement under the scheme, would be ruined, all because they sought to avail the benefit of the textile policy. In the opinion of this court, the officers who man the offices of the Government are required to adopt a more humane approach and endeavour to see that while taxes are duly recovered, the business also continues. If the petitioners are put in such a position that it is no longer possible for them to run the business, it is ultimately the State which will suffer loss of taxes. Therefore, the approach of the officers should be such as would advance the interest of the Government. A short-sighted approach on the part of the Government officers to....