TaxTMI 
TaxTMI 
2021 (4) TMI 261
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.... 5969, 8936 and 9694 of 2020, Dr.Thiagarajan, Senior Counsel for, Mr.S.Ramesh Kumar in W.P.No.6406 of 2020, Mr.K.Vaitheeswaran, in W.P. No.6467 of 2020 For the Respondents : Mr.Mohammed Shaffiq, Spl.G.P. assisted by Ms.G.Dhanamadhri in the above W.Ps. COMMON ORDER This batch of 23 Writ Petitions has been filed by assessees under the Tamil Nadu Goods and Service Tax Act, 2017 ('TNGST Act') who challenge notices issued by the respondent, Commercial Tax Authorities proposing the denial of transition of credit in respect of Tax Deducted at Source (TDS) in terms of Section 13 of the Tamil Nadu Value Added Tax Act, 2006 (in short 'TNVAT Act') in 10 cases, and orders confirming the aforesaid proposals, in 13 cases. 2. The common factual position is that all petitioners, in the era of TNVAT, have accumulated credit of TDS and have also been permitted to carry forward the same from year to year. The petitioners sought transition of the accumulated TDS into their respective accounts for set off against output tax - GST liabilities. This has been denied. 3. Before setting out the rival contentions, I extract the relevant statutory provisions for ease of reference. Tax has been ....
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....ng deduction to the extent of the amount deposited: Provided that the burden of proving that the tax on such works contract has already been deposited and of establishing the exact quantum of tax so deposited shall be on the dealer claiming the deduction. (5) Any person who contravenes the provisions of sub-section (1) or subsection (2), shall pay, in addition to the amount required to be deducted and deposited, interest at 1[two] per cent per month of such amount for the entire period of default. (6) Where the dealer proves to the satisfaction of the assessing authority that he is not liable to pay tax under section 5, the assessing authority shall refund the amount deposited under sub-section (2), after adjusting the arrears of tax, if any, due from the dealer, in such manner as may be prescribed. (7) The tax or interest under this section shall become due without any notice of demand on the date of accrual for the payment by the person as provided under sub-sections (1) and (2). (8) If any person contravenes the provisions of sub-section (1) or sub-section (2), the whole amount of tax payable shall be recovered from such person and al....
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....ull import of Article 265. Thus what is collected can be nothing, but tax. vi) Section 13 of the TNVAT Act casts onerous responsibilities upon the deductor to deduct and remit. In the absence of compliance, the deductor is deemed to be an assessee in default. Thus what is deducted, collected and remitted is nothing but tax. vii) Rule 9 of the Tamil Nadu Value Added Tax Rules, 2007 (TNVAT Rules) supports the position that what is deducted only constitutes a tax. A comparison of erstwhile Rule 9 with new Rule 9, effective 29.01.2016, and the statements of deduction in Form T and R, support the position that what is deducted constitutes tax. viii) There are exclusions to the operation of Section 13 relating to labour contracts where there is no transfer of property, inter-state purchases and transactions where there is no liability to tax. This is in consonance with the proper exercise of authority under Article 265, meaning to say that the payer can deduct tax only in those situations where there is a liability to tax and not in the absence of such liability. It follows thus that when such authority is exercised, what is deducted will only constitute a tax.....
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.... of a deposit, to counter the submission that where Legislature intends that an amount be collected as a deposit rather than as a compulsory exaction, it indicates so unambiguously. Reliance is placed on the decision of the Bombay High Court in Mahindra & Mahindra Ltd. Vs. CCE [(2020) 371 ELT 481]. xv) What is required to be deducted would constitute a portion of the tax payable in respect of a transaction, and any amount in excess thereof can be refunded only in accordance with law. This can be contra distinguished with a deposit where a full return or refund is contemplated on fulfilment of stipulated conditions. The decisions relied on in regard to the proposition that TDS cannot be equated to a deposit under indirect tax laws is as under: (a) 3E Infotech Vs. CESTAT Chennai [(2018) 18 GSTL 410]; (b) United News of India Vs. UOI [(2004) 168 ELT 442]; (c) Joshi Technologies International Vs. UOI [(2016) 339 ELT 21 Guj]; (d) Swastik Sanitaryware Ltd. Vs. UOI [(2013) 296 ELT 321 Guj]; (e) Gujarat Insecticides Vs. UOI [(2005) 183 ELT 9 Guj.] (f) Ajni Interiors Vs. UOI [SCA No.10435 of 2018] xvi) Section 140 does ....
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....acter of a tax, since it is, admittedly, in excess of the tax liability. For this proposition reliance is placed on the judgment of the Supreme Court in the case of Commissioner of Income Tax, Gujarat Vs. Gujarat Fluoro Chemicals (2012 13 SCC 731) and Modi Industries Ltd. Vs. CIT [(1995) 6 SCC 396]. In the latter case, the Bench held that any excess of advance tax paid become refundable and loses its character as tax. (iv) In summation of the argument at points (ii) and (iii) above, the revenue would urge that amounts collected as tax deducted at source bear a dual character; a tax to the extent to which it stands adjusted against output tax liability and a refund due to the assessee, to the extent to which it represents an excess after adjustment. Such a dual characteristic is not uncommon as noticed by the Supreme Court in Karnataka Pawn Brokers Assn. and Others Etc. Vs. State of Karnataka and Others Etc. (1998 7 SCC 707) and State of Maharashtra, Bombay and Others Vs. Britannia Biscuits Co. Ltd. and Others (1995 Supp. (2) SCC 72). (v) According to the revenue, Section 13 employs deferring terminology in respect of the amount deducted, such as 'amount', 'deposit....
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....the Supreme Court in Eastern Coal Fields Limited V. Sanjay Transport Agency and another ((2009) 7 SCC 345) and this cannot be lost sight of in deciding the present issue. (ix) ITC is defined in terms of Section 2(63) of the CGST Act to mean 'credit of Input Tax Act'. This cannot be extended to TDS or any other deduction as what can be transitioned must be ITC only. (x) Revenue relies on the treatment given to TDS as opposed to that given to ITC. TDS is credited in the cash ledger as opposed to ITC which is credited to the electronic credit ledger. This lends support to the proposition that one cannot be equated with the other. Moreover, Section 19(1) of the TNVAT Act that provide for ITC states that ITC represents taxes paid by the recipient to the buyer whereas TDS represents output tax, which is deducted by the payer on behalf of the buyer. TDS thus, does not constitute ITC even under TNVAT. (xi) A strict construction has to be given to the concept of ITC as laid down in Jayam and CO. (S) Vs. Assistant Commissioner and Anr. (15 SCC 125) and ALD Automotive Pvt. Ltd.V. Commercial Tax Officer ((2019) 13 SCC 255) wherein it has been held that ITC is granted....
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....ench states as follows: Section 13AA should have been precisely drafted to make it clear that no tax was levied on that part of the amount credited or paid that related to inter- State sales, outside sales and sales in the course of import, particularly after the previous Section 13AA had been struck down by the Orissa High Court for the reason that it was couched in terms wider than were permissible to the State legislature and that judgment was accepted. 9. In Nathpa Jhakri Joint Venture (supra), the appellant questioned the validity of Section 12 A of the Himachal Pradesh General Sales Tax Act, 1968 and connected Rules, that provided for a deduction of an amount from the bills or invoices of works contractors. The provision had been upheld by the High Court. At para 4, the decision of the High Court was confirmed in the following terms: A bare perusal of the two provisions will make it clear that in either provision there is an obligation to deduct from transactions relating to works contract on bills or invoices raised by the work contractor an amount not exceeding 4 per cent or 2 per cent, as the case may be. Though the object of the provision is to meet t....
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....of such ancillary power must be within the competence of the State Legislature'. 11. The Gujarat High Court in the case of Cibatul Limited, P.O. Atul V. Union of India ((1979) 4 ELT 407) observed that when testing the validity of a machinery provision, the general principle was that, if the charging section was intravires, the machinery would also normally be intravires subject to the condition that it does not 'stretch its long arms to pick- up the forbidden fruit along with others'. Thus, even an ancillary provision enacted to aid the process of collection of tax would have to stay confined within the four corners of legislative power conferred under the entries enumerated in the lists under the Constitution. 12. The Bench also rejects the argument of the State that whatever was deducted would be ultimately adjusted against tax liability and excess, if any, refunded, taking judicial note of the position that refunds by the Commercial Taxes Department were normally, notoriously delayed. 13. There is thus no doubt in my mind, and it is also not the case of the revenue that 'TDS', whether collected under the nomenclature of 'amount', 'deposit' or 'tax' is with the full bles....
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.... defraying tax liability only. If this be the case, can one legitimately take the argument that what is deducted would constitute anything other than a tax ? The excess/short fall available post deduction and determination of tax liability would arise from various situations, such as multiple lines of activity, each with its own tax implications, the quantum of ITC available to be carried forward, to name a few. The ultimate quantification would give rise to a demand if there is a shortfall in the in tax credit, and a refund, if the credit is in excess. This is a matter for computation and can hardly impact a decision on the nature of the amount deducted. In a situation where an asseesee is only a works contractor, then the rate of tax qua the transaction has been crystallised in Section 13 as being 2% for civil works contracts and civil maintenance works contract and 5% in respect of all other kinds of works contracts. 19. Section 5 of the TNVAT Act is a charging Section for Works contracts and reads as follows: 5. Levy of tax on transfer of goods involved in works contract.- (1) Notwithstanding anything contained in this Act, but subject to the provisions of this Act,....
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....n is posed and answer stated as follows: 47..........This means that in the assessment order, the Income Tax Officer will have to give credit for the advance tax paid by the assessee by treating the entire amount as income tax paid by the assessee. Thereafter, if there is any excess sum it will be refunded or if there is any shortfall in the payment of advance tax, that will be recovered by the Income Tax Officer. The amount standing to the credit of the assessee, upon assessment and after adjustment of the tax liability as quantified in the assessment order, loses its character as advance tax. It becomes an amount refundable as determined in the order of assessment. If after adjustment of the tax liability any excess amount is standing to the credit of the assessee, interest will be paid on that excess amount upto the date of the assessment order and, thereafter, the assessment order will contain a direction to refund the excess amount. The amount will be refunded with interest, if any, under Section 243. 23. In Gujarat Fluro Chemicals the point that arose was what the character of TDS or advance tax would be under the Income Tax Act and whether interest would be payab....
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.... of the view that any deduction made towards anticipated tax liability would assume the character of tax and will not change or fluctuate depending on whether it is held as credit or whether it is an adjustment against tax liability. To attribute such fluctuating character to an amount would distort the scheme of taxation and cause much difficulty in the interpretation on the various ancillary provisions. The interpretation of the provision must be such that it lends itself to certainty in its conclusion. 29. Though only supportive, the substituted Rule 9 (with effect from 29.01.2016) also appears to clarify this position. While erstwhile Rule 9 dealing with tax deduction at source stated that 'any person who makes a deduction under Section 13 shall deposit the same so deducted' with the assessing authority, the amended rule reads 'any person liable to make deduction and payment of tax under Section 13 shall apply to the registering authority having jurisdiction over the person for a Tax Deductor Identification Number', prior to effecting such deduction. Perhaps Legislature, by employing the language in the substituted Rule has clarified the position that the ....
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....tions of the Telangana High Court would also support the view I have now taken. 34. A detailed circular has been issued on tax deduction at source (Circular No.54 of 2014 bearing Ref.No.D3/34075/2011) wherein the Principal Secretary/Commissioner of Commercial Taxes Dated 14.11.2014 has issued guidelines on the subject of taxability of works contracts, including the aspects of assessment and TDS. The relevant portions of the Circular are extracted below: . . . . . . . (H) Value of the goods for the purpose of making assessment on works contract: In order to determine the assesable value of the goods, it is permissible to take the entire value of the works contract as the basis and the value of the goods involved in the execution or the works contract can be arrived at by deducting the following amounts from the value of the works contract:- (1) All amounts involved in respect of goods involved in the execution of works contract, i. In the course of export of the goods out of the territory of India or ii. In the course of import of the goods into the territory of India or, iii. In the course of inter-state trade or com....