TaxTMI 
TaxTMI 
2026 (9) TMI 946
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....A Sr.No. Particular VAT Assessment (Rs.) CST Assessment (Rs.) 1 Interest under Section 30(2) of MVAT Act r.w. Section 9(2) of CST Act 1,26,35,766 14,06,997 2 Tax on Mismatch in figures of Annexure J1 & J2 alongwith Interest u/s. 30(3) of MVAT Act 11,66,598 Total demand confirmed by Impugned Orders-in-Appeal 1,38,02,364 14,06,997 3. The facts of the case in brief are that the petitioner is engaged inter alia in the business of sale and distribution of software products, along with allied services such as marketing support and product support services. The petitioner voluntarily obtained registration under the MVAT Act and CST Act with effect from 3rd September 2012. 4. For the FY 2012-2013, being the first year of operations in the State of Maharashtra, the petitioner filed returns in accordance with the statutory requirements and discharged its tax liability. The total CST liability for the said year was Rs. 19,200/-, while there was no MVAT liability. 5. Since the tax liability in the preceding year was below the prescribed threshold of Rs. 1,00,000/-, in terms of Rule 17(4) read with Rule 41 of the Maharashtra....
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....erest, if any, due from him. 6. In compliance with the said statutory provisions, the petitioner filed six monthly returns for FY 2013-2014 under both the MVAT Act and CST Act and discharged tax amounting to approximately Rs. 41.35 crores (taxable turnover of Rs. 981 crores) within the due dates prescribed for such six monthly returns. There was no delay in payment of tax vis-a-vis the due dates prescribed under Rule 41 of the MVAT Rules. In respect of one additional self-assessed CST liability arising due to non-receipt of certain Form C declarations, the petitioner voluntarily paid tax of Rs. 34,55,622/- along with interest of Rs. 5,19,724/- which fact is not disputed. 7. Subsequently, assessment proceedings were initiated and culminated in two Assessment Orders dated 31st March 2018, whereby certain demands were confirmed, inter alia, in relation to alleged disallowance of credit notes and non-submission of Form C declarations. The petitioner filed statutory appeals before respondent No. 4. 8. During the appellate proceedings, the petitioner was issued show cause notice dated 28th October 2024 by respondent No. 4 proposing to levy interest under Section 30(2) of the MVA....
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....petition despite existence of an equally efficacious alternative remedy. The impugned orders do not suffer from want of jurisdiction as levy of interest under Section 30(2) is squarely within the jurisdiction of respondent No. 4. (B) M/s. McDowell and Company Limited vs. Commercial Tax Officer (1985) 3 SCC 543 lays down the principle of tax planning vs. colourable device. It is held that tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. (C) Even assuming if the petitioner's challenge to the levy of interest under Section 30(2) is entertainable, the order in appeal is a composite order dealing with multiple heads of demands and at least two of these heads are admittedly appealable and hence the petitioner must first approach the Tribunal. (D) The petitioner's reliance on Section 85(2)(b-3) of the MVAT Act to argue that no appeal lies against the interest levy under Section 30(2) is wholly misconceived. The said provision bars an appeal only against ....
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....ry and statutory charge for the use of Government revenue during the period of deferment, and is levied under express statutory authority. (E) This Court has consistently held that Rule 17 periodicity must be applied in its letter and spirit and that the period for payment of tax under Section 30(2) of the MVAT Act is determined by Rule 41, which prescribes the last date for filing the return as the due date for payment. This Court in M/s. Oberoi Constructions Limited vs. State of Maharashtra vide order dated 11th November 2024 in Writ Petition No. 3643 of 2018 affirmed this principle and upheld the levy of compensatory interest under Section 30(2) where the assessee had filed consolidated returns in deviation of the prescribed periodicity. (F) The petitioner has placed reliance on Trade Circular No.30T of 2006 dated 10th October 2006 and Trade Circular No. 26T of 2009 dated 1st October 2009 to argue that the periodicity is determined solely by the previous year's tax liability. These Trade Circulars do not override the statutory provisions for they merely operationalised the rule. The petitioner's attempt to derive an entitlement to withhold Rs. 41,35,59,885/- of the Governm....
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..... (D) The settled distinction between Regular (Mandatory) Registration and Voluntary Registration Scheme (VRS) is as under: Table D Parameter Regular (Mandatory) Registration Voluntary Registration Scheme (VRS) Trigger Condition When dealer's annual turnover crosses the statutory threshold; application to be filed within 30 days of crossing the threshold. Turnover below mandatory threshold; can apply at any time before crossing the threshold. Registration Fees Lower administrative fee (around Rs. 500/-). Higher non-refundable fee of Rs. 5,000/ (subsequently Rs. 25,000/- w.e.f. 01.01.2009). Security Deposit Not demanded in standard cases. Interest-free refundable security deposit of Rs. 25,000/-. Tax Liability Date Liability arises only from the date turnover exceeds the threshold. Liability arises immediately from the date of registration, regardless of low or zero turnover. Commencement Condition No specific period prescribed. Business must generally commence within 6 months of obtaining voluntary registration, failing which the certificate is liable to be cancelled. (E) The petitioner obtained registration....
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....signed solely to enable six-monthly filing periodicity, was anything but a colourable device to defer the payment of substantial tax revenue of approximately Rs.41 crores for periods of up to 160 days per month. The petitioner's structure and conduct demonstrate a clear, orchestrated scheme, which falls squarely within the observations of the Hon'ble Supreme Court in M/s. McDowell and Company Limited (supra) that colourable devices are impermissible, even if they are (technically) within the letter of the law. 15. The petitioner's conduct demonstrates the following unmistakable features of a colourable device : Step 1 : Voluntary registration under VRS on 3rd September 2012 without any business activity; Step 2 : Effecting one single, token, nominal CST transaction of Rs. 1,73,800/- in FY 2012-13 to generate an output liability figure of Rs. 19,200/-; Step 3 : Filing quarterly returns for FY 2012-13 (mandatory under Rule 18 for first year of registration); Step 4 : Claiming six-monthly periodicity for FY 2013-14 under Rule 17(4), based on the manufactured "low" prior-year tax; Step 5 : Grossing sales of Rs.981 crores in FY 2013-14 and....
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....he Impugned Orders is Rs. 1,47,49,637/-, of which the interest under Section 30(2) constitutes approximately 86%. The tax and interest under Section 30(3) on the credit notes demand constitute the remainder. The petitioner's arithmetic selectively excludes the CST order and ignores the dropped Form C demand of Rs. 1,42,19,224/- (which resulted in a refund of Rs. 55,65,609/- to the petitioner). 21. So far as the credit notes disallowance is concerned, the submissions of the respondents are as under : (A) The petitioner has failed to discharge its burden of proving that the credit notes were correctly issued and accounted for. The petitioner produced a reconciliation statement and a ledger confirmation from M/s. HCL Infosystems Ltd. (accounting for approximately 85% of the differential). (B) The respondent No. 4 examined the reconciliation and rejected it for the reasons recorded in the Impugned Order. The petitioner's submission that the reconciliation was rejected "merely because it was at variance with the findings recorded in the original VAT Assessment Order" is incorrect. The reconciliation was rejected on its own merits, the ledger confirmation from HCL In....
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....roposition that the compensatory nature of interest under sales tax legislation is to compensate the government for use of revenue, and is not a penalty is not seriously disputed. Interest under Section 30 of the MVAT Act is compensatory and mandatory; and cannot be waived by the assessing authority. The mandatory nature of interest under tax statutes is automatic upon default; there is no discretion with the assessing authority. 25. So far as composite orders are concerned, it is well settled that where an order deals with multiple heads of demand, the entire order is appealable even if one head relates to a non-appealable item. 26. So far as the binding nature of Trade Circulars, the principle is that Trade Circulars are binding on the revenue and cannot be disregarded but Trade Circulars do not override statutory provisions. 27. Thus, apart from the maintainability of the writ petition in view of the existence of availability of alternate efficacious remedy to challenge the impugned orders, the main thrust of the respondents case is the colourable device manufactured by the petitioner to avoid payment of tax resorting to dubious methods. It is the respondents case that ....
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.... the Financial Year 2013-14 and thus was required to pay tax on a six monthly basis. It is significant to note that the impugned order records that the petitioner could file six monthly return in view of the relevant provisions of Rule 17 of MVAT Rules, 2005. However, the impugned order then proceeds to justify the levy of interest on the reasoning that the petitioner has unjustly enriched itself by resorting to dubious method of tax planning. Though the petitioner has paid the tax in terms of what is provided in the provision, nonetheless the reason why the respondents find fault with the device used by the petitioner is that it was never the intention of legislature while framing the said rules to grant any such unwarranted benefit in undeserving cases. The respondent No. 4 observes that the provisions are correctly followed by the petitioner but then proceeds to perceive the tax planning as a dubious device adopted by the petitioner to avoid the payment of tax within the period mandated by law had this device not been resorted to. We are therefore of the opinion that though the theory of the respondent No. 4 as regards unjust enrichment sounds attractive, but there is hardly any....
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....the assessee. Thus, the revenue which is to be remitted with the government is with the assessee. To control any delay in remittance, the legislature prescribes the periodicity of paying such taxes. The respondent No. 4 has no jurisdiction to decide or alter such periodicity based on his own surmises or perceptions unless supported by very cogent materials or the sanction of law to arrive at such a finding. To assume that the petitioner has arranged its affairs in such a manner only with a view to derive advantage of the statutory provisions, the basis being the manifold increase in the gross collection for the next year, can at the highest be a perception formed by the respondents. Without there being anything more, the provision will have to be construed in favour of the petitioner. 37. No doubt in M/s. McDowell and Company Limited (supra) the Hon'ble Supreme Court holds in paragraphs 43, 44 and 45 as under :- "43. The Gujarat High Court in the case of CIT v. Sakarlal Balabhai, said : Tax avoidance postulates that the assessee is in receipt of amount which is really and in truth his income liable to tax but on which he avoids payment of tax by some artifice o....
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.... is honourable to avoid the payment of tax by resorting to dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges." 38. In the present case the tax planning resorted to by the petitioner is within the framework of law. Undoubtedly colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by resorting to dubious methods. Present is not a case where the petitioner has avoided payment of tax by resorting to dubious methods. Present is a case where the tax has been paid. At the highest it could be said that the petitioner has made the tax planning in such a manner that it is legitimately within the framework of law. 39. The reasoning in the impugned orders that the petitioner derived an "unwarranted benefit" or stood "unjustly enriched" by paying tax on a six monthly basis, in our opinion, is not correct. The MVAT Act does not create any concept of unjust enrichment in relation to return periodicity or timing of tax payment where the dealer has acted strictly in accordance with the prescribed Rules. In the facts of the present c....