2008 (7) TMI 936 - HC - VAT and Sales Tax

Whether the Trade Tax Tribunal was legally justified to set aside the demand of interest imposed by the assessing authority despite the fact that the dealer had failed to deposit the tax due under the Act within the prescribed time? Held that - Coming to the facts of the present case the exemption claimed by the dealer-opposite party on certain purchases on the basis of form IIIC(2) having been rejected the liability to pay tax on such purchases is nothing but an admitted liability to pay the tax under the Act the purchases being undisputed. In this view of the matter the dealer-opposite party is liable to pay the interest on the said turnover in view of the statutory provision as contained in section 8(1) of the Act. Thus find sufficient force in the revision. The revision is on terra firma and the Tribunal has obviously committed a legal error in holding that the dealer-opposite party is not liable to pay the interest as it had filed forms IIC(2) which were subsequently found to be forged one. Question of law raised in the revision is decided in favour of the Department and against the dealer-opposite party.

Summary

Issues Involved:
1. Validity of exemption claim based on forged documents.
2. Liability to pay interest on tax liability.

Analysis:

Issue 1: Validity of exemption claim based on forged documents:
The case involved a dealer who claimed exemption on purchases using forms IIIC(2) and IIIC(5) which were later found to be fabricated and forged. The assessing authority determined that the exemption granted based on these forged documents was incorrect. The Tribunal upheld the tax levy but deleted the interest component based on a previous court judgment. The key question was whether the Tribunal was justified in setting aside the interest component despite the dealer's failure to pay the tax within the specified time.

The court analyzed the Division Bench judgment in Annapurna Biscuit Manufacturing Co. case, which stated that interest is payable if the dealer fails to pay the tax within the specified time. In this case, since the exemption claim based on forged documents was rejected, the liability to pay tax on those purchases became an admitted liability. As per section 8(1) of the Act, the dealer was liable to pay interest on the unpaid tax amount. The court emphasized that forged documents have no legal standing, and the dealer claiming exemption based on such documents is still liable to pay the tax and interest.

Issue 2: Liability to pay interest on tax liability:
The court held that the dealer was legally obligated to pay interest on the tax liability arising from the rejected exemption claim. The court found that the Tribunal erred in holding that the dealer was not liable to pay interest due to the forged nature of the documents. The court emphasized that the dealer's reliance on forged documents did not absolve them of the statutory liability to pay the interest on the admitted tax liability. Therefore, the court allowed the revision, set aside the Tribunal's order, and ruled in favor of the Department, holding the dealer liable to pay the interest on the tax liability.

In conclusion, the judgment clarified that reliance on forged documents for tax exemption does not negate the dealer's liability to pay the tax and interest on the admitted tax liability. The court upheld the statutory obligation of the dealer to pay the interest despite the fraudulent nature of the documents involved.