TMI Blog2014 (8) TMI 861X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of the goods used in manufacture i.e. input tax shall be allowed as the tax paid in advance. In other words, the amount of tax payable according to the returns is the amount of tax calculated on the sales of the goods manufactured minus the input tax credit. - Decided in favor of assessee. Binding force of Circular / Clarification issued by the department - Held that:- circulars, instructions and clarifications issued by the competent authority granting administrative relief in exercise of power conferred under statutory provision are binding on subordinate officers. It is not open to the subordinate officers to contend that the circulars, instructions and clarifications are erroneous and not binding on them as long as they remain in force. However, they would not be binding on the courts and the assessees. - it will be open for the assessees to plead that the circular, instructions and clarification issued by an authority which is not of beneficient nature to them runs counter to the statutory provision and is ultra vires and bad in law and thus, ineffective qua their rights. - Decided in favor of assessee. On the basis of clarification dated 12.7.2004 issued under Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he tax benefit in case of payment of one half of the amount of deferred tax upfront along with the tax returns will be counted towards exhausting the capping limit on the amount of deferment of payment of tax? (iii) Whether the clarification issued under Section 56(3) of the Act by the Financial Commissioner and Principal Secretary to Government Haryana in Haldi Ram's case dated 12.7.2004 dealt with the aforesaid questions and if it did, then was the Tribunal right in deciding the above questions raised in appeals? (iv) Is interest payable under the provisions of Section 14(6) of the Act on short payment of one half of the amount of deferred tax calculated in accordance with the Act and the Rules made thereunder? 4. A few facts necessary for adjudication of the controversy involved, as available on the record of VATAP No.48 of 2012 may be noticed. The appellant is a dealer registered with the HVAT Act as also under the Central Sales Tax Act, 1956 (in short, the CST Act ) and is filing the returns and discharging tax obligations in accordance therewith. It is engaged in the manufacturing and trading of plastic moulding parts etc. The appellant was allowed exemption/def ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the amount of tax deferred should be calculated after deducting the amount of input tax paid on the goods purchased from within the State for use in the manufacture of the goods for sale. According to the learned counsel, exemption provisions should be strictly construed. Learned counsel raised the following three points:- i) What is the amount of deferred tax within the meaning of section 61(2) (d) (iii) of HVAT Act read with Rule 69 of Haryana Value Added tax Rules, 2003 (in short, the HVAT Rules, 2003 ). ii) Clarification issued by the Financial Commissioner in case of M/s Haldi Ram Foods Pvt. Limited, Gurgaon under section 56(3) of HVAT Act is binding or not? iii) Whether in the facts and circumstances of the case, interest is automatically leviable? Reliance was placed on judgments in Creative Handicrafts v. Chairman, Noida and another, (1999) 116 STC 475 (All), State of Haryana and others v. M/s Mahabir Vegetable Oils Pvt. Limited, (2011) 38 PHT 333 and Tata Iron and Steel Co. Limited vs. State of Jharkhand and others, (2005) 140 STC 284. 8. The question that arises for consideration is whether the tax deferred would be calculated as the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of the deferred tax after five years, pay half of the amount of the deferred tax upfront along with the returns and on making payment in this manner, the tax due according to the returns shall be deemed to have been paid in full; and (iv) The tax deferred in every other case shall be converted into interest free loan in the manner prescribed. Explanation, - For the purpose of this clause, tax includes the tax under the Act of 1973 and the Central Act. 10. A composite reading of the above provision leads to the following conclusions regarding intent and scope of benefits available under Section 61(2) (d) of the HVAT Act:- (a) After coming of HVAT Act, the only benefit available to the dealers, who had been given tax benefits under section 13B and 25A of the repealed Haryana General Sales Tax Act, 1973 (in short, the HGST Act ) is that of tax deferment. The benefits of tax exemption and capital subsidy available under the repealed Act were not extended to HVAT Act. (b) Such of the dealers as were enjoying the benefit in the shape of tax exemption or capital subsidy were required vide section 61(2) (d) (i) and section 61(2) (d) (ii), respectively, to change ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided such unit sends an intimation to the officer incharge of the district within 15 days of coming into force of these rules in writing in this behalf. The entitlement or the revised entitlement certificate, as the case may be, shall be subject to the conditions and restrictions specified therein or under the existing rules under which the eligibility/entitlement certificate to such applicant was issued. 12. According to the aforesaid rule, the authority on receiving an application in Form VAT-A5 under sub rule (1) shall ensure that the application is within limitation, correct and complete in all respects. The industrial unit is to be a genuine unit to avail benefit of deferment for which entitlement certificate in VAT-G14 shall be issued where the unit was availing benefit of exemption from payment of tax whereas revised entitlement certificate in VAT-G15 shall be issued where the applicant unit was availing benefit of capital subsidy. The applicant may indicate in the application form that it wishes to make payment of one half of the tax otherwise due before the prescribed date for filing of quarterly returns. Under this sub rule, where 50% of the tax is paid, the unit sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Name of the Zone and the area comprised therein Small scale Medium scale/large scale Time limit Zone A' comprising Centrally and State notified backward areas 150% of fixed capital investment 125% of fixed capital investment 9 years Zone B' comprising areas other than zones A' and B' 125% of fixed capital investment 100% of fixed capital investment 7 years Zone C' comprising Faridabad and Ballabgarh complex administration areas 100% of fixed capital investment 90% of fixed capital investment 5 years (II) Units undertaking expansion/diversification 100% of fixed capital investment 90% of fixed capital investment 9 years 100% of fixed capital investment 90% of fixed capital investment 7 years 100% of fixed capital investment 90% of fixed capital investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther provisions of this rule, an eligible industrial unit (except a prestigious unit) holding a valid entitlement certificate shall be entitled to the concession of deferment of payment of sales tax including central sales tax and conversion of the same to capital subsidy, computed on the sale of goods (including bye-products and waste) manufactured by the unit or arising from the process of manufacturer and declared in the sales tax returns filed by the unit, without taking into account the rebate admissible under section 15-A or the rules framed under the Act, at the scale, subject to the time limit and the extent related to the fixed capital investment(FCI), as tabulated below:- Category Extent of concession Tax concession Small Scale Period Scale of tax Medium/ Large scale A 125% of fixed capital investment 100% of fixed capital investment 9 years Ist to 9th year: 50% B 125% of fixed capital investment 100% of fixed capital investment 10 years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... main under obligation to continue production after availing of the benefit at the same level for a period of five years. iii) The existing unit opting for availing of the benefit under this rule would not be required to give security/bank guarantee against the benefit to be availed of under this rule. 17. Rule 28C had some unique features which was not present in Rules 28A and 28B, which are described below:- (1) Tax concession of retention of part of tax as capital subsidy at a graded scale 80% to 20% or fixed 50% was given. (2) As per illustration, amount of tax paid on goods purchased from within the State on payment of sales tax and used in manufacture was not to be reduced from tax payable on sale of goods manufactured for calculation of amount of tax to be retained as capital subsidy but the said amount was to be counted as payment of tax against the tax payable on sale of goods. (3) A unit availing tax concessions under rule 28A or 28B had the option to switch over to rule 28C at the fixed scale of 50% of tax concession within its balance period and monetary limit of tax concession. The tax concessions available under the HGST Act were saved with certain f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specified in the Act of 1973, shall, subject to the provisions of sub section (4) be liable to pay tax on and from the appointed day on the sale of goods effected by him in the State. (2) Every dealer to whom sub-section (1) does not apply and who is of the class or classes mentioned in column 2 of the Table below and whose gross turnover in any year first exceeds the taxable quantum specified in column 3 there against, shall, subject to the provisions of sub-section (4), be liable to pay tax on and from the day mentioned in column 4 there against on the sale of goods effected by him in the State- TABLE xx xx xx xx xx Provided that this sub section shall not apply to a dealer who deals exclusively in exempted goods. Note: Where a dealer is covered under more than one of the class or classes mentioned in the Table above, the liability to pay tax shall commence from the earliest day he becomes liable to tax. (3) If a dealer liable to pay tax under sub section (1) or sub section (2) purchases any taxable goods in the state from any source in the circumstances that no tax is levied or paid under this Act on_their sale to him and he either exports them out of State or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of all those dealers who were liable to pay tax under the HGST Act on the date of its repeal was continued. Sub-section (2) creates liability of new dealers where taxable turnover exceeds the minimum quantum with effect from the day as given in the Table therein. The tax under these sections is levied on the sales of goods effected in the State by a dealer liable to pay tax. However, sub section (2) is not applicable to a dealer where he is exclusively dealing in exempted goods. Certain circumstances have been enumerated under sub-section (3) creating liability to pay purchase tax. Sub-section (4) gives method of calculation of tax levied under sub-sections (1), (2) and (3). Tax is to be calculated on taxable turnover in accordance with the provisions of section 6 at the rates of tax applicable under section 7. For this purpose, where turnover is taxable at different rates, it shall be split according to rates of tax applicable and tax is calculated on each part separately. Sub section (5) provides for reduction of input tax from the tax computed under sub-section (4). It deals with three eventualities: firstly, where tax calculated under sub-section (4) is more than the input ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctured by the unit is the tax levied under Section 3 of HVAT Act. When an industrial unit purchases goods from within the State, it has to pay tax, i.e., input tax on the same and this payment of tax is in essence advance tax which is liable to be adjusted with the tax payable by it on the sale of the goods manufactured by it. In Form VAT-R1, the input tax is separately calculated and is considered as the payment of tax. Under section 61(2) (d) (iii) of the HVAT Act read with Rule 69(2) of the HVAT Rules, the tax benefit under the HGST Act is to be continued in the form of tax deferment under the HVAT Act for the remaining period and the remaining extent of benefit that was admissible under the HGST Act. The expression falling in Clause (iii) of Section 61(2) (d) is pay half of the amount of the deferred tax upfront alongwith returns and on making payment in this manner, the tax due according to the returns shall be deemed to have been paid in full. A plain reading of the same shows that what is required to be paid by a unit opting for payment of 50% of deferred tax, is the payment of half of the amount of the deferred tax upfront.The provision nowhere provides that deferred tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56(3) of HVAT Act, 2003 (VAT Act) on the application of M/s Haldi Ram Manufacturing Co. (P) Limited Gurgoan seeking clarification on the issue of (a) Input tax benefit (b) restrictions on export out of State and (c) maintenance of production level. The applicant company is an industrial unit availing the benefit of sales tax concession on certain goods i.e. Namkeen, snacks and sweets other than confectionary under rule 28C of the Haryana General sales Tax Rules (Section 61 of Haryana Value Added Tax Act). The facts as narrated by the applicant and the points on which clarification has been sought are as follows:- Under Tax Concession Not under Tax concession Goods Namkeen, Snacks, Sweets other than confectionary Confectionary, cooked food, processed food etc. Taxability Full rate of tax is to be charged at prevailing rates. Half of the tax so charged or collected shall be paid to Govt. up-front (if opted for upfront payment) and retain rest half of the tax. Or This 50% of tax can be passed to the consumer by charging 100% tax and collecting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sub rule 2 of Rule 69 of Haryana Value Added Tax Rules provides answer to dealer's query with regard to input tax benefit. The relevant extract whereby reads as under:- The unit may, in lieu of availing deferment of tax, elect, by indicating, in the application made under sub rule (1), to make payment of one half of the tax otherwise due before the time prescribed for filing of quarterly returns and where the tax is so paid the unit shall have no further liability to pay tax for the said period and such payment for the purpose of computation of tax benefit availed by the unit and input tax passed on to the purchaser, if otherwise admissible to him, shall be deemed to be the full payment.' The applicant can change tax at full prevailing rate from the customers/purchasing dealers. Half of the tax so charged or collected shall be paid to govt. upfront (if opted for upfront payment). It is upto the dealer to pass 50% of tax to the consumer by charging 100% tax and collecting 50% only and paying the same to the govt. to compete in the market. However, it is made clear that input benefit shall be passed to the purchaser only to the extent of tax charged in the tax invoice. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e effect to the provisions of the Act and to provide fair and just administration in the matter of imposition and collection of tax. This is where it becomes the incumbent duty of the Board to grant administrative relief in appropriate cases. In such exercise, incidentally the Board has to consider the effect of the items enumerated in the Entry. Therefore, it is not open to the State Government to contend that the Board in this case had entered into an area which is earmarked for the legislature/executive. In our view, the said circular grants administrative relief to the business. It was entitled to do so. Therefore, it cannot be said that the Board had acted beyond its authority in issuing the said circular. One more reason needs to be stated. Whenever such binding circulars are issued by the Board granting administrative relief(s) business arranges its affairs relying on such circulars. Therefore, as long as the circular remains in force, it is not open to the subordinate officers to contend that the circular is erroneous and not binding on them. 20. In the case of Union of India and anr. V. Azadi Bachao Andolan and anr. Reported in (2004) 10 SCC 1 a circular was issued by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as issued for just and fair administration of the 1963 Act. As stated above, Section 3(1A) is similar to Section 119(1) of the 1961 Act. The circulars of this nature are issued by the Board consisting of highest senior officers in the Revenue Department. These circulars are to be respected by the officers working under the supervision of the Board. These circulars are binding on all the authorities administering the tax department. The power of the Board to issue such circular is traceable to Section 3(1A)(c) of the Act. The said circular is statutory in nature. Therefore, it is binding on the Department though not on the courts and the assessees. In the present case, as stated above, completed assessments were sought to be reopened by the AO on the ground that the said circular No. 16/98 was not binding. Such an approach is unsustainable in the eyes of law. If the State Government was of the view that such circulars are illegal or that they are ultra vires Section 3(1A), which it is not, it was open to the State to nullify/withdraw the said circular under Section 60 of the 1963 Act. Till today, the circular continue to remain in force. Till today, it has not been withdrawn. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... introduced in the Indian Income Tax Act 1922 by the Finance Act 1955 with effect from 1st April, 1955. These two sections provided that any payment made by a closely held company to its shareholder by a way of advance or loan to the extent to which the company possesses accumulated profits shall be treated as dividend taxable under the Act and this would include any loan or advance made in any previous year relevant to any assessment year prior to the assessment year 1955-56, if such loan or advance remained outstanding on the first day of the previous year relevant to the assessment year 1955-56. The constitutional validity of these two sections was assailed on the ground that they imposed unreasonable restrictions on the fundamental right of the assessee under Article 19(1) (f) and (g) of the Constitution by taxing outstanding loans or advances of past years as dividend. The Revenue however relied on a circular issued by the Central Board of Revenue under section 5(8) of the Indian lncome-tax Act 1922 which corresponded to section 119 of the Present Act and this circular provided that if any such outstanding loans or advances of past years were repaid on or before 30th June 1922 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... although it was submitted by the learned Attorney General that the decision in the case of K.P.Varghese (1981) 131 ITR 597 (SC)requires reconsideration, he did not seriously challenge the correctness of that decision. No argument has been advanced by him which could lead us to the conclusion that the said case was not correctly decided nor has he pointed out any error in the judgment in that case. 32. From the above, it emerges that circulars, instructions and clarifications issued by the competent authority granting administrative relief in exercise of power conferred under statutory provision are binding on subordinate officers. It is not open to the subordinate officers to contend that the circulars, instructions and clarifications are erroneous and not binding on them as long as they remain in force. However, they would not be binding on the courts and the assessees. In other words, it will be open for the assessees to plead that the circular, instructions and clarification issued by an authority which is not of beneficient nature to them runs counter to the statutory provision and is ultra vires and bad in law and thus, ineffective qua their rights. 33. On plain interp ..... 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