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2015 (9) TMI 256 - ALLAHABAD HIGH COURT

2015 (9) TMI 256 - ALLAHABAD HIGH COURT - TMI - Validity of Compounding Scheme Petitioners applied for compounding scheme for session 2007-08 & 2008-09, which was rejected by assessing authority on ground that regular assessment orders had already been passed for session 2007-08 Whether petitions challenging constitutionality validity of compounding scheme dated 9.6.2009 for season 1.1.2008 to 30.9.2008 are maintainable Held that:- impugned compounding scheme neither violates any fundament .....

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rcise of their power of judicial review did not ordinarily interfere with policy decisions of executive unless policy can be faulted on account of malafide, unreasonableness, arbitrariness or unfairness etc Therefore relief sought by petitioners to declare aforesaid compounding scheme as ultra vires, hereby rejected.

Compounding Scheme Applicability for part of session Whether compounding applications for part of season from 1.4.2008 to 30.9.2008 may be accepted despite fact th .....

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lump sum amount under scheme unless assessing authority is permitted to do so under scheme itself In absence of any such direction or power, assessing authority committed no error in rejecting compounding application Therefore compounding scheme is valid and petitioners were not entitled to apply for compounding Decided against Petitioners. - Civil Misc. Writ petition (Tax) No. 442 of 2012, Civil Misc. Writ Petition (Tax) No. 894 to 899 of 2012 - Dated:- 3-9-2015 - Hon'ble Tarun Aga .....

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s. Assistant Commissioner, Commercial Tax, is taken into consideration. 2. The facts involved in this bunch of writ petitions are almost similar. Briefly stated the facts are that the petitioners run a brick kilns and are engaged in the business of manufacture and sale of bricks. The U.P. Value Added Tax Act, 2008 (hereinafter referred to as the "Act") came into force w.e.f. 1.1.2008. It repealed the U.P. Trade Tax Act 1948. Chapter IV of the Act provides for assessment, payment, recov .....

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sion of this Act, but subject to other provisions of this section and the directions of the State Government, the assessing authority may agree to accept a composition money either in lump sum or at an agreed rate on his turnover of sale in lieu of tax that may be payable by a dealer in respect of such goods or class of goods and for such period as may be agreed upon: Provided that in the case of a dealer not being a dealer executing works contract, who carries on exclusive business of re-sale o .....

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urther that any change in the rate of tax which may come into force after the date of such agreement shall have the effect of making a proportionate change in the lump sum or the rate agreed upon in relation to that part of the period of assessment during which the changed rate remains in force. (2) Any dealer, who opts for payment of lump sum under this section, shall not be entitled to claim credit of input tax under section 13 in respect of purchase of goods which are re-sold by him during th .....

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mposition money under this section shall not issue any tax invoice and shall not realise any amount from the purchaser by way of tax or by giving it a different name or colour. (4) A dealer who makes purchase of any goods from a dealer, who has opted for payment of composition money under this section, shall not be entitled to claim credit of input tax in respect of goods purchased from such dealer. (5) Where the turnover of sales, in case of a dealer, who has opted to pay composition money unde .....

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further that in case of person who being a dealer other than a registered dealer brings any taxable goods from outside the State, the assessing authority may make separate assessments for each receipt of such goods by the dealer 28. Assessment of tax after examination of Records.- (1) In following types of cases or dealers, the assessing authority, after detailed examination of books, accounts and documents kept by the dealer in relation to his business and other relevant records, if any, and af .....

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below, (i) dealer who has not submitted annual return of turnover and tax within the time prescribed or extended; or (ii) dealer by whom tax return for one or more tax periods of the assessment year have not been submitted; or (iii)dealer in whose case assessing authority has passed provisional assessment order under section 25 in respect of one or more tax periods to the best of its judgment; or (iv)dealer in whose case, on the basis of material available on records, if the assessing authority .....

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der the provisions of this Act; or (2) Where after examination of books, accounts, documents and other records referred to in sub-section (1), - (i) the assessing authority is satisfied about correctness of turnover of sale or purchase or both, as the case may be, disclosed by the dealer, it may assess the amount of tax payable by the dealer on such turnover and determine the amount of input tax credit admissible to the dealer or amount of reverse input tax credit payable by the dealer; and (ii) .....

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to furnish annual return of turnover and tax referred to in sub-section (7) of section 24, if he has not already submitted such return; (ii) be given reasonable opportunity of being heard; and (iii) be served with a notice to show cause, where determination of turnover, input tax credit or reverse input tax credit, or assessment of tax, all or any one of them, as the case may be, are to be made to the best of the judgment of the assessing authority. (4) The show cause notice referred to in sub-s .....

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amount of tax assessed in excess of amount of tax deposited by him for the assessment year, within a period of thirty days after the date of service of the assessment order and notice of demand. (7) Where the amount of tax deposited by the dealer is found in excess of tax assessed, the same shall be refunded to the dealer according to the provisions of this Act. (8) Assessing authority shall not be precluded from making assessment order under this section on the ground of passing of any provisio .....

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ovisions of this Act shall apply to each assessment order passed under sub-section (9) as they apply to an order passed under sub-section (2). (11) Dealers under sub-section (9) shall not be required to furnish annual return of turnover and tax and in cases of such dealers assessment under sub-section (9) may be made even before the expiry of the assessment year. (12) Provisions of sub-sections (5), (6) and (7) shall, mutatis mutandis, apply to every assessment order passed under any provisions .....

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known as "Int Bhatta Samadhan Yojna" wherein the assessing authority was required to accept a composition money either in lump sum or on an agreed rate of the turnover of sales in lieu of tax that may be payable by the dealer. 6. The petitioners applied for compounding for the season 2007-08 (1.1.2008 to 30.9.2008). The assessing authority rejected the compounding application of the petitioner for the period 1.1.2008 to 31.3.2008 on the ground that regular assessment orders had alread .....

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ke an assessment. It was at this stage, the petitioner being aggrieved has filed the present Writ Petition challenging the orders rejecting the compounding applications as well as the earlier orders of regular assessment. They have also prayed that the compounding scheme be declared ultra vires. 7. Thus the issues that arises for consideration in this bunch of writ petitions are as under: I. Whether in the facts and circumstances of the case the writ petitions challenging constitutionality valid .....

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for a fixed period from 1.1.2008 to 30.9.2008 and for a fixed lump sum amount for the said period/season? 8. We have heard Sri Suyash Agarwal, the learned counsel for the petitioner and Sri C.B. Tripathi, the learned counsel for the State. ISSUE NO. I 9. It is settled law that the validity of a provision can be challenged only on limited grounds, namely, that the provision infringes any of the fundamental or constitutional rights or it lacks legislative competence or the Rule is violative of any .....

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ng effect over the other provisions of the Act. ii). It is subject to other provisions of Section 6 and the directions of the State Government. iii) The assessing authority may agree to accept the composition money either in lump sum or at an agreed rate on the turn over of sale in lieu of tax that may be payable by a dealer in respect of such goods or class of goods and for such period as may be agreed upon. 10. In the present case, we are not concerned with the 1st and 2nd proviso of sub Secti .....

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the provisions of the Act. Neither the scheme nor any of the provision of Section 6 of the Act provides for acceptance of compounding application for part of the season. 11. Under the circumstances, we do not find any unconstitutionality in the compounding scheme dated 9.6.2009. Apart from this, the relief sought by the petitioners to declare the compounding scheme dated 9.6.2009 to be ultra vires, is not entertainable inasmuch as on one hand the petitioners have prayed for declaring the scheme .....

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ed compounding scheme is in fact a policy decision of the State Government. 12. It is well settled that the Courts, in exercise of their power of judicial review did not ordinarily interfere with the policy decisions of the executive unless the policy can be faulted on account of malafide, unreasonableness, arbitrariness or unfairness etc. Petitioners have not argued that the policy i.e. the compounding scheme is hit by any of these grounds. If the policy cannot be faulted on any of these ground .....

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996) 2 SCC 405 (Delhi Science Forum Vs. Union of India and another) para-7, JT (2006) 6 SC 500 (Ekta Shakti Foundation Vs. Govt. of NCT of Delhi para-12, AIR 1997 SC 128 (Krishnan Kakkanth Vs. Govt. of Kerla and others) para-34, (2002) 6 SCC 252 (State of Rajasthan and others Vs. Lata Arun) para -10 and 12, (2002) 4 SCC 510 (State of H.P. and another Vs. Padam Dev and others) para-13, AIR 1996 SC 149 (State of H.P. and others Vs. Ganesh Wood Products and others) para-51, 54 and 57, (2001) 3 SCC .....

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ngh Vijay Pal Singh and others Vs. State of U.P. and others) para -14, (2008)2 SCC 672 Para 64 and 65 (DDA Vs. Joint Action Committee, Allottee of SFS flats). 13. In the case of Mycon Construction Ltd.Vs. State of Karnataka and another, (2003)9 SCC 583, following the law laid down in the case of State of Kerala Vs. Builders Association of India, (1997) 2 SCC 183, Hon'ble Supreme Court upheld the constitutional validity of sub Section 6 of Section 17 of the Karnataka Sales Tax Act,1957 and ob .....

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the matter and we are also of the view that so far as the scheme of composition of tax is concerned, the relevant provisions of both the Acts even if not identical, are vastly similar. On the question of the constitutional validity of Sub- Section 6 of Section 17 the same argument was advanced before this Court in the State of Kerala v. Builders Association of India (1997) 2 SCC 183. In that case, the High Court had declared as unconstitutional Sub- Section (7) and (7A) of Section 7 upholding th .....

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tral Sales Tax Act, 1956. The goods so transferred may also be taxable under different Schedules to the Kerala Act which prescribe different rates. In such a situation levy of tax on entire value of the contract meant levy of tax contrary to the provisions of the Central Sales Tax Act and the Kerala General Sales Tax Act. It also meant including the non- taxable components of works contract e.g. labour and services etc. For all these reasons, the High Court held that the said sub-sections were c .....

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compulsion upon any contractor to opt for the method of taxation provided by Sub-section (7) or Sub-section (7-A). It is wholly within the choice and pleasure of the contractor. If he thinks it is beneficial for him to so opt, he will opt; otherwise, he will be governed by the normal method of taxation provided by Section 5(1)(iv). Sub-section (8) provides that the option to come under Sub-section (7) or (7-A) has to be exercised by the contractor 'either by an express provision in the agre .....

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s of the alternate method of taxation, opted to be governed by it, a contractor cannot be heard to question the validity of the relevant sub-sections or the rules. Sub-sections (8), (11) and (12) of Section 7 are incidental and ancillary to Sub-sections (7) and (7-A) and cannot equally be faulted. Secondly, it is true that the goods transferred in the course of execution of the works contract may be chargeable at different rates under different Schedules appended to the Kerala Act; it may also b .....

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imple method of assessment just as the system of levy of entertainment tax on the gross collection capacity of the cinema theatres. By opting to this alternate method, the contactor saves himself the botheration of book-keeping, assessment, appeals and all that it means. It is not necessary to enquire and determine the extent or value of goods which have been transferred in the course of execution of a works contract, the rate applicable to them and so on. For example, under Sub-section (7), the .....

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ng the tax payable, which may be availed of by a contractor if he thinks it advantageous to him. It must be remembered that the analogous system of alternate method of taxation evolved by certain State Legislatures in the matter of levy of entertainment tax has been upheld by his Court in Venkateshwara Theatre v. State of A.P (1993)3SCC 677. The rough and ready method evolved by the impugned sub-section for ascertaining the tax payable under Section 5(1)(iv) of the Act cannot be said to be beyon .....

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down by this Court in the aforesaid decision squarely apply to the facts of this case having regard to the similarity of the provisions in the two Acts. We therefore find ourselves in complete agreement with the High Court and hold that Sub-section 6 of Section 17 of the Karnataka Sales Tax Act is constitutionally valid and the challenge on the ground of lack of legislative competence of the State Legislature must be repelled. 17. Learned Counsel then submitted that even while evolving a simpli .....

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acted. He submitted that under the Kerala Act the composition scheme was introduced by the amendments in the year 1991 and 1992. So far as State of Karnataka is concerned Sub-section 6 of Section 17 which gave option to the assessees to pay tax at a fixed rate on the value of the goods, the property in which was transferred in the course of execution of works contract come into effect in the year 1988 and continued till the year 1996. The appellants had taken benefit of the said scheme of compos .....

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has no force. If the Legislature has legislative competence to enact a statute and the statute so enacted does not breach any constitutional provision, the same cannot be said to be unconstitutional merely because it is retrospective in operation. Moreover, in the instant case as explained in State of Kerala v. Builders Association of India (supra) the appellants had opted for assessment under the composition scheme. They were not compelled to exercise their option and otherwise they would have .....

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e not prejudiced in any manner whatsoever. 14. In the case of Venkateshwara Theatre Vs. State of Andhra Pradesh and others 1993(3) SCC 677, Hon'ble Supreme Court considered the applicability of Article 14 of the Constitution of India with reference to the compounding scheme under A.P. Entertainment Tax Act 1939 and held in para 20,21 and 22 as under: "20. Article 14 enjoins the State not to deny to any person equality before the law or the equal protection of the laws. The phrase " .....

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power, has, of necessity, to make laws operating differently on different groups of persons within its territory to attain particular ends in giving effect to its policies, it is recognised that the State must possess the power of distinguishing and classifying persons or things to be subjected to such laws. It is, however, required that the classification must satisfy two conditions namely, (i) it is founded on an intelligible differentia which distinguishes those that are grouped together from .....

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a peculiar situation some included in a class get and advantage over others, so long as they are not singled out for special treatment. [See: Khandige Sham Bhat v. Agricultural I.T.O. AIR 1963 SC 591] 21. Since in the present case we are dealing with a taxation measure it is necessary to point out that in the field of taxation the decisions of this Court have permitted the legislature to exercise an extremely wide discretion in classifying items for tax purposes, so long as it refrains from clea .....

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he decision of the U.S. Supreme Court in San Antonio Independent School District v. Bodrigues, wherein Justice Stewart, speaking for the majority has observed : "No scheme of taxation, whether the tax is imposed on property, income or purchases of goods and services, has yet been devised which is free of all discriminatory impact. In such a complex arena in which no perfect alternatives exist, the court does well not to impose too rigorous a standard of scrutiny lest all local fiscal scheme .....

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er Section 28 of the Act after affording opportunity of hearing to them. They participated in the assessment proceedings. Once the assessment orders have been passed, the tax stood assessed and therefore the scheme itself would not be applicable. 17. By the said scheme the State Government issued directions under Section 6(1) of the Act that for the season 2007-08 (1.1.2008 to 30.9.2008) the lump sum amount may be accepted by the assessing authority depending upon the number of "PAYAS" .....

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ns, are for a fixed period/season of 1.1.2008 to 30.9.2008. The scheme does not provide for computation of lump sum amount for part of the season which may be accepted by the assessing authority. In the case of M/S. Sri Durga Brick Field, Gorakhpur Vs. State of U.P. and others,1991, U.P.T.C. the Division Bench of this Court held that in case where option is exercised for payment of sales tax in a lump sum under Section 7-D, the demand is not based on the turn over but on agreement to pay tax in .....

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literally. It must interpret a taxing statute in the light of what is clearly expressed. It can not imply anything which is not expressed, it can not import provisions from the statutes so as to suffer any assumed deficiency. 22. Thus it is not open for the assessing authority either to bifurcate the period of the season or the lump sum amount under the scheme unless the assessing authority is permitted to do so under the scheme itself or under Section 6 of the Act. In the absence of any such di .....

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tion of compounding amount for the period 1.4.2008 to 30.9.2008 23. In the case of Lallooji and Sons, Allahabad Vs. State of U.P. and others, 2003 U.P.T.C. 900 the Division Bench of this Court considered the provisions of compounding under Section 7-D of the U.P. Trade Tax Act and held as under: "10. In our opinion there is no merit in this petition. As stated in Section 7-D itself, the compounding scheme is subject to any direction of the State Government, which itself means that no one ha .....

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ute is not open to attack on the ground that it taxes some persons or objects and not others, East India Tobacco Co. v. State of A.P., A.I.R.1962 SC 1733. The State has a wide discretion in selecting the objects or persons that it will tax, and in order to tax something it is not bound to tax everything, Orient Weaving Mills v. Union of India, A.I.R.1963 SC 98; State of M.P. v. Bhopal Sugar Industries, A.I.R.1974 SC 1179. It can pick and choose objects, areas, persons, rates of tax, etc. V.V.R. .....

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he proprietary of the Tax. (emphasis supplied by us) 24. Again the aforesaid provisions of Section 7-D of U.P. Trade Tax Act was considered by the Division Bench in the case of M/s. Jai Prakash Industries Ltd. Vs. State of U.P. and others 2003, U.P.T.C., 1272 and held that it is only when both sides are agreeable then only an agreement of compensation can be entered into between the parties. (emphasis supplied by us) 25. In the case of M/s. Bhadauria Gram Sewa Sansthan, Fatehpur Vs. Assistant Co .....

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heme itself. The jurisdiction of the assessing authority is confined to accept only such compounding applications which are in accordance with the direction of the scheme. He can neither travel beyond the directions of the scheme and the provisions of Section 6(1) of the Act nor has power either to bifurcate the period of the season or the lump sum amount unless it is so provided under the scheme. Option exercised by an asseessee under Section 6(1) of the Act in respect of a compounding scheme r .....

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ich the order passed under Section 6 of the Act was recalled and the application of the petitioner was rejected. The petitioner has questioned the said order, on the ground, that the assessing authority had no power to recall the order since there was no mistake which was apparent on the face of the record. In support of his submissions, the learned counsel has placed reliance upon a decision of the Supreme Court in M/s Deva Metal Powders Pvt. Ltd. vs. Commissioner of Trade Tax, U.P., 2008 NTN ( .....

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