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TMI Blog2024 (9) TMI 1309X X X X Extracts X X X X X X X X Extracts X X X X ..... l Nadu State Government on the State Government Undertaking and it perfectly fixing to the clause 'any other fee of charge', "by whatever name called" as per section 40(a)(iib) of the Act. Accordingly, he held that the value added tax is a tax on value addition done by each party of the supply chain like supplier, producer, wholesaler, distributor or retailer, etc. which is not in the case of TASMAC. By holding so, the ld. PCIT directed the Assessing Officer to give effect to the above directions and compute total income after correcting set off losses in accordance with law. 3. The ld. AR Shri R. Vijayaragahavan, Advocate placed on record the order of this Tribunal dated 14.11.2022 in ITA No. 353/Chny/2022 in assessee's own case for the assessment year 2014-15 and argued that this Tribunal, by basing on the decision of the Hon'ble Supreme Court in the case of Kerala State Beverages Manufacturing & Marketing Corporation Ltd. v. ACIT in I.T. Appeal Nos. 135, 146 & 313 of 2019 dated 30.04.2020, observed that the VAT tax payable by the assessee to the State Government is neither in the nature of royalty, licence fee, service fee, privilege fee, service charge nor any other fee or cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his interpretation is totally wrong because the VAT is levied by the State Government of TamilNadu by the power vested in it under the Entry No.54, List- II, Seventh Schedule, Constitution of India and the assessee pays the State Government VAT as per Section 3(5) of the TNVAT Act, 2006 read with the rate mentioned in Second Schedule to the TNVAT Act, 2006 and claims it as an expenditure u/s. 37 r.w.s.43B of the Act, in its income-tax return, which has been disallowed by the Assessing Officer for AY 2017-18 u/s. 40(a)(iib) of the Act. We have gone through the Constitution of India, and are of the view that the list of areas which fall within the exclusive power of States are given in the List II of the Seventh Schedule. State has the exclusive power to levy taxes on sale and purchase of intoxicating liquor (Entry 54). But the power to levy fees in respect of matters in the List is given under a different entry (Entry No 66). Thus, the State derives power to levy sales tax (VAT) on liquor under entry 54 and power to levy fees in connection with production, manufacture, transportation etc. is derived under Entry no 69 of the List II of VII schedule the Constitution of India. So, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such a charge is the normal incident of a trading, or business transaction." The Court then held : "The argument that in Cooverjee's case the impugned power having been exercised in respect of a centrally administrated area, the power was not fettered by legislative lists loses its relevance in the view we ,:are taking. It is true that in that case it was permissible to the court to find, as in fact it did, that the fee imposed on the licencees was, "more in the nature of a tax than a licence fee". As the authority which levied the fee had the power to exact a tax, the levy could be upheld as a tax, even if it could not be justified as a 'fee', in the constitution sense of that term. But the 'Licence fee' or 'Fixed fee' in the instant case does not have to conform to the requirement that it must bear a reasonable relationship with the services rendered to the licensees. The amount charged to the licensees is not a fee properly so called nor indeed a tax but is in the nature of the price of a privilege, which the purchaser has to pay in any trading or business transaction." 6.2 Further, Hon'ble Supreme Court in the case of Om Prakash Agarwal vs. Giri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between the payer of a cess and the services rendered............ It was further observed in Hingir Rampur Coal Co. Ltd. (supra) that if specific services are rendered to a specific area or to a specific class of persons or trade or business in any local area and is a condition precedent for the said services or in return for them, cess is levied against the said area or the said class of persons or trade or business, the cess is distinguishable from a tax and is described as a fee. Furthermore, tax recovered by a public authority invariably goes into the consolidated fund which is ultimately utilized for all public purposes whereas a cess levied by way of a fee is not intended to be and does not become a part of the consolidated fund. It is earmarked and set apart for the purpose of services for which it is levied. While coming to this conclusion the Hon'ble Delhi High Court has considered and distinguished the case of India Cement Ltd. v. State of Tamil Nadu: 188 ITR 690 and held as under:- 21. This takes us to the consideration of the issue as to whether cess is the same thing as a tax and that even though the word "cess" was not used in Section 43B(a) as it originally sto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n an Act such as the Income Tax Act which needs to be construed strictly. For this reason also, we feel that the Supreme Court decision in India Cement Ltd. (supra) would not be of any use to the revenue. 6.4 The very fact that taxes are not mentioned in the main section, nor any reference has been made in the memo explaining the introduction of section would go to show that the legislature never intended to disallow taxes under sec 40(a)(iib) of the Act. It is impossible to comprehend that when the legislature proposes to disallow taxes that the State Government has levied under its exclusive domain, such tax is not specifically mentioned in the section but allowed to be derived from the phrase "charges by whatever name called" particularly when the Apex Court has clearly laid down the distinction between taxes and fees and have held that Taxes cannot be levied under the guise of fees. We noted that TASMAC cannot collect Privilege Fees/ Vend fees separately from the Purchasers. Value Added Tax is collected from the Customers. It is collected on behalf of the Government and passed on to the Government totality. A trader can collect Value Added Tax as per the provisions of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccording to us, the Value Added Tax is not exclusively on TASMAC, Value Added Tax is only the indirect tax collected from customers and remitted to Government on monthly basis after filing necessary monthly return as per the provisions of TamilNadu Value Added Tax Act, 2006 and rules framed thereunder. We find from records that the taxes collected at the rates specified in the VAT Act and passed on to the State Government. The assessee cannot collect at a rate higher than the specified in the act and the entire amount so collected has to be passed on to the Government and it is not out of any surplus available and therefore VAT collected cannot be considered as surplus appropriated by the State Government. We also noted that even the provision of section 40(a)(iib) of the Act cannot be applied as the value added tax payment is not an appropriation so as to bring the sum within the ambit of provisions of section 40 (a)(iib) of the Act. In sum up, we state that the Value Added Tax payable by the assessee to the State Government is a. Neither in the nature of royalty, licence fee, service fee, privilege fee, service charge nor any other fee or charge, by whatever name called. b. N ..... X X X X Extracts X X X X X X X X Extracts X X X X
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