judgment9

Refund-The U.P. Trade Tax Act, 1948-Section 29-Tax deduction at source under section 8-D-Certificate of deduction from contractee – Benefit of amount in absence of proof of deposit of tax by the contractee into Government Treasury-Refund delayed for verification of deposit.

Tax deduction at source-Form 76 prescribed by Commissioner under circular Form 76 not prescribed under Rules--Validity of Form 76 for the purpose of section 8-D.

Payability of interest on refund-The U.P. Trade Tax Act, 1948-Section 29-Refund delayed due to time taken in verification of certificate and deposit of tax by Contractee-Interest payable on refund.

(i) Section 8-D of the U.P. Trade Tax Act, 1948 provides that for claiming benefit of payment of amount of tax deducted at source, the contractor shall produce certificate of amount of deduction issued by the contractee in the prescribed Form;

(ii) under section 2(f) of the Act, the expression “prescribed” has been defined to mean “prescribed by the rules made under this Act”;

(iv) the Commissioner, under a circular has prescribed that such certificate shall be produced in Form 76; and

(v) the contractor, in stead of producing certificate in Form 76, produces the certificate in which contractee certifies that so much amount has been deducted from contractee as tax,

whether, for the purpose of claiming benefit of amount deducted by the contractee, it is necessary for the contractor to produce certificate in Form 76?

“Coming to the plea raised by the learned standing counsel that the certificate of tax deducted at source had not been furnished by the petitioner in the prescribed form, we find that at the first place there is no form prescribed under the U.P. Act or the U.P. Rules for filing the certificate of tax deducted at source. The word ‘’prescribed’ has been defined in Section 2(f) of the U.P. Act to mean ‘’as prescribed by Rules made under the U.P. Act. U.P or U.P. Rules’. It is well settled that if an act is required to be done in a particular manner then that act has to be performed in that manner alone and not in any other manner. The Apex Court in the case of Dhanajaya Reddy vs. State of Karnataka (2001) 4 SCC 9, Commissioner of Income tax Mumbai vs. Anjum M.H.Gaswala and others (2002) 1 SCC 633, Mehsana District Central Cooperative Bank Ltd. and others vs. State of Rujrat and others ( 2004) 2 SCC 463 and Ram Phal Kundu vs. Kamal Sharma (2004) 2 SCC 759 has held that where a power is given to do a certain thing in a certain way, the thing must be done in that way or not at all. The Apex Court in the case of Ram Phal Kundu (supra) has held as follows:

“The rule laid down in Taylor vs. Taylor that where a power is given to do a certain thing in a certain way, the thing must be done in that way or not at all and that other methods of performance are necessarily forbidden, was adopted for the first time in India by the Judicial Committee of the Privy Council in Nazir Ahmad vs. King Emperor. The question for consideration was whether the oral evidence of a Magistrate regarding the confession made by an accused, which had not been recorded in accordance with the statutory provisions viz. Section 164 Cr.P.C. would be admissible. The First Class Magistrate made rough notes of the confessional statements of the accused which he made on the spot and thereafter he prepared a memo from the rough notes which was put in evidence. The Magistrate also gave oral evidence of the confession made to him by the accused. The procedure of recording confession in accordance with Section 164 Cr.P.C. had not been followed. It was held that Section 164 Cr.P.C. having made specific provision for recording of the confession, oral evidence of the Magistrate and the memorandum made by him could not be taken into consideration and had to be rejected. In State of U.P. vs. Singhara Singh a Second Class Magistrate not specifically empowered, had recorded confessional statement of the accused under Section 164 Cr.P.C. The said confession being impossible, the prosecution sought to prove the same by the oral evidence of the Magistrate, who deposed about the statement given by the accused. Relying upon the rule laid down in Taylor vs. Taylor and Nazir Ahmad vs King Emperor it was held that Section 164 Cr.P.C. which conferred on a Magistrate the power to record statements or confessions, by necessary implication, prohibited a Magistrate from giving oral evidence of the statements or confessions made to him. This principle has been approved by this Court in a series of decisions and the latest being by a Constitution Bench CIT vs. Anjum M.H.Ghaswala (SCC para 27)”

18. Thus the form prescribed by the Commissioner, Trade Tax, U.P. Lucknow vide circular dated 13th February, 1996 cannot at all be treated as a form prescribed under the U.P. Act or the U.P. Rules and the claim of refund of excess tax cannot be denied merely on the ground that certificate of tax deducted at source have not been submitted in Form No. 76.”

(B) Where, in respect of amount of tax deducted by the contractee, the contractor produces certificate of deduction issued by the contracteee, whether, for the purpose of allowing refund, contractor can be required to prove that amount deducted has been deposited into the Government Treasury?

“7. A perusal of the aforesaid provisions would indicate that in the assessment of the contractor the deposit of the amount by the contractee in the Government Treasury is not a pre-condition for the credit to be given to the contractor. It is to be remembered that the deduction is made under statutory provisions and not under any contractual agreement between the contractor and the contractee. The contractor has no control over the activities of the contractee and has no legal authority to force the contractee to deposit the amounts deducted from the bills in the Government Treasury. That is why in sub-section (5) it is stated that the credit shall be given to the contractor for the amount so deducted on the production of the certificate, referred to in sub-section (4). Although in the earlier part of sub-section (5) it is stated that any deduction made in accordance with the provisions of this section and credited into the Government Treasury shall be treated as a payment of tax on behalf of the person from whose bills or invoices the deduction has been made but it cannot be read as a precondition for the grant of credit to the contractor. The provisions of the various sub-sections of Section 8-D have to be read in a manner that the interest of the contractor from whose bills the amount are deducted under the authority of law are not jeopardized. There may be a case in which the contractee after having deducted the amounts in accordance with sub-section (1) or (2) of Section 8-D does not pay the amount into the Government Treasury and it may not even be possible to recover the said amount from him. But that would not disentitle the contractor from the credit of the amount in his assessment. This is the reason why neither the statute nor the Rules have placed any burden on the contractor to ensure that the amount deducted from the bills is also paid into the Government Treasury and that he has to satisfy his Assessing Officer that the amount so deducted has actually been deposited, in order to claim a credit for the same. Provisions of sub-sections (6), (7), (8) and (9) clearly indicate that once the deduction has been made the liability for its payment and the consequence of default are on the contractee and no action whatsoever can be taken against the contractor.

(C) Where delay in granting refund is on account of time taken in verification of the certificate produced by the contractor and deposit of amount, mentioned in the certificate, by the contractee into the Government Treasury, whether the Department gets absolved of its liability for payment of interest under section 29 (2) of the U.P. Trade Tax Act, 1948?

“8. In view of the aforesaid legal position the conduct of the Assessing Officer in not granting the refund to the petitioner till he is able to verify that the amount deducted from the bills of the petitioner have actually been paid was not legally sustainable. The dealer having furnished the tax deduction certificate and the Assessing Officer not doubting their genuineness, he could not delay the refund till the verification nor could he required to assessee to furnish information regarding the date of deposit and the Government Treasury Challan number, etc. As a matter of law it was not his duty to do so. The various actions resulting from the non-payment of delayed payment by the contractee cannot be taken by the Assessing Officer of the contractor. It is the Assessing Officer of the contractee that could proceed against the contractee for the default referred to in sub-sections (6) and (7). Therefore, what the respondent no.3 should have done was to send the original or the copies of the tax deduction certificate furnished by the contractor to the Assessing Officer of the respective contractee for necessary action at their end. It may be clarified that the Assessing Officer of the contractor does have the power to verify whether the tax deduction certificates are genuine and whether the contractee who is stated to have made the deductions is an assisting person. If any such verifications are required he may certainly make them but he cannot delay the grant of credit to the contractor if he chooses to verify whether the amounts deducted have actually been paid into the Government Treasury.”

“16. In view of the settled proposition the plea that the excess amount which was directed to be refunded in the order of the Assessing Authority and the Appellate Authority can be refunded only when it is verified and there is no liability for payment of interest till such verification takes place, cannot be accepted. The period of three months provided under sub-section (2) of Section 29 of the U.P. Act is only for that purpose and if for any reason the respondent no.1 had failed to refund the amount within the specified period then the liability of payment of interest arises. The respondent no.1 cannot, therefore absolve himself for payment of interest.”

Sale-Transfer of right to use goods-The U.P. Trade Tax Act, 1948-Section 2( )- Providing of Buses to I. I. T., Kanpur and Hindustan Aeronautics Limited for transportation of their employees from one place to another place and School children on a stipulated amount- All the expenses, namely, fuel, Lubricants, maintenance, road taxes, Insurance, passengers tax and Challans etc. and payments of wages to the drivers, Conductors, Cleaners etc. to be borne by the owner of Buses- No responsibility of Institute on account of any accident to men, materials, Contractor’s Staff, fire etc.

Whether the transaction, of providing Buses to I. I. T., Kanpur and Hindustan Aeronautics Limited for transportation of their employees from one place to another place and School children on a stipulated amount, amounted to sale of Buses by way of transfer of right to use goods where the terms and conditions of the agreement provided that all the expenses, namely, fuel, Lubricants, maintenance, road taxes, Insurance, passengers tax and Challans etc. and payments of wages to the drivers, Conductors, Cleaners etc. would be borne by the owner of Buses and there would be no responsibility of Institute on account of any accident to men, materials, Contractor’s Staff, fire etc?

“14. On the terms of the agreements, in my opinion, the present case does not come within the purview of transfer of right to use the goods for following reasons:

The agreements were for providing buses for the transportation of the employees of the companies from one place to another place; Drivers, spare tyres, tools and all other necessary items were of the opp. party Diesel and other running expenses, insurance, taxes, permit etc., were borne by the opp. party Payment was to be made on the basis of the actual use of the vehicles. The opp. party had to take the insurance cover for their workmen and vehicles had to cover the risk of accident/death and the payment of compensation as per Rules. In case of any accident etc., opp. party has been held responsible and on account of negligence or any act of driver or Conductor, if Company suffers any loss, same had to be indemnified. In case of failure to provide the vehicle, the opp. party was liable for penal action. The aforesaid terms of the contract clearly shows that the effective control over the vehicles were always remain with the opp. party and had never been passed on to the Companies. All the legal consequences arising from the use of the vehicle were the responsibility of the Opp. Party. At no point of time, there was a complete exclusion of legal rights to use such vehicles by the transferor. Thus, the present case on the aforesaid facts does not fall under the transfer of right to use the goods, in view of the law laid down by the Apex Court in the aforesaid cases.”

Date of Decision : 12th of September, 2006

Concession in rate of tax-The U.P. Trade Tax Act, 1948-Section 4-AA - Concession in rate of tax to manufacturing units providing employment to persons belonging to Scheduled Tribe, Scheduled Caste, Other Backward Classes, etc.- Concession in rate of tax in cases of units enjoying exemption available to units under section 4-A of the Act.

Where an unit, eligible for concession in rate of tax under section 4-A of the U.P. Trade Tax Act, 1948, was also found eligible for concession in rate of tax under Section 4-AA of the Act, whether Tribunal was justified in upholding that concession in rate of tax, for the purpose of section 4-AA, would be computed on the basis of general rate of tax applicable to the commodity and not on the basis of rate of tax at which unit was liable to pay tax, after allowing concession in rate of tax under section 4-A of the Act?

“Section 4-AA of the Act starts with non obstante clause i.e. “notwithstanding anything contained in this Act” and, therefore, Section 4-AA of the Act has overriding effect over other sections of the Act. Under section 4-AA of the Act, dealer is entitled for the exemption over and above the exemption applicable under section 4-A of the Act. Section 4-AA of the Act and the Notification No. TT-2-779/XI-9 (226)/94- U.P. Act 15/48-Order-95 dated 31.03.1995 provides exemption to the extent of 25 percent of the rate of tax. Rate of tax means a general rate of tax applicable to the commodity. Cement was taxable at the rate of 12 percent and, therefore, under section 4-AA of the Act, exemption available was 25 percent of 12 percent i.e. 3 percent. Section 4-AA of the Act does not speak about the exemption of 25 percents on the amount of tax payable during the year under consideration. It provides exemption of 25 percent of the rate of tax. In this view of the matter, order of the Tribunal is legally correct and is hereby upheld.”

Sadhawal Enterprises

Payability of interest on refunds-The U.P. Trade Tax Act, 1948-Section 29(2)-Interest for granting refund beyond stipulated time-Delay on account of time taken in verification of deposit-Interest payable.

Where refund was granted after stipulated time and delay in granting refund was caused on account of time taken in verification of the deposit, whether the department was liable for payment of interest under section 29(2) of the U.P. Trade Tax Act, 1948?

“We have given our anxious consideration to the various pleas raised by the learned counsel for the parties. We find that in Civil Misc. Writ Petition (Tax) No.17 of 2001, M/s. Technical Construction Company, Muzaffarnagar v. Trade Tax Officer, Sector-1, Muzaffarnagar and others, decided today we have held that the statute takes care of the situation and gives sufficient time to the Department to verify the claim of deposit and that is why a period of three months has been provided under sub-section (2) of Section 29 of the Act. For the reasons given in the aforesaid decision, we are of the considered opinion that inasmuch as the respondent No.3 has not refunded the amount of Rs.1,71,000/- within the period of three months from the date of communication of the order i.e. 28th April, 2000, they are liable to pay interest at the rate of 18% per annum from 28th April, 2000 till 26th May, 2001.”

Rayana paper Board Industry Ltd., Khalilabad

Best judgment assessment-The U.P. Trade Tax Act, 1948-Section 7-Determination of turnover-Suppressed purchases computed on the basis of diary of contractor carrying on work of loading and unloading of material-Contractors’ statement about some entries relating to other persons not considered-Determined turnover not sustainable.

Where the Tribunal was justified in computing the suppressed turnover on the basis of entire entries found in the diary of the contractor, carrying on business of loading and unloading of material, without considering the statement of the contractor that in the diary entries relating to some other persons were also recorded?

“Tribunal has not considered the plea of the applicant that Sri Rahmat Ali to whom the alleged diary belonged, before the STO (SIB, stated that some of the entries relate to other factory and the movement of goods from one place to another place inside the factory and if it is so, the entire entries cannot be treated as relating to incoming purchases. Therefore, the matter requires reconsideration. Tribunal is directed to examine the plea of the applicant afresh and also consider that what is the value of the four bundles of paper, which was found in excess at the time of survey and explanation of the dealer in this regard. On the consideration of these facts, Tribunal may thereafter estimate the turnover.”

Kitply Industries Limited, Kanpur

Penalty-The U.P. Trade Tax Act, 1948-Section 15-A(1)(a)-Penalty for depositing tax alongwith return beyond prescribed time-Amendment in the provision curtailing originally prescribed time for filling return -Time taken in arranging funds-First return after curtailing the period to deposit the amount-Reasonable cause-Penalty not attracted.

(i) as per unamended provision, assessee was required to submit return for the month of October 1996 on or before November 30, 1996;

(ii) as per amended provision dated October, 1996, it was required to pay tax for October 1996 upto 15^th of November, 1996; and

(iii) the assessee paid tax on November 21, 1996 as the amendment came to its knowledge on 6^th or 7^th of November 1996 and it took time to arrange funds,

whether the Tribunal was legally justified in upholding the penalty levied partially on account of late payment of tax?

“In the present case, it is not disputed that prior to the notification dated 24.10.1996 as per Rule 41 (1), the applicant was required to furnish return for the month of October and to deposit the tax by the end of the commencing month and, therefore, in the absence of notification dated 24.10.1996, the applicant would have time to deposit the tax and furnish the return for the month of October by 30th November, 1996. By the Notification dated 24.10.1996 for the first time, the applicant was required to deposit the tax for the month of October by 15th November, 1996 curtailing the period to deposit the amount. However, applicant tried its best to arrange the money, and when money was arranged, the amount was deposited on 21st November, 1996.”

CIVIL MISC. WRIT PETITION NO.1327 OF 2006

Tribunal-The U. P. Trade Tax Act, 1948-Section 10-Recall of ex parte order passed by it-Non appearance on account of illness of counsel on whom notice was served and who neither could appear nor could inform client-Rejection of recall application not justified.

Where, in an unrepresented case in which ex parte order had been passed by the Tribunal under section 10 of the U.P. Trade Tax Act, 1948, notice was served on the counsel who fell ill and could neither appear nor could inform the client, whether the Tribunal was justified in rejecting the application presented for recalling ex parte order?

“In my view, Tribunal has taken pedantic view while in the matter of recalling application, justice oriented approach and pragmatic view should be taken as held by the Apex Court in the case of Mahendra Rathore Vs. Omkar Singh and others, reported in AIR 2002 SC, 505.”

M/S Sangam Construction Company

Tribunal-The U.P. Trade Tax Act, 1948-Section 10-Appeal, in the matter of penalty imposed under section 13-A (4) of the Act, allowed by Appellate Authority and appeal order upheld by the Tribunal-Matter remanded to Assessing Authority by the Tribunal for imposing penalty under section 15-A (1) (o) of the Act-Jurisdiction of Tribunal to remand the case for imposing penalty under different provision.

Where, in a case of penalty levied under section 13-A (4) of the U. P. Trade Tax Act, 1948, the Tribunal was of the view that penalty order was rightly quashed by the Appellate Authority on the ground that penalty could not be levied under the said section, whether the Tribunal was legally justified in remanding the case to the assessing authority with a direction to levy penalty under section 15-A (1) (o) of the Act?

“Having heard learned Counsel for the parties and have perused the order of the Tribunal and the authorities below. I find substance in the argument of learned Counsel for the applicant. In the present case while importing the goods outside the State of U. P., goods were seized on the ground that 4.25 Cubic Meter wood was found in excess and there was a violation of provisions of Section 28-A of the Act. On these facts, the Tribunal found that the levy of penalty under Section 13-A (4) was illegal. Thus, in my opinion, after coming to the conclusion that on the facts and circumstances of the case, the penalty under Section 13-A (4) of the Act was not justified Tribunal exceeded to its jurisdiction in remanding back the matter to the Assessing Officer with the direction to pass order under Section 15-A (1) (o). Order of the Tribunal to this extent is liable to be set aside.”

Turnover-The U.P. Trade Tax Act, 1948-Section 2(i)-goods received by U.P. selling agent from ex state principal as stock transfer- Agent, while selling goods, realized amount of inward freight separately on sale invoice-Claim that amount of inward freight is not part of turnover is not legally valid.

(i) Principal outside the State of U.P., at Ahmedabad, had stock transferred its goods to its selling agent in U.P. at Agra;

(ii) the agent had sold goods and realized amount of freight, for the journey of goods from Ahmedabad to Agra, separately on the sale invoice; and

(iii) the agent had claimed that such amount of freight was not part of the turnover of the goods in view of the definition of the word “turnover” provided in Section 2(i) of the U.P. Trade Tax Act, 1948,

whether the Tribunal was legally justified in upholding the view of the lower authorities that inward freight is part of the turnover?

“In the present case, applicant had sold the goods from its place of business at Agra to the various parties on Principal to Principal basis, it was intra-State sale. Applicant had disclosed the turnover and also admitted the liability of tax under the U. P. Trade Tax Act. Payment of freight from Ahmedabad to Agra was the responsibility of applicant or its Principal. In the circumstances, freight was the part of sale price and is outside the purview of exclusion clause in view of decisions of Apex Court and this Court referred hereinabove.”

Entries in the Schedule-The U. P. Trade Tax Act, 1948-Section 3-A-Rate of Tax-Notification prescribing rate of tax on sale of “Goods for indoor and outdoor games or sports”- Sale of “Fit Kit Exerciser”-Whether taxable as “Goods for indoor and outdoor games or sports” –Subsequently, Notification amended to include “physical exercise and fitness equipment”-Nature of amendment not clarificatory.

Whether, in view of the notification prescribing rate of tax on sale of “Goods for indoor and outdoor games or sports”, the Tribunal was legally justified in holding that item “Fit Kit Exerciser” is not covered by the said notification?

“Perusal of the aforesaid dictionary meaning shows that exerciser is a device in which there is involvement of the physical exercise for the sake of bodily health training or practise to develop skill aptitude, mental or spiritual powers. It has not been considered as device to provide any enjoyment or recreation or fun or any kind of amusement or involve any contest or competition while in a sports, there is a concept of recreation, enjoyment and fun and in a game there should be contest or competition.

Applicant has not led any evidence to show that “Fit Kit Exerciser” in common parlance and in commercial sense is known as goods for game or sport. The Tribunal being a fact-finding authority recorded the finding that in common parlance and in commercial sense, it is not known as goods for game or sport. Contrary to the said finding, no material has been placed before this Court. The Apex Court in various decisions held that for the classification of the goods, it has to be considered as to how a commodity is known in common parlance and in commercial sense.”

Whether the amendment, of including “physical exercise and fitness equipment” in the notification prescribing rate of tax on sale of “Goods for indoor and outdoor games or sports”, is clarificatory in nature, and therefore, item “Fit Kit Exerciser” can be treated to be covered by unamended notification?

“I do not find any substance in the argument of learned counsel for the applicant that the subsequent Notification No. KA. NI-2-3368/XI-9 (231)/94-U.P. Act-15-48-Order-2000 (40), dated October 25, 2000, is clarificatory in nature. It is always open to the legislature to include any item within the ambit of a particular goods by fiction though it is not generally and usually covered under such item Thus, merely because by Notification No. KA. NI-2-3368/XI-9 (231)/94-U.P. Act-15-48-Order-2000 (40), dated October 25, 2000 “physical exercise and fitness equipment” has been included under the entry “Goods for indoor or outdoor games or sports” it cannot be said that such equipment was included prior to 25th October, 2000 under the entry “Goods for indoor or outdoor games or sports”. The subsequent inclusion of the physical exercise and fitness equipment vide Notification No. KA. NI-2-3368/XI-9 (231)/94-U.P. Act-15-48-Order-2000 (40), dated October 25, 2000 reveals that it was not included under the entry “Goods for indoor or outdoor games or sports” and for the purposes to levy tax at the rate of 3 percent, it has been included under the aforesaid entry. The decisions cited by the learned counsel for the applicant, namely, Sun Export Corporation Versus Collector of Customs, Bombay and another (supra) and M/S Pappu Sweets & Biscuits, Etc. Versus Commissioner of Trade Tax, U.P. (supra) are distinguishable and are not applicable to the present case.”