Indian Oil Corporation Limited vs Commissioner of Trade Tax, U.P., Lucknow

Rajes Kumar, J.—This revision relates to the assessment year 1986-87 under the Central Sales Tax Act, 1956. In the present revision the following questions have been raised :

(1) Whether the Trade Tax Tribunal was not justified in confirming the imposition of tax on the notional excise duty which under the statutory provisions of the Central Excise Act and Rules was payable by the purchasing oil company only ?

(2) Whether in view of section 4(4) of the Central Excise Act read with rules 139 to 158 and the Notification No. 21/86CE dated February 10, 1986, the excise duty being payable at the time of removal of the excise goods at the value which is assessable at the time and place of removal from the warehouse, the said duty cannot be legally treated as duty payable by the applicant-Corporation and no tax can be legally imposed on that ?

(3) Whether the assessed tax on the notional excise duty treated as part of the taxable turnover having been disputed from the levy beginning cannot be treated as admitted tax and no interest was payable ?

(4) Whether in any view of the matter, the levy of interest on the assessed tax on the amount of notional excise duty is liable to be quashed ?

Question Nos. 1 and 2 relate to question whether the amount of Central excise duty paid by the purchaser would form part of the turnover and liable to tax. A similar question is also involved in Trade Tax Revision No. 500 of 2003 Indian Oil Corporation Ltd. Vs. The Commissioner of Trade Tax which has been decided on date in which it has been held that Central excise duty paid by the purchaser would form part of the turnover and liable to tax.

Question Nos. 3 and 4 relate to demand of interest u/s 8(1) of the Act (hereinafter referred to as, "the Act").

In the case of Commissioner of Sales Tax v. Hindustan Aluminium Corporation reported in [2002] 127 STC 258 (SC); [1999] UPTC 1, the apex court while dealing with section 8(1) and 8(1B) of the U.P. Trade Tax Act, 1948 held as follows (page 299 in 127 STC) :

The dispute here, as aforestated, was in regard to the classification of the assessee''s products. Such classification dispute is ordinarily resolved in assessment proceedings and, if resolved against the assessee, the assessee has to make payment of the differential amount of tax as required by sub-section (1A) failing which the provisions of sub-section (1B) apply.

The requirement of sub-section (1) is that the assessee must pay tax on the amount of his turnover as particularised in the Explanation thereto. Interest under the provisions of sub-section (1) cannot be levied in respect of a dispute such as a classification dispute which is resolved only by the assessment. Sub-section (1) has no application to such a situation.

The above view is also supported by the decision of the Constitution Bench of the apex court in the case of J.K. Synthetics Limited and Birla Cement Works and another Vs. Commercial Taxes Officer, State of Rajasthan and another, , wherein it has been held as follows (pages 437 and 438 in 94 STC) :

Let us look at the question from a slightly different angle. Section 7(1) enjoins on every dealer that he shall furnish prescribed returns for the prescribed period within the prescribed time to the assessing authority. By the proviso the time can be extended by not more than fifteen days. The requirement of section 7(1) is undoubtedly a statutory requirement. The prescribed return must be accompanied by a receipt evidencing the deposit of full amount of ''tax due'' in the State Government on the basis of the return. That is the requirement of section 7(2). Section 7(2A), no doubt, permits payment of tax at shorter intervals but the ultimate requirement is deposit of the full amount of ''tax due'' shown in the return. When section 11B(a) uses the expression ''tax payable under sub-sections (2) and (2A) of section 7'', that must be understood in the context of the aforesaid expressions employed in the two sub-sections. Therefore, the expression ''tax payable'' under the said two sub-sections is the full amount of tax due and ''tax due'' is that amount which becomes due ex hypothesi on the turnover and taxable turnover ''shown in or based on the return''. The word ''payable'' is a descriptive word, which ordinarily means ''that which must be paid or is due, or may be paid'' but its correct meaning can only be determined if the context in which it is used is kept in view. The word has been frequently understood to mean that which may, can or should be paid and is held equivalent to ''due''. Therefore, the conjoint reading of sections 7(1), (2) and (2A) and 11B of the Act leaves no room for doubt that the expression ''tax payable'' in section 11B can only mean the full amount of tax which becomes due under sub-sections (2) and (2A) of section 7 of the Act when assessed on the basis of the information regarding turnover and taxable turnover furnished or shown in the return. Therefore, so long as the assessee pays the tax which according to him is due on the basis of information supplied in the return filed by him, there would be no default on his part to meet his statutory obligation u/s 7 of the Act and, therefore, it would be difficult to hold that the ''tax payable'' by him ''is not paid'' to visit him with the liability to pay interest under clause (a) of section 11B. It would be a different matter if the return is not approved by the authority but that is not the case here. It is difficult on the plain language of the section to hold that the law envisages the assessee to predict the final assessment and accept him to pay the tax on the basis to avoid the liability to pay interest. That would be asking him to do the near impossible.

The Division Bench decision of the apex court in the case of The Commissioner of Sales Tax Vs. Qureshi Cruchible center, , is not applicable to the present case. In the said case the classification of the goods or rate of tax was not in dispute still lesser tax has been paid on the pleading of ignorance of the change in rate of tax. This issue is not in the present case.

The contention of the petitioner is that the applicant has always disputed the liability of tax on the amount of Central excise duty paid by the purchaser and no point of time the liability of tax has been admitted on such Central excise duty. The dispute has been raised before this court also in several revisions. This issue has not been settled by any of the court in the case of the assessee and, therefore, it cannot be treated as admitted tax u/s 8(1) of the Act as the assessee was disputing the liability bona fidely.

I find substance in the argument of learned counsel for the applicant. The applicant is contesting the liability of tax on the amount of Central excise duty since very beginning. At no stage the liability has been admitted. In the present revision also, the liability is being disputed. There is no earlier decision of this court or apex court in the case of assessee or in any other case on the similar facts and circumstances, at the relevant time wherein it has been held that the Central excise duty is part of the turnover and liable to tax. Therefore, it is a case where the assessee is bona fidely disputing the liability of tax on the Central excise duty. Thus, it cannot be treated as admitted tax and the interest u/s 8(1) of the Act cannot be levied and demanded. The authority below is only entitled for the interest u/s 8(1B) of the Act and not u/s 8(1) of the Act. In the result, the revision is allowed in part. The order of the Tribunal so far as it relates to the levy of tax on the Central excise duty is upheld and the order of the Tribunal confirming the demand of interest u/s 8(1) of the Act is set aside. However, the Revenue is entitled for the interest u/s 8(1B) of the Act. The Tribunal is directed to modify its order accordingly.