Nitya Engineers and Constructors vs State of U.P. and Others

Let rejoinder affidavit filed today be taken on record. The petitioner, a proprietorship concern, is an electrical contractor and engaged in the business of execution of electrical works contract within the State of U.P. It is registered under the U.P. Trade Tax Act and after its repeal, under the U.P. Value Added Tax Act, 2008.

The case of the petitioner in brief is that it applied for composition of tax as was provided u/s 7D of the U.P. Trade Tax Act, 1948 and agreed to pay the trade tax at an agreed rate. In pursuance of section 7D of the U.P. Trade Tax Act, the State Government had promulgated a scheme for composition of tax in the year 1993 which was amended in the year 1995 and continued for the subsequent years up to 2006-07. During the periods 2006-07 and 2007-08, the petitioner was granted electrical works contracts by various dealers detailed in paragraph 6 of the writ petition. The petitioner opted for composition in respect of the aforesaid contracts by filing the requisite application for compounding. The application for compounding was accepted by the Deputy Commissioner, Commercial Tax, Sector-I, Noida and orders dated 25th of March, 2009 and 8th of March, 2011 were passed for the periods 2006-07 and 2007-08.

With effect from 1st of January, 2008, the U.P. Trade Tax Act has been repealed and simultaneously the U.P. VAT Act, 2008 was enacted. The latter Act, i.e., U.P. VAT Act, 2008 has analogous provision being section 6 analogous to section 7D of the repealed Act. The petitioner did not apply for composition under the new Act, i.e., the U.P. VAT Act, 2008 as after the 1st of January, 2008 no new contract was awarded and the existing contracts for electrical works were in progress. The petitioner was ultimately assessed to tax for the assessing year 2008-09 under the U.P. VAT Act, vide assessment order dated 28th of June, 2012, annexure 6. The assessment order is in respect of two parts. The petitioner is aggrieved with respect of only that part which levies tax at the rate of six percent on the goods brought in the State of U.P. exceeding the value more than five percent of total receipts of the payment. The contention is that in compounding scheme as it was in existence in the relevant assessment years 2006-07 and 2007-08 under which the petitioner had filed the application for composition of tax. There was no such condition restricting the import of goods up to five percent of the contract amount. The said condition came to be in existence subsequently after the commencement of U.P. VAT Act which also envisages the composition of tax u/s 6 thereof.

In the counter-affidavit filed on behalf of the respondents the essential facts as contained in the writ petition are not disputed. It has been set out therein that against the impugned order dated 28th of June, 2012, there is a statutory remedy of appeal and as such, the petition should not be entertained. The State Government on 9th of June, 2009 issued certain directions which provides that a decision has been taken for compounding u/s 6 of the U.P. VAT Act which has come into effect from 1st of January, 2008 to 31st of March, 2008.

Heard Sri Nishant Mishra, learned counsel for the petitioner and Sri C.B. Tripathi, Special Standing Counsel for State of U.P., the respondents.

The learned counsel for the petitioner submits that in view of the fact which are not in dispute, the levy of tax over and above the composition amount on the ground that the petitioner has imported goods in the State of U.P. beyond the specified limit is illegal. There was no such condition in the scheme under which the petitioner had applied for composition of tax. The terms and conditions of composition cannot be changed unilaterally without there being any legislation. The petitioner has not opted for composition under the U.P. VAT Act, 2008, the terms of the composition under the latter Act will not be applicable to the case of the petitioner. The learned counsel for the respondents, on the other hand, submits that in view of section 6 of the U.P. VAT Act as also the scheme laid down by the State Government therein, the demand of tax over and above the contract amount by the assessing authority is perfectly justified.

Considered the respective submissions of the learned counsel for the parties and perused the record. In Kothari Contract Interiors Vs. Trade Tax Officer, , this court examined nature of composition scheme with reference to section 7D of the U.P. Trade Tax Act. It has been laid down that the payment of compound tax is a convenient hassle-free and simple method of assessment. A dealer who has opted for payment of lump sum amount in lieu of tax is not required to file monthly or quarterly returns of the turnover. A dealer has to pay a fixed sum of money as tax as agreed upon by the Department. It is the choice of a dealer to opt for compounded payment of tax. If the said choice is in accordance with the scheme and is ultimately accepted by the authority concerned, it becomes an agreed amount of tax. The Department as well as the dealer both are bound by the said agreement. The necessary corollary of this is that a dealer whose application for compounding has been accepted cannot turn around and urge that he is not liable to pay any tax for any reason, such as closure of business or low turnover, etc.

Further, in Kothari Contract Interiors Vs. Trade Tax Officer, , it has been held that a dealer who has opted to pay the tax in lump sum u/s 7D of the Act and the said option has been accepted by the Department, the demand for that period is not relatable to the actual turnover but to the sum agreed upon. In other words, the Department as well as the, dealer both know the amount payable and receivable by each other. The determination of the lump sum in lieu of tax, displaces the requirement of regular assessment proceedings. The qualification of tax liability is by agreement as per terms of the scheme, which would bind both the parties. The object of introducing such scheme under the taxing statute is well established, as so many advantages are attached to such schemes, besides being hassle-free to the dealer, it also avoids unnecessary litigation. The Department in its turn receive a fixed amount as tax without undertaking the assessment work and thus saves a lot of time. It also facilitates the speedy recovery of tax. In this background we have to answer the issues raised in the writ petition.

Ultimately, it was held that the effect of acceptance of composition scheme by the Department is that the dealer is liable to pay a lump sum amount payable under the scheme during the assessment year in question. The said agreement is valid and binding on both the Department and the dealer. It is not open to the Department in absence of any fraud or concealment of material fact to initiate reassessment proceedings u/s 21 which deals with the escaped turnover. Thus, it follows that the respondents while receiving the application for composition of tax has accepted that the petitioner would be liable to pay the composition fee at the rate as is provided under the scheme. Sri C.B. Tripathi, learned counsel for the respondents, very fairly accepts the position that under the earlier scheme u/s 7D of the U.P. Trade Tax Act there was no such restriction or there was no such provision for charging of any amount as tax over and above the composition fee if the dealer imports the goods in State of U.P. beyond the specified limit. However, he maintains that now, such a condition has been incorporated in the new scheme floated u/s 6 of the U.P. VAT Act and he wants to read the conditions of new scheme in the old scheme.

Attention was invited to the circular letter dated June 9, 2007 issued by the Commissioner, which is in the nature of interdepartmental communication. This provides only this much that the State Government has decided to issue composition scheme, as provided for u/s 6 of the U.P. VAT Act for the period January 1, 2008 to March 31, 2008 continuing for subsequent years, a copy of scheme was enclosed. Condition No. 5 is relevant for present purposes and it provides that it is for the period with effect from January 1, 2008, besides the other things. The scheme contains clause 2(Kha). It contemplates the levy of tax at the rate of 6 percent on such contractors who have imported the goods in the State of U.P. in a financial year and value of such goods exceeds five percent of the contract executed in the year. Under this clause, tax amounting to Rs. 23,48,702 has been levied by the impugned order.

In para 15 of the counter-affidavit, the stand of the respondents, "that the direction dated June 9, 2009 does not touch the compounding scheme which was applicable under the previous (Trade Tax) Act", supports our above view.

To put it differently, the aforesaid scheme will cover those contractors who applies under it and will effect the existing contractors.

We are of the view that this is not legally permissible for simple reason that, admittedly, the petitioner has not opted to pay the composition fee under the new scheme framed u/s 6 of the U.P. VAT Act for the subsequent years, i.e., 2008-09. The impugned assessment order is in respect to the assessment year 2008-09 and it shall continue to be governed by the scheme, as it then existed, framed u/s 7D of the U.P. Trade Tax Act. The assessing authority, thus, could levy and demand the tax from the petitioner as per the terms of the scheme under which the petitioner had opted and not under the new scheme. Strong reliance was placed upon a Division Bench judgment of this court in the case of Builders Association of India and another Vs. State of U.P. and others, decided on 6th of August, 2012. The said decision is not at all applicable to the facts of the case as the decision therein was rendered under a different factual matrix and the controversy involved therein was altogether a different one. Challenge in the said writ petition was enhancement of the composition fee from two percent to four percent in the new scheme framed by the State Government u/s 6 of the U.P. VAT Act.

The contention of the petitioner that under the old scheme the compounding fee was two percent which could not have been enhanced under the U.P. VAT Act to four percent was repelled. There the petitioners had applied u/s 6 of the U.P. VAT Act which is not so in the case on hand. Therefore, no assistance can be drawn from the relied upon judgment of Builders Association of India and another Vs. State of U.P. and others, .

In view of the above, we find sufficient force in the argument of the learned counsel for the petitioner. The petition is on terra firma.

The order dated 28th of June, 2012 passed by respondent No. 3 in so far as it demands the composition amount/fees at the rate of 6 percent under the Composition Scheme of 2008 issued under the U.P. VAT Act, 2008 is hereby quashed. Rest of the order dated 28th of June, 2006 remains intact being not subject-matter of the present writ petition. The writ petition succeeds and is allowed. No order as to costs.