2021 PLP 945 (PTD)

Through this reference under Section 47 of Sales Tax Act, 1990 ("Act") the order dated 14.01.2015 passed by Appellate Tribunal Inland Revenue has been called in question and the following question of law has been proposed for us to determine: "Whether on the facts and in the circumstances of the case, the Appellate Tribunal Inland Revenue was justified in holding that the tax to be paid by the instant taxpayer under section 8B(1) of the Act was to be refunded any way in future and therefore this being in the nature of advance tax could not be charged despite the fact that the taxpayer was a manufacturer?"

2. The brief facts of the case are that through the show-cause notice dated 15.05.2014 it was alleged that the petitioner has adjusted 100% of input tax during tax periods from July, 2013 to March, 2014 in violation of the provisions of section 8B(1) of the Act read with SRO 647(I)/2007 dated 27.06.2007 and the petitioner has also neither charged nor paid further tax as required under Section 3(1A) of the Act. The petitioner was called upon to show cause as to why the alleged amount may not be recovered along with default surcharge and penalty under Section 11(2) of the Act. Being dissatisfied with the reply to the show-cause notice, the Commissioner passed Order-in-Original No.01/2014 dated 27.06.2014 through which he upheld the charged levelled in the show-cause notice. The order was challenged by the respondent before the Appellate Tribunal Inland Revenue. The Tribunal accepted the appeal filed by respondent on 14.01.2015 and order by Commissioner Inland Revenue was cancelled. The department has challenged the order of ATIR and claims that the order under challenge is against expressed provisions of law and is not sustainable.

3. The learned counsel for the respondent has defended the order by stating that the petitioner was entitled to 100% adjustment of input tax. Asking the respondent to adjust 90% of input tax and claim refund of remaining 10% under Section 66 of the Act was a mere formality.

4. The dispute revolves around interpretation of Section 8B(1) and Section 66 of the Act which are re-produced below for reference: "8B. Adjustable input tax.

(1) Notwithstanding anything contained in this Act, in relation to a tax period, a registered person shall not be allowed to adjust input tax in excess of ninety per cent of the output tax for that tax period: Provided that the restriction on the adjustment of input tax in excess of ninety percent of the output tax, shall not apply in case of fixed assets or capital goods; Provided further that the Board may, by notification in the official Gazette, exclude any person or class of persons from the purview of subsection (1). " S.

66. Refund to be claimed within one year.

No refund of tax claimed to have been paid or over paid through inadvertence, error or misconception or refund on account of input adjustment not claimed within the relevant tax period, shall be allowed, unless the claim is made within one year of the date of payment: Provided that in case where a registered person did not deduct input tax within the relevant tax period, the Commissioner may, after satisfying himself that input tax adjustment is due and admissible, allow the registered person to take such adjustment in the tax period as specified by the Commissioner: Provided further that in a case where the refund has become due on account of any decision or judgment of any officer of Inland Revenue or court or the Tribunal, the period of one year shall be reckoned from the date of judgment or decision of such officer, court or Tribunal: Provided further that the application or claim filed under this section shall be disposed of within a period not exceeding ninety days from the date of filing of such application or claim: Provided also that no refund shall be admissible under this section if incidence of tax has been passed directly or indirectly to the consumer." (emphasis supplied)

5. Section 8B(1) of the Act provides that a registered person shall not be allowed to adjust input tax in excess of ninety percent of the output tax for such period. Usually a provision of law couched in negative language is mandatory in nature. We agree with the argument of the learned counsel for the petitioner that the basic purpose of allowing only 90% adjustment of input tax is to encourage correct declaration of taxable supplies by the registered persons. By retaining 10% of the adjustable amount for each tax period, the registered person is compelled to file proper documents to get its refund under Section 66 of the Act.

6. From perusal of Section 8 it is clear that by allowing 90% of adjustment in the input credit, the law is not disallowing adjustment of the remaining 10% tax. Section 8B(1) is only procedural in nature which is then followed by procedure under Section 66 of the Act which caters to the entitlement of the petitioner to claim refund of the remaining 10% which has not been disallowed by law. Claim for the refund of excess tax paid may be made within a period of one year from the date of payment. The purpose of the enactment seems to be to keep a check on the assessee to file correct tax return. Before allowing the claim of refund, the Commissioner has to satisfy himself that input tax adjustment is due and admissible. Here an adjudication process takes place which has to be completed within a period of ninety days from date of filing of claim. Sales tax is a value added tax for which purpose, the department is entitled to check that a return is correctly filed. As a balancing criteria, the assessees are allowed to make 90% of input tax adjustment whereas they have to file returns to claim the refund. It is true that when a thing is provided by law to be done in a certain manner, it should be done in that manner. Any other procedure would normally not be permissible. However, despite the above proposition, we tend to agree with the Tribunal in that no mala fide was attributed nor proved against the respondent and it would be otiose to drive the registered person to run through the entire process again when this does not seem to be the intention of the legislature. At worst, the department could have proceeded to impose penalties for non-compliance of a procedural formality and not beyond that. It is not an allegation against the respondent that the input tax adjustment was not due to it, and was illegally claimed. In the absence of such allegation, no useful purpose would be served by going through the motions again.

7. For what has been discussed above, the question of law is answered in the affirmative and the reference petition is dismissed.

8. A copy of this order shall be sent to the Appellate Tribunal under the seal of this Court. KMZ/C-7/L Order accordingly.