Supreme Court Stays Madras High Court’s Order Directing Payment of Tax On Manufacture Of Water Borehole Drilling Rigs

The Supreme Court has stayed the order passed by the Madras High Court directing the payment of a minimum 4% tax on the manufacturing of the water borehole drilling rigs.

The division bench of Justice Krishna Murari and Justice C.T. Ravi Kumar has observed that tax at the rate of 4% has already been deposited by the petitioner. The direction in the order to pay another 4% shall remain in abeyance until the next date of listing.

The petitioner challenged the order passed by the respondent, which rejected the request of the appellants/writ petitioners for a waiver of tax arrears and penalties. The appellants/writ petitioners had earlier sought a direction from the Assessing Authority to redo the assessments based upon a circular issued by the Commissioner of Commercial Taxes. Though the writ petitions were dismissed on October 15, 2015, the petitioners were permitted to seek a waiver of the disputed amounts raised in the assessments, and the Committee for Waiver was to consider the request and grant it.

A Division Bench of the Madras High Court granted the status quo about the recovery of the tax imposed by the assessing authority on the appellants/writ petitioners. The court remitted the matter back to the Commissioner of Commercial Taxes for deciding the issue involved under Section 48A of the Tamil Nadu Value Added Tax Act, 2006, after hearing both parties.

The petitioners had filed applications seeking clarification before the Commissioner of Commercial Taxes. On January 31, 2020, the Commissioner issued a new order, giving his opinion and clarification, holding that "manufacture of water borehole drilling rigs to be mounted on the chassis supplied with compressor" is taxable at 12.5% or 14.5%, depending on the case, under Entry 69 in Part C of the First Schedule and not under Entry 25 in Part B of the First Schedule of the Tamil Nadu Value Added Tax Act, 2006.

The assessee decided to go before the authority, and as a matter of right, the assessee cannot demand that the entire waiver be granted. The authority has the power to either waive or reject the waiver in its entirety, and he also has the power to demand a higher percentage as an interim measure until the issue is finally decided. If the authority accepts the assessee's case, any excess amount collected must be refunded to the assessee.The authority, while passing a final order, can accept either 4% or 12.5%, depending on the acceptance of the contentions of the parties, but it cannot increase the percentage from 4% or reduce it from 12.5%.

The Madras High Court, as an interim measure, directed the appellants to pay another 4% of the tax. The respective appellants are directed to pay 4% of the tax determined by the authorities, apart from the 4% already remitted, i.e., a total of 8% (4% + 4%), within a period of four weeks.

The Supreme Court stayed the order of the Madras High Court.

Case Title: M/s. Paranthaman Hydraulics and Equipments Versus State Of Tamil Nadu

Citation: Petition(s) for Special Leave to Appeal (C) No(s). 1286/2023

Date: 23-01-2023

Counsel For Petitioner: Advocate R.Hemalatha, Geetha Kovila

Click Here To Read The Supreme Court Order

Click Here To Read The Madras High Court Order