Interest Can't Be Levied When No Taxable Due Is Found: Gauhati High Court

The Gauhati High Court has held that once the assessment order of the authorities is set aside and the matter is remanded back and assessed, no taxable interest can be levied.

The bench of Justice Arun Dev Choudhury has observed that in a judicial system that is administered by the court, one of the primary principles to keep in mind is that the court under the same jurisdiction must have similar opinions regarding similar questions, issues, and circumstances. If opinions given on similar legal issues are inconsistent, then instead of achieving harmony in the judicial system, it will result in judicial chaos.

The petitioner/assessee, Indian Oil Corporation, has been purchasing various petroleum products from BRPL on payment of sales tax as per the provisions of the Act, 1993.

The Union of India constituted the Oil Prices Committee, and the committee recommended that the dealers sell their products at the prices fixed by the Central Government. The prices so fixed by the Central Government included a surcharge to be collected from buyers and deposited in the “Oil Pool Account." The recommendation was adopted by the Union of India on December 16, 1977.

The Superintendent of Taxes took the view that since the sale price of the petitioner company is more than 40% of the purchase price, the second sale was to be treated as the first sale. Therefore, the company was liable to pay tax on the second sale, considering it to be the first sale in the State of Assam. The view was based on the explanation of Section 8(1)(a) of the Assam General Sales Tax Act, 1993, read with Rule 12 of the Assam General Sales Tax Rule, 1993.

The petitioner company raised an objection to the proposition on the ground that the amount of surcharge collected on behalf of the Central Government is also included in the sale price. Therefore, the sale price for the purpose of the Act, 1993, should be determined after deducting the amount of surcharge collected by the petitioner company on behalf of the Central Government, which had to be contributed to the “Oil Pool Account.”.

The petitioner's contention was not accepted by the Superintendent of Taxes, and a show cause notice was issued for the initiation of penal action on the ground that the petitioner company is liable to pay tax on the sale of products purchased from the BRPL as a selling agent, as per Section 8(1)(a) of the Act 1993 read with Rule 12 of the Rules 1993.

A writ petition was filed before the court challenging the show cause notice.

The writ petition was dismissed by a coordinate bench holding that the amount of surcharge collected by the petitioner company, even though passed onto the Oil Pool Account, had to be included in the sale price, as defined under Section 2(34) of the Act, 1993.

The petitioner company preferred a Writ Appeal, and the Writ Appeal was also dismissed by a Division Bench. It was held that the surcharge collected by the petitioner company on behalf of the Central Government and contributed to the Oil Pool Account was not a statutory collection but collected under executive instruction and therefore cannot be excluded while calculating the sale price. It was held that the sale was to be treated as a first sale within the meaning of Section 8(1)(a) read with Rule 12 of the Rules 1993, since the sale price exceeded 40% of the purchase price.

The petitioner company preferred a special leave petition before the apex court. During the pendency of the SLP, the authorities passed an ex-parte assessment order and raised a demand of Rs. 303.98 crores retrospectively from 1994–1995 to 1997–1998. While making assessments and raising demand, tax was levied on the entire amount collected by the petitioner from its customer without any adjustment of the sales tax paid by the petitioner company to BRPL, i.e., on the first point of sale under Section 8(1). An amount of Rs. 158.12 crore was levied as interest.

The Apex Court set aside the impugned notices as well as the assessment made in the meantime and remanded the matter to the assessing authority to resolve the factual controversy over whether the appellant company had collected sales tax from consumers through various dealers on the entire resale price. If the answer is yes, the appellate company would be liable to deposit the entire sales tax amount collected from the consumers along with 9% interest from the date of collecting the amount towards the sales tax.

As per the decision of the Apex Court in an assessment order, it was found that the petitioner company had not collected any amount by way of sales tax. Therefore, the petitioner company was not liable to pay tax on the difference between the resale price and the purchase price only, and 24% interest on the difference between the resale price and the purchase price was levied and calculated up to January 30, 2008.

A revision was preferred before the Commissioner of Taxes, Assam, under Section 36(2) of the Act, 1993. However, the revision petition was also dismissed by the Commissioner of Taxes.

As per the order of the Division Bench, fresh assessments were completed by the Assistant Commissioner of Taxes, and by order, interest was levied, and the Assistant Commissioner of Taxes issued notices of demand.

The assessee contended that the Assistant Commissioner of Taxes, while passing the impugned orders of assessment, has gone beyond the direction issued by the Division Bench, as in no unambiguous terms it was held that when there was no tax demand prior to the issuance of a demand notice, no tax can be levied. Therefore, the demand notice asking the petitioner to pay a balanced amount of interest is not sustainable under law. The appellate authority had failed to consider the submissions advanced by the petitioner in the correct perspective, as the appellate authority fell into serious error of law in holding that the statement submitted earlier by the company was not in accordance with the provisions of Section 16(1)(2).

The department contended that Section 22(3) provides for a levy of interest on the shortfall of tax payable for the period prior to assessment. The shortfall in tax is to be considered as tax payable, and interest is payable from the due date of payment of such tax until the end of the month prior to such assessment. After reassessment, additional taxes were found to be payable, and such taxes were paid after the due date. Therefore, interest was levied in terms of Section 22(3) on the tax paid after the due date.

The court noted that the assessment orders were set aside by the Division Bench in its order, and in that background, the Division Bench held that once the assessment orders of the authorities are set aside and the matter is remanded back and assessed, no taxable interest can be levied.

The court held that the assessing officer and the appellate authority also could not have made the assessment for payment of interest or passed the order in derogation of the determination made by the Division Bench in the Writ Petitions.

Counsel For Petitioner: Ashok Saraf

Counsel For Respondent: B Gogoi

Case Title: IOCL Versus The State Of Assam

Case No.: Case No. : WP(C)/1732/2020

Click Here To Read The Order