Levy & Recovery of Interest are not Permissible under the Bihar Entry Tax Act: Patna HC [Read Judgment]

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In a bunch of writ petitions moved by M/s Indian Oil Co., the division bench of the Patna High Court held that in the absence of any specific provision authorizing the revenue to assess interest under the Entry Tax Act and in the absence of Section 8 of the Bihar Entry Tax Act contemplating a provision for recovery of interest and levy of interest etc. are not permissible.

The division bench comprising Chief Justice Rajendra Menon and Justice Sudhir Singh also upheld the constitutional validity of section 3(2) of the Entry Tax Act.

The petitioners, Indian oil Corporation, approached the High Court challenging the proposal to re-open assessments under the Entry Tax Act and the Bihar Vat Act by contending that the assessment cannot be reopened based on an audit objection. It was further contended that any Scheduled goods which is imported from outside the local area or the State for the purpose of sale and when these goods are taken out of the local area without any sale, use or consumption, within the local area, they cannot be subjected to entry tax. They also challenged second proviso to Section 3(2) of the Entry Tax Act by contending that the same is arbitrary and discriminatory. The petitioners also challenged the levy of interest in case of late payment of entry tax under the Entry Tax Act since here is no specific provision empowering the Department to levy the same.

Regarding the constitutional validity of section 3(2) of the Entry Tax Act, the bech noted that provision would apply only in a case where an importer of Scheduled goods is liable to pay VAT and while making such payment set off is permitted to the extent of entry tax paid. “The purpose of this provision seems to be to give benefit to a person, who incurs liability for payment of VAT and Entry tax on the imported goods at the same time.” It was noticed that the petitioner has not paid VAT in the transactions in question.

“If the provision is incorporated for granting some benefits to some of the assessees, merely because the benefit is not applicable to the petitioner, the provision cannot be termed as arbitrary or discriminatory. The petitioner cannot say that because it is not beneficial to the petitioner, the provision should go and thereby depriving lakhs of assessees, who are reaping the benefit of the aforesaid provision. This could never be the purpose and intention of the legislature nor appropriate for this Court to make any indulgence. The legislature has incorporated the provision to grant benefit to certain assessees and on the grounds canvassed by the petitioner, we see no reason to declare the same as discriminatory, ultra vires or unreasonable.”

With regard to the power of the Department to levy interest under the Entry Tax, the bench said that the same is not possible in the absence of any specific provision under the Act. the bench said, “if Section 8 of the Entry Tax Act is analyzed, it would be seen that it makes applicable the provisions of the Bihar Finance Act to the Entry Tax Act in the matter of assessment, reassessment, collection and enforcement of payment of tax and penalty payable by a dealer under the Bihar Finance Act. Nowhere in the provisions of Section 8 is there any mention of recovery or imposition of interest. It empowers the authorities to apply the provisions of the Bihar Finance Act or, in fact, makes the provisions of the Bihar Finance Act, 1981 applicable mutatis mutandis in the matter of collection and enforcement with regard to payment of tax and penalty so also with regard to assessment, reassessment escaped assessment, recovery of tax, special mode of recovery, maintenance of accounts, inspection, search and seizure. There is no mention of recovery of interest in the aforesaid provision. That being the position, in the backdrop of the law laid down in the cases of India Carbon Ltd (supra) and J. K. Synthetics Ltd. (supra), we are of the considered view that interest could not be recovered from the assessee in view of the aforesaid.”

It was said that “charging of interest and proposing to recover interest on the duty or the tax determined is unsustainable. Section 8 of the Entry Tax Act only permits the respondents to take steps for assessment, reassessment, recovery of tax and penalty, but not interest.”

Regarding the question of re-opening of assessmet based on audit objection, the bench concluded the matter in favour of the Revenue.

Read the full text of the Judgment below.

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