Case Law Details
Bundelkhand University Vs Commissioner Commercial Tax (Allahabad High Court)
Allahabad High Court held that penalty proceedings initiated against a Government Institution for non-deduction of tax under section 8(D) of U.P. Trade Tax Act from amount payable to works contractor unsustainable as once the said contractor was assessed to tax creating tax liability on payment received from the Government Institution.
Facts- The revisionist is an educational institution imparting education. The primary and dominant function of the revisionist is to impart education to students, which is not a business activity.
According to the revisionist, it is neither a dealer or a contractor nor has appointed any contractor for execution of work contract. It is functioning under the control of the U.P. Government. Whenever, there is a requirement for any building to be used by students and teachers in the university campus, it is forwarded to the State Government to execute construction work. The State Government on receipt of the requirement allocates budget and transfers the same to the university and authorizes and appoints the U.P. Public Works Department for construction of building.
The university had got the building constructed by Government Agency called as U.P. Rajkiya Nirman Nigam Ltd. For the relevant assessment year, U.P. Rajkiya Nirman Nigam was subjected to the assessment and an order u/s. 7 (3) of the Act of 2008 was passed by the Deputy Commissioner (Assessment), Khand 8, Commerical Tax, Jhansi, wherein a liability of Rs.6,76,290/- was made against the Government Agency.
Revisionist-assessee received a notice on 19.07.2010 from the Taxing Authorities under Section 8(D)(6) of the U.P. Trade Tax Act, 1948. The said notice was replied by the revisionist assessee. The Deputy Commissioner on 09.2010 levied a penalty u/s. 8(D)(6) of the Act of 1948 for Rs.34,86,000/-.
Conclusion- Initiation of penalty proceedings under Section 8(D)(6) against a Government Institution has not helped the revenue, but such exercise has led to financial loss to the Government by unnecessary expenditure on litigation which, at any cost, should be avoided.
Further the revisionist had sufficiently explained in the reply furnished before the assessing authority that they were not well aware of the provisions of law which required for deduction under Section 8(D)(6). The reasons so furnished appear to be plausible, and in the absence of any malafide intention, in my opinion, penalty is not leviable.
FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT
1. Heard Sri Nishant Mishra, learned counsel for the revisionist and Sri A.C. Tripathi, learned Standing Counsel for the State.
2. This revision filed under Section 58 of the U.P. Value Added Tax Act, 2008 (hereinafter called as ‘Act of 2008’) assailing the order dated 27.02.2013 passed by the Commercial Tax Tribunal in Second Appeal No.26 of 2011 for the Assessment Year 2007-08.
3. The said revision was admitted on 10.01.2023 on following question of law:-
“(a) Whether in view of the judgment of the Hon ‘ble Court in the case of Lala Rajpai Rai and Associate Hospital Vs. C.S.T. reported in 1996 NTN Pg. 152 and Flex Vouchers Pvt. Ltd. Vs. C.T.T. reported in 2005 (41) STR Pg. 25 Flex (supra) the levy of penalty upon the applicant is justified?
(c) Whether in view of the facts and circumstances of the case, levy of penalty of Rs.34,86,000/- under Section 8(d)(6) of the U.P. Trade Tax Act, is justified?”
4. The brief facts involved in the present revision are that the revisionist is an educational institution imparting education. The primary and dominant function of the revisionist is to impart education to students, which is not a business activity.
5. According to the revisionist, it is neither a dealer or a contractor nor has appointed any contractor for execution of work contract. It is functioning under the control of the U.P. Government. Whenever, there is a requirement for any building to be used by students and teachers in the university campus, it is forwarded to the State Government to execute construction work. The State Government on receipt of the requirement allocates budget and transfers the same to the university and authorizes and appoints the U.P. Public Works Department for construction of building. The university had got the building constructed by Government Agency called as U.P. Rajkiya Nirman Nigam Ltd. For the relevant assessment year, U.P. Rajkiya Nirman Nigam was subjected to the assessment and an order under Section 7 (3) of the Act of 2008 was passed by the Deputy Commissioner (Assessment), Khand 8, Commerical Tax, Jhansi, wherein a liability of Rs.6,76,290/- was made against the Government Agency.
6. Revisionist-assessee received a notice on 19.07.2010 from the Taxing Authorities under Section 8(D)(6) of the U.P. Trade Tax Act, 1948 (hereinafter called as ‘Act of 1948’). The said notice was replied by the revisionist assessee. The Deputy Commissioner on 09.2010 levied a penalty under Section 8(D)(6) of the Act of 1948 for Rs.34,86,000/-.
7. Aggrieved by the said order, a first appeal was filed before the Additional Commissioner, Jhansi which was dismissed by order dated 20.12.2010. Further, the assessee filed a second appeal before the Commercial Tax Tribunal, Jhansi which was also dismissed by order dated 27.02.2013, hence the present revision.
8. Learned counsel for assessee submitted that the levy of penalty under Section 8(D)(6) is discretionary and should not be levied mechanically. According to him, Section 8(D)(1) and (6) has to be read in harmony and the maximum penalty which can be imposed is double the amount of deduction which is to be made from the amount paid to a contractor at the rate of 4 %. According to him, the authorities without recording any finding had imposed maximum amount of penalty on the revisionist who is not a dealer and is an educational institution.
9. He next contended that the officers of the university were not aware of the provisions of Section 8 (D)(6) and the tax has already been paid by the contractor while his assessment has been made.
10. Reliance has been placed upon decision of Co-ordinate Bench of this Court in case of Lala Lajpat Rai and Associated Hospital Commissioner of Sales Tax, U.P. 1996 (NTN) 152 and decision in case of M/s Flex Pouches Pvt. Ltd. Vs. Commissioner Trade Tax (2005) 41 STR 25.
11. Learned Standing Counsel while defending the order passed by the Taxing Authorities contended that it is incumbent upon every person making payment to a contractor to deduct 4% of the amount and deposit with the Taxing Authorities. According to him, as the revisionist had defaulted in making deduction and depositing, the authorities had rightly proceeded to levy the
12. I have heard respective counsel and perused the material on
13. Both the questions of law which arise in the present revision are inter-connected and thus, are being tried and decided together. It is admitted to both the parties that the revisionist is an educational institution imparting education to the students. The university needs building not only for the students, but also for the teachers and other educational activities to be carried out within its campus. The budgets for carrying out such construction are provided by the State Government. The Act of 2008 is a fiscal act, intended to raise revenue for the State Government. The very purpose is met out, once the dealer to whom the payment has been made by the educational institution is subjected to assessment proceedings and tax liability is created and realized.
14. Initiation of penalty proceedings under Section 8(D)(6) against a Government Institution has not helped the revenue, but such exercise has led to financial loss to the Government by unnecessary expenditure on litigation which, at any cost, should be
15. The sole object of Section 8 (D) is tax deduction from amount payable to works contractor. Such tax deducted at source from the payment to contractor is treated as payment of tax on behalf of the contractor, so that he may not escape assessment to tax and the revenue is secured. Once, U.P. Rajkiya Nirman Nigam was assessed to tax and an assessment order was passed on 31.03.2010 and a tax liability was created towards the payment received by it from the university, the penalty proceedings initiated by the Taxing Authorities looses its sheen.
16. Moreover, the assessing authority while making assessment order has noted the fact that U.P. Rajkiya Nirman Nigam on 26.07.2010 had apprised this fact to the assessing authority that assessment has been made for the assessment year 2007-08 (till 12.2007). Once, this material was before the assessing authority, further proceeding was futile in nature causing financial loss only to the Government and creating more of litigation.
17. Further, the revisionist had sufficiently explained in the reply furnished before the assessing authority that they were not well aware of the provisions of law which required for deduction under Section 8(D)(6) . The reasons so furnished appear to be plausible, and in the absence of any malafide intention, in my opinion, penalty is not leviable.
18. In view of above, the revision stands
19. The order imposing penalty under Section 8(D)(6) and the order passed by the Tribunal are hereby set aside.
20. The questions of law, framed above, stand answered in favour of the assessee and against the revenue.
Order Date :- 2 1.2.2023
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