IMPORTANT POINTS
In absence of any perversity in the rules, setting off of VAT against Entry Tax in one case and not so in another case is not hostile discrimination.
No assessee can claim set off as matter of right. Validity of levy of Entry Tax cannot be challenged only because set off is not given.
Grant of restitution is not a matter of right, but discretion.

Headnote:(a) Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993 – Section 3(2) second proviso – Bihar Value Added Tax Act, 2005 – Section 13 – Schedule IV – Set off of VAT – Appellant being registered dealer under Bihar Finance Act, 1981 liable to pay tax under VAT Act – Appellant also an importer of scheduled goods (petroleum products), but not liable to pay tax under VAT Act – Section 14 of VAT Act specifying rates not applicable – Set off being person specific and not product specific, held, appellant not entitled to any set off . (Para 15, 16, 18)
       (2004) 7 SCC 642; (1975) 4 SCC 745; 1957 SCR 837; (1996) 9 SCC 136; (1985) 4 SCC 343 – Distinguished
       (b) Bihar Value Added Tax Act, 2005 – Section 13 – Schedule IV – Petroleum products – Notification dated 4th May, 2006 – No levy of VAT on appellant on sale of products to HPCL and BPCL – VAT becoming leviable only on sale of such products by HPCL and BPCL to their retailers or direct to consumers. (Para 15)
       (c) Constitution of India – Article 14 – Setting off of VAT against Entry Tax in one case and not so in another case – Not hostile discrimination there being no perversity. (Para 23, 24)
       (1970) 1 SCC 189; (1980) 1 SCC 223; (1989) Supp. (1) SCC 696 – Relied upon
       (d) Interpretation of statute – Taxing statute – No assessee can claim set off as matter of right – Validity of levy of Entry Tax cannot be challenged only because set off is not given. (Para 25)
       (1992) 3 SCC 624; C.A. 15049-15069 of 2017 – Relied upon
       (1989) 2 SCC 285; (2007) 6 SCC 624; (2007) 10 SCC 342; (2015) 10 SCC 681 – Distinguished
       (e) Administration of justice – Restitution – Grant of – Not a matter of right, but discretion – Hardships on both sides must be looked at – Assessments from 2008-09 granting set off being reopened in 2014 after audit objection – Restitutional interest denied. (Para 30)
       (2011) 12 SCC 518; (2011) 1 SCC 216 – Relied upon
       Facts of the case:
       The appellant imports crude oil from outside State of Bihar, refines it in Bihar and sells it to its own dealers and outlets as also other Oil Marketing companies (OMCs).
       The grievance of the Appellant in the present appeals is that when a sale is made to the OMCs, after payment of Entry Tax, VAT is not set off against the Entry Tax. VAT is not actually paid by the Appellant by reason of a notification dated 4th May, 2006 under the Bihar Value Added Tax Act, 2005 (VAT Act), where, in case of petroleum products sold by the Appellant to OMCs, the levy itself is at the point of sale by the aforesaid OMCs to their retailers or directly to their consumers, and this being the case, the set off of such VAT paid, as claimed by the Appellant, was allowed until the year 2014. However, pursuant to certain audit objections raised by the Accountant General, Bihar, the aforesaid set offs that were allowed to the Appellant, were re-opened with effect from the assessment year 2008-09, as a result of which set offs that were allowed were now disallowed. The Entry Tax demand arising from such disallowance for the assessment years 200809 till 2014-15 amount to Rs.1,683.03 crores.
       The High Court agreed with the Advance Rulings Authority, and rejected the case of the Appellant stating that the set off would not be allowable under the aforesaid proviso.

       Finding of the Court:
       Appellant is not entitled to set off.
       Result: Appeal and SLPs disposed of.

JUDGMENT

R.F. Nariman, J.

1. The present appeal and special leave petitions arise out of demands made from the Appellant for payment of Entry Tax under the Bihar Tax on Entry of Goods into Local Areas for Consumption, Use or Sale Therein Act, 1993 (hereinafter referred to as the Entry Tax Act).

2. The Appellant has its marketing division in the State of Bihar with branches, inter alia, at Barauni and Patna. It is from these branches that sales of petroleum products are effected. The Corporation receives crude oil, which is imported from outside the State of Bihar, which then enters Bihar, where the Corporation has its oil refinery; and after undergoing certain processes, crude oil is converted into petroleum products, like High Speed Diesel, Petrol etc. The products manufactured in the Bihar oil refinery are then sent to a branch in Patna, mainly through a pipeline constructed specifically for this purpose. Some part of these petroleum products, namely, High Speed Diesel and Petrol are sold by the Appellant to two other oil marketing companies (OMCs), namely, Bharat Petroleum Corporation Ltd. (BPCL) and Hindustan Petroleum Corporation Ltd. (HPCL), who then take the products from the depot of the Corporation situated in Patna and thereafter sell the products to their retail dealers or through their petroleum outlets. The Appellants, apart from the sales made to these OMCs, also sell the aforesaid petroleum products to local retailers and through petroleum outlets in Patna. The Appellant pays Entry Tax at the rate of 16% when the product enters the local area of Patna and 24.5% VAT is paid and set off against the Entry Tax under Section 3(2) second proviso of the Entry Tax Act for sales made within the local area. The grievance of the Appellant in the present appeals is that when a sale is made to the OMCs, after payment of Entry Tax, VAT is not set off against the Entry Tax. VAT is not actually paid by the Appellant by reason of a notification dated 4th May, 2006 under the Bihar Value Added Tax Act, 2005 (VAT Act), where, in case of petroleum products sold by the Appellant to OMCs, the levy itself is at the point of sale by the aforesaid OMCs to their retailers or directly to their consumers, and this being the case, the set off of such VAT paid, as claimed by the Appellant, was allowed until the year 2014. However, pursuant to certain audit objections raised by the Accountant General, Bihar, the aforesaid set offs that were allowed to the Appellant, were re-opened with effect from the assessment year 2008-09, as a result of which set offs that were allowed were now disallowed. The Entry Tax demand arising from such disallowance for the assessment years 200809 till 2014-15 amount to Rs.1,683.03 crores.

3. In Civil Appeal No.3018 of 2017, the impugned judgment dated 22nd October, 2013 of the Patna High Court agreed with the Advance Rulings Authority, and rejected the case of the Appellant under Section 3(2) second proviso of the Entry Tax Act, stating that the set off would not be allowable under the aforesaid proviso.

4. In the seven Special Leave Petitions before us by, a common judgment dated 19th April, 2017, a Division Bench of the Patna High Court framed five questions as follows:

“i) Whether the second proviso to Section 3(2) of the Entry Tax Act is ultra vires to the Constitution?
(ii) Whether interest can be levied in the matter of late payment of entry tax under the Entry Tax Act, by virtue of the provisions of the Bihar Finance Act, and, with the aid of Section 8 of the Entry Tax Act?
(iii) Whether entry tax is liable to be paid when the goods only enter the local area and after such entry is subjected to sell only without there being any use of consumption of the goods in the local area?
(iv) Whether based on audit objection as contemplated under the provisions of Section 33 of the VAT Act, assessment can be re-op

Click Here to Read the rest of this document

2017 Supreme(SC) 1081

Cases Referred (15)