By TIOL News Service

NEW DELHI, APR 22, 2018: THE issue is - Whether when Writ Court has expressly restricted the consideration to limited issues, then plea of constructive res judicata cannot be pressed in service to preclude the aggreived party from raising questions which were not expressly permitted to be argued in previous Petition. YES is the verdict.

Facts of the case

The assessee company had approached this Court challenging the liability to pay interest on the Entry Tax on the assessee under The U.P. Tax on Entry of Goods into Local Areas Act, 2007. The demanded Entry Tax having been paid by the assessee, the issue to be considered was with regard to liability to pay interest on the Entry Tax alone. In the background, Entry Tax Legislations enacted by different States including the State of U.P. came to be challenged in the High Courts questioning the very legislative competence of State Legislature to enact Entry Tax Legislations, which according to the assessee dealers violated freedom of trade, commerce and intercourse guaranteed under Article 301 and other Articles of Part XIII of the Constitution. Some of the High courts including Allahabad High Court had struck down the initial Entry Tax Legislations on the ground that it violated rights guaranteed under Part XIII of the Constitution of India.

Although, the Allahabad High Court declared it unconstitutional, the same was challenged before the Apex Court and Leave was granted. Thereafter, the Constitution Bench of this Court laid down yardstick to determine whether tax was compensatory or not. Pursuent to the Constitution Bench decision, the Allahabad High Court held that Entry Tax levied on crude oil and other goods did not fulfil the requirements of compensatory tax. Later on, in view of the interim order passed by Apex Court, the levy of Entry Tax in the State of U.P. was held to be unsustainable. Ultimately, 50% of the accrued tax arrears under the Act, 2007, came to be deposited. This Court, thus, left the determination of interest, which was to be payable by the assessee to be determined subsequently. Later on, this Court granted liberty to the assessee to question the levy of Entry Tax under Act, 2007 on the issues, which were left open in the order of the Nine Judges Bench before High Court by way of a fresh writ petition.

Having heard the parties, the Supreme Court held that,

++ it is seen that the essence of the argument in the long drawn debate was to declare the Entry tax Act, 2007 as invalid, void and unconstitutional in so far as purports to levy entry tax on crude oil imported into India for Mathura Refinery. Further reliefs were claimed for quashing the assessment orders as well as interest also. The issue which has not been expressly permitted to be decided by judgment passed on May 04, 2018 cannot operate as res judicata in subsequent writ petition filed by the assessee where the challenge to the leviability of the interest has been raised. What Explanation 4 to Section 11 of CPC provides is that a plea which might and ought to have been taken in the earlier suit, shall be deemed to have been taken and decided against person raising the plea in the subsequent suit. Present is a case where the plea of questioning the leviability of the interest was specifically raised by the assessee in the writ petition. The Division Bench of the High Court did not entertain such pleas due to the Court having restricted the consideration to three questions only. The subsequent writ petition where plea of leviability of the interest was raised could not have been thrown on the ground of res judicata. The sequence of events and the fact of de-tagging the writ petition with the main Bunch where challenge to interest was made separately clearly indicate that the Division Bench intended not to entertain the question of liability to pay interest in the Bunch which was reserved on Nov 09, 2017. When the High Court has expressly restricted the consideration to three issues, the plea of constructive res judicata cannot be pressed in service against the assessee to preclude him from raising the question which was not expressly permitted to be argued in previous Writ Petition No.25730 of 2017;

++ the liability of the interest u/s 12(3) is confined to one particular situation and does not provide for any universal application for payment of interest. Requirement of payment of interest u/s 12(3), thus, is for a particular situation and has no application with regard to any other instance of liability to pay tax. Present is a case where assessee is not receiving any goods from any manufacturer, hence, in the present case Section 12 has no applicability. There is no quarrel to the proposition that liability to pay a tax or interest on it has to be provided by a substantive law. The application of provisions of VAT Act, 2008 is provided by Section 13 of Act, 2007 with certain changes in points of details. Section 33 of the VAT Act, 2008 which has been mentioned to apply u/s 13 has to be applied with respect to payment and recovery of tax. Thus, the payment of interest which is contemplated u/s 33 on the amount of tax has to be applied with regard to the payment of Entry Tax and the interest thereon. Even if provision of Section 33 of VAT Act, 2008 to be treated as machinery provision which is to be applied by virtue of Section 13 of Act, 2007, the machinery provision has to be interpreted in a manner so as to make the liability effective and treated to be substantive law. In the present case, Section 33 has been made applicable by virtue of Section 13 mutatis mutandis. It is to be noted that the provision by which the authority is empowered to levy and collect interest, even if construed as forming part of the machinery provisions, is substantive law. However, what shall be the effect of deposit of Entry Tax in separate interest-bearing account in pursuance of the interim order of this Court dated Feb 09, 2004 in Civil Appeal Nos.997-998 of 2004, needs to be considered by this Court.

(See 2019-TIOL-180-SC-VAT)