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CASE NO.: Appeal (civil)  4912 of 2006

PETITIONER: M/s Supra Marketing Agencies

RESPONDENT: Commercial Tax Officer,Hyderabad and Ors

DATE OF JUDGMENT: 13/11/2006

BENCH: ARIJIT PASAYAT & LOKESHWAR SINGH PANTA

JUDGMENT: J U D G M E N T (Arising out of SLP (C) Nos. 2381-2382 of 2006)

ARIJIT PASAYAT, J

Leave granted.  

The controversy in the present appeal lies within a narrow  compass. The appellant is a dealer registered under the  provisions of Andhra Pradesh General Sales Tax Act, 1957 (in  short the ’Act’) and the Central Sales Tax Act, 1956 (in short  the ’CST Act’). The present disputes relates to the assessment  years 1998-1999 and 1999-2000. The State Government  in  the Commercial Tax Department issued a  letter to the Andhra  Pradesh Backward Classes Cooperative  Finance Corporation  Limited (in short ’Corporation’) directing that taxes are to be  deducted at a source on the payments made by it to the  appellant. It was stipulated that the amounts so deducted at  source are to be deposited with the Commercial Tax  Department. The Corporation directed to its Executive Director  to credit sales tax deducted at source by Account Payee  cheque in favour of the concerned Assessing Officer in terms of  discussion held at a meeting held on 27.03.1999 where the  Managing Director of the Corporation and the Commissioner   of Commercial Taxes were present. The Corporation had  floated a project known as Adarna for the purpose of  ameliorating the conditions of poor backward class artisans.  The Corporation had taken a decision to procure number of  articles used by artisans. An agreement was entered into  between the appellant and the Corporation for supply of milk  cans, insulating boxes etc. Undisputedly, certain amounts had  been deducted at source in respect of sales tax payable. The  appellant brought it to the notice of the Corporation that by  letter dated 7.7.1999 in view of the Circular issued by the  Commissioner of Commercial Tax (in short the ’Commissioner’)  in terms  Section 42-A of the Act, it was the responsibility of  the Corporation to discharge the sales tax liability  under the  Act and CST Act. A Circular had been issued by the  Commissioner directing all the Deputy Commissioners to  implement the instructions issued in respect of payments  made in the Adarna scheme. The Corporation in terms of  Circular had deposited Rs.5,50,089/- which is a part of the  amount deducted at source. The balance amount  undisputedly is Rs.10,44,396/-. The Sales Tax Authorities  wanted to recover the said amount from the appellant.  Placing  reliance on the Circular issued by the Deputy Commissioner  on behalf of the Commissioner and Commissioner on  17.12.1998  and 7.7.1999 respectively, appellant requested

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the Sales Tax Authorities to collect the amounts from the  Corporation. It appears that there was some dispute about the  amounts payable to the appellant. The stand of the  Corporation appears to be that payment in excess of the actual   dues had been made to the appellant. The present dispute  does not relate to the said controversy.

Undisputedly, arbitration proceedings have been  initiated. The Commercial  Tax Officer, respondent No- I  issued notices of attachment to Lakshmi Vilas Bank Limited,  Secunderabad to attach bank account of the appellant to the  extent Rs. 1O,44,396/-.  Writ Petition was filed before the High  Court questioning the action. The High Court by impugned  judgment dismissed the writ petition holding that there was no  valid Circular in existence. The High Court was of the view  that letter issued by the Deputy Commissioner, Commercial  Taxes cannot be equated with the circular which the  Commissioner alone could have issued. It is also not relevant  that in the arbitration proceedings, Corporation has been held  liable to pay amounts which have been deducted at source at  tax as Commercial Tax Officer was not a party to such  proceedings.  

In support of appeals, learned counsel for the appellant  submitted that notwithstanding the fact that the parties  accept the position that whatever has been deducted at source  has to be deposited with the Commercial Tax Department, the  appellant is being asked to pay the amount again. Nobody  disputes that the Corporation was required to deduct the  amount and to deposit it. In fact the dispute on which the  Corporation placed reliance has nothing to do with the  question of deposit of amounts which has been deducted at  source.  The State Government accepts that the Deputy  Commissioner had issued communication in question acting  on behalf of the Commissioner and it is a Circular by the  Commissioner. It has also accepted that the Corporation is to  deposit amounts which it has deducted at source.  

Learned counsel for respondents 1 and 2 submitted that  Commercial Tax Officer and the State Government did not  dispute the stand that the Corporation has to deposit the  amounts which has been deducted at source. The stand of the  Corporation essentially is that there is some  dispute about  the amounts to be paid to the appellant and in fact its stand is  that the payment in excess of what is legally due has been  made.   The basic issue is whether the amount which has been  deducted at source by the Corporation is required to be  deposited with the Commercia1 Tax Department. There is no  scope for any controversy on this score.  The amounts have  been deducted in terms of the directions given by the  Commissioner. The relevant portion of the Circular dated  17.12.1998 reads as follows:  

"During the course of meeting,  I have made it  clear to the suppliers that the tax should be  deducted at source, that is by the Corporation  in respect of the supplies of goods wherever  tax is leviable. I, therefore, request you to  kindly to confirm to the Commissioner of  Commercial Taxes that the Corporation will be  undertaking to deduct tax at source before  paying the consideration to all the suppliers of  goods ADARNA PROJECT. The tax so deducted

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from these suppliers, in case they are  registered with ACTO Punjagutta Circle, under  the said proceedings, may be paid through  crossed cheque drawn in favor of Commercial  Tax Officer, Punjagutta Circle, Hyderabad duly  indicating the names of suppliers and the tax  amount deducted from them in the covering  letter. A certificate of the deduction may also  be issued to the individual suppliers. In  respect of suppliers who are already registered  in this State other than in Punjagutta Circle,  such crossed cheques may be issued in favour  of the concerned C.T.O. in the State and sent  by registered post to that C.T.O.".     

The stand of the Corporation that it has raised the  dispute about the amounts payab1e is really unconnected  with the issue under consideration. Undisputedly, since the  amounts have been deducted at source from the amounts paid  to the appellant for supply of articles, Corporation had to  deposit the amounts.  

In the Circular of the Deputy Commissioner as quoted  above, it has been clearly stated that the tax is to be deducted  at source wherever tax is leviable. In the Commissioner’s  Circular dated 7.7.1999, it has been clearly stated that in the  meeting held on 27.3.1999,  it was decided to deduct tax at  source in respect of all purchases made by the Corporation  and to deposit the said amount with the Commissioner.  

In view of the aforesaid factual position, we direct that  the Corporation should deposit the amounts which have not  yet been deposited in respect of amounts deducted at source  as tax.  The deposit shall be made within one month from  today.  It is unnecessary to state that we have not expressed  any opinion on the dispute relating to the entitlement of the  appellant and the question where there has been any over  payment as claimed by the Corporation. The appeals are  allowed to the aforesaid extent. No costs.