The State Of Bihar Through The Principal Secretary Cum Commissioner And Anr vs. The Food Corporation Of INDIA

Held

The Court held that to save Section 16 of the Bihar VAT Act, 2005, from being rendered unconstitutional, its provisions must be read down. Consequently, the Court ruled that Section 16 should be interpreted to allow input tax credit not only for the tax levied but also for the additional tax levied under Section 3AA of the Act. The Court concluded that the tax and additional tax paid by the petitioner on the purchase of paddy in Bihar would be liable to be reduced from the tax and additional tax on the sale of rice procured from such paddy within the State. The review petitioners' grievance that FCI had not actually paid the purchase tax and additional tax was not considered a ground for review, as this issue was not raised during the original writ petition hearing. The Court found no patent error in the original judgment.

Facts

The State of Bihar, through its Principal Secretary Cum Commissioner and Deputy Commissioner of Commercial Taxes, filed a review application seeking to recall a judgment and order dated July 19, 2016. In the original writ petition (CWJC No. 6379 of 2014), the Food Corporation of India (FCI) had challenged Section 16 of the Bihar Value Added Tax Act, 2005. FCI argued that this section was ultra vires Section 15 of the Central Sales Tax Act, 1956, and Article 286 of the Constitution, as it did not allow credit for additional tax paid on paddy purchases against the output tax liability on the sale of rice derived from that paddy. The State contended that the additional tax was not a 'tax' and thus not eligible for set-off.

Key Issues

1. Whether Section 16 of the Bihar Value Added Tax Act, 2005, which disallowed set-off of additional tax paid on the purchase of paddy against the output tax liability on the sale of rice, was ultra vires Section 15 of the Central Sales Tax Act, 1956, read with Article 286 of the Constitution of India? The petitioner (FCI) argued that disallowing the set-off of additional tax under Section 3AA of the VAT Act, 2005, on paddy purchases would lead to declared goods (rice) being taxed at a rate exceeding the 4% limit prescribed by Section 15(a) of the CST Act, 1956, effectively subjecting them to double taxation. The respondents (State) argued that Section 3AA levied 'additional tax,' not 'tax,' and therefore, it was not eligible for input tax credit. They further contended that the restriction under Section 15(c) of the CST Act, 1956, applied only to tax, not additional tax.