TMI Blog2018 (4) TMI 1800X X X X Extracts X X X X X X X X Extracts X X X X ..... The purchasing dealer has to only prove that while making the payment, he takes the purchased amount. Petition disposed off. - D.B. Civil Writ Petition No. 12445/2016 - - - Dated:- 11-4-2018 - Mr. Justice K.S. Jhaveri And Mr. Justice Vijay Kumar Vyas For the Petitioner(s) : Mr. Prateek Kasliwal with Ms. Gauri Jasana For the Respondent(s) : Mr. R.B. Mathur with Mr. K.D. Mathur And Mr. Prateek Kedawat ORDER 1. By way of this writ petition, the petitioner has approached this Court by challenging the provisions of VAT Act. 2.1 The facts of the case are that the petitioner is a dealer doing his business in the State of Rajasthan under the Companies Act, 1956 having its office at Jaipur. 2.2. The Petitioner is in the business of rolling MS/HT Billets Blooms into Angle, Structural Steels and other products, the petitioner in its business transaction has purchased raw materials from Respondent No. 5 vide various Invoices in the series of Invoice No. 87 to 311 starting from 05.07.2012 to 24.02.2013. The Petitioner Company had paid a total amount of ₹ 13,63,33,030/- inclusive of VAT. The said amount was paid vide various letter of credit, RTGS, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r has not been paid to the Department treasury by Respondent No. 5, the said amount was already paid by the Petitioner, it should have been paid to the government treasury but due to non-payment by the Respondent No. 5, there was a default in the payment of VAT amount and hence, the show cause notice was issued and Input Tax Credit was denied to the Petitioner. It is shocking and surprising that the Petitioner had been cheated by the Respondent No. 5, and the amount had never been paid to the government treasury. With regards to this, the Petitioner had already filed a complaint against the Respondent No. 5 with Vishwakarma Police Station, Jaipur under Sections 406, 420, 465 and 468 of the Indian Penal Code. In the present case, the Petitioner though lawfully and faithfully submitted the VAT amount to the Respondent No. 5 is still not allowed the input tax credit. Also it is the primary duty of the State Government to check and verify the records on a regular basis maintained by its departments and set a procedure for the same, and here in the instant case, relevant point needs to be considered that the authority Respondent No. 4 appointed by the Department of Commercial Taxes, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. Reliance is placed on the decision in K.T. Moopil Nair v. State of Kerala : AIR 1961 SC 552 and State of Kerala v. Haji and Haji : AIR 1969 SC378. (ii) Section 9 (2) (g) of the DVAT Act denies to a bona fide purchaser, the benefit of the ITC only because of the default of the selling dealer over whom such purchasing dealer has not control. This measure qua the purchasing dealer is arbitrary, irrational and unduly harsh and, therefore, violative of Article 14 of the Constitution. Reliance is placed on the decisions in Commissioner of Customs, Amritsar v. Parker Industries : 2007 (207) ELT 658 (P H) and Shanti Kiran India Pvt. Ltd. v. Commissioner, Trade and Tax Deptt. :(2013)57VST405(Delhi). (iii) There are other statutory avenues available to the State to collect tax from the defaulting dealer. This includes recovery of the tax in case the dealer fails to deposit the same under Section 43 of the DVAT Act; forfeiture of security deposited under section 19 of DVAT Act read with Rule 22 of the DVAT Rules; recovery of tax as arrears of land revenue whereby the Commissioner prepares and issues to the defaulting selling dealer a recovery certificate and thereafter recovers th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave to be considered while interpreting an exemption provision. It is pointed out that even if it is assumed that subsequent to the purchases made by the purchasing dealer, the registration of the selling dealer is cancelled, such cancellation cannot be given retrospective effect so as to deny the purchasing dealer the ITC in respect of the VAT paid by him. (vii) Reliance is placed on the decisions in Mahadev Enterprise v. State of Gujarat : 2016 (92) VST 360 (Gujarat), Jinsasan Distributors v. CTO : (2013) 59 VST 256 (Madras) to urge that as long as there is no mismatch of Annexures 2A and 2B, ITC cannot be denied. Reliance is placed on the decision of this Court in Progressive Alloys (India) Pvt. Ltd. v. Commissioner of Trade Taxes (decision dated 3rd February, 2016 in W.P. (C) No. 7434/2015) and Infiniti Wholesale Limited v. Assistant Commissioner of Tax : (2015) 82 VST 457 (Madras). (viii) Penalty under Section 86 (10) of the DVAT Act cannot be imposed unless it is shown that the return filed is misleading or deceptive. When the buying dealer has no means to ascertain the fact of non-deposit by the selling dealer of the VAT collected from the purchasing dealer, it ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which could include either the purchasing dealer or the selling dealer. In the situation envisaged by Section 9 (2) (g) itself, clearly the defaulting party is the selling dealer. He has collected the VAT from the purchasing dealer and failed to deposit it with the Government or failed to lawfully adjust it against his output tax liability and has failed to correctly reflect that in his return. For all these defaults committed by the selling dealer, the purchasing dealer is expected to bear the consequence of being denied the ITC. It is this that is being questioned as violative of Article 14 of the Constitution. 34. First, there is the issue of Section 9 (2) (g) of the DVAT Act failing to distinguish between bona fide purchasing dealers and those that are not. While denial of ITC could be justified where the purchasing dealer has acted without due diligence, i.e. by proceeding with the transaction without first ascertaining if the selling dealer is a registered dealer having a valid registration, denial of ITC to a purchasing dealer who has taken all the necessary precautions fails to distinguish such a diligent purchasing dealer from the one that has not acted bonafide. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: In the present case, Section 9 (1) grants- inputtax credit to purchasing dealers. Section 9 (2), on the other hand lists out specific situations where the benefit is denied. The negative list, as it were, is restrictive and is in the nature of a proviso. As a result, this Court is of the opinion that the interpretation. placed by the Tribunalthat there is statutory, authority for granting input-tax credit only to the extent tax is deposited by the selling dealer, is unsound and contrary, to the, statute, It is also iniquitous because an onerous burden is placed on the purchasing dealer - in the absence of clear words to that effect in the statute to keep a vigil over the amounts deposited by the selling dealer. The court, does not see any provision or methodology by which the purchasing dealer can monitor the selling dealers behaviour, 'vis- -vis the latter's VAT returns. Indeed, Section 28 stipulates confidentiality in such matters. Nor is this Court in agreement with the Tribunal's opinion that insertion of clause (g) to section 9 (2) is clarificatory. As observed earlier, Section 9 (2) is an exception to the general rule granting inputtax credit to dealers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bona fide purchasing dealers and those not bonafide. 5. Learned counsel for petitioner contended that in view of the decision of Delhi High Court against which SLP Commissioner of Trade and Taxes Delhi vs. Arise India Ltd., Special Leave to Appeal (C ) No.36750/2017 was preferred and the same was dismissed on 10.01.2018 wherein it has been observed as under: On hearing learned Additional Solicitor General appearing for the petitioner, we are not inclined to interfere with the impugned order. The special leave petition is dismissed. Learned Additional Solicitor General, however, submits that a batch of petitions were decided by the impugned order and there are Signature Not Verified Digitally signed by DEEPAK MANSUKHANI Date: 2018.01.10 17:01:53 IST Reason:SIGNER CARD OF MR. DEEPAK MANSUKAHNI some of the cases where the purchase transactions are not bonafide IS BEING USED BY MR. O.P. SHARMA like the present case and those cases ought to have been remitted back to the competent authority. Learned Additional Solicitor General submits that the petitioner would move the High Court with necessary particulars for directions in this behalf for which liberty is granted, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry dealer is a vital link in the levy and collection of tax. As the number of dealers has increased manifold, conventional systems of tax administration have to be replaced by web based electronic systems. The system which the administrator must devise must continuously evolve both with a view to simplify procedures and to make the process including that relating to beneficial provisions such as set off and refund objective and transparent. The judgments of the Supreme Court, including in R.K. Garg, recognise the latitude which the law confers upon the Legislature and the executive to experiment with new systems in cases involving fiscal and economic policy. Systems have to evolve as experiences result in shared learning and as technology keeps abreast of changing needs. 52. In the view which we have taken in these proceedings, the constitutionality of the provision of Section 48(5) is upheld. Similarly Section 51(7) which requires an application for refund and specifies the period within which an application can be made, cannot be assailed as being invalid. Regulating the process of refunds is as much within the province of a legitimate tax enactment and the legislature is with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot he has to prove the same and the petitioner has already put a summary on record which clearly establish the amount which has been paid to the selling dealer including the purchase amount as well as tax amount. In that view of the matter, we are of the opinion that Rule 18 if it is accepted, then the respondents will to take undue advantage and cause harassment. Thus, we are of the opinion that instead of holding provisions Section 18 to hold to be ultra virus, we read down the provisions of Rule 18 as under: 18. Input Tax Credit : (1) Input tax credit shall be allowed, to registered dealers, other than the dealers covered by sub section (2) of section 3 or section 5, in respect of purchase of any taxable goods made within the State from a registered dealer to the extent and in such manner as may be prescribed, for the purpose of (a) sale within the State of Rajasthan; or (b) sale in the course of inter State trade and commerce; or (c) sale in the course of export outside the territory of India; or (d) being used as packing material of the goods, other than exempted goods, for sale; or (e) being used as raw material , except those as may be notified by t ..... 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