2016 (4) TMI 1399 - HC - VAT and Sales Tax

Levy of VAT - purchases is required to be excluded for computing taxable turnover of purchases - purchases on which value added tax is neither claimed nor granted are required to be excluded for computing taxable turnover of purchases - section 11(3)(b) of Gujarat VAT Act - HELD THAT - Section 11(3)(b) of the GVAT Act provides that notwithstanding anything contained in the section the amount of tax credit in respect of a dealer shall be reduced by the amount of tax calculated at the rate of four per cent on the taxable turnover of purchases within the State - (i) of taxable goods consigned or dispatched for branch transfer or to his agent outside the State or (ii) of taxable goods which are used as raw materials in the manufacture or in the packing of goods which are dispatched outside the State in the course of branch transfer or consignment or to his agent outside the State (iii) of fuels used for the manufacture of goods. Thus the amount of tax credit in respect of a dealer is required to be reduced by the amount of tax calculated at the rate of four per cent on taxable turnover of purchases within the State. The controversy involved in the present case is as regards the taxable turnover of the purchases made by the petitioner. It would therefore be germane to refer to the definition of taxable turnover as defined under section 2(30) of the GVAT Act which provides that taxable turnover means the turnover of all sales or purchases of a dealer during the prescribed period in any year after deducting therefrom the matters enumerated thereunder. Sub-section (32) of section 2 defines taxable turnover of purchases to mean the aggregate of the amounts of purchase price paid or payable by a dealer in respect of any purchase of goods made by him during a given period after deducting the amount of purchase price if any refunded to the dealer by the seller in respect of any goods purchased from the seller and returned to him within the prescribed period. Thus turnover of purchases is the aggregate of the amount of purchase price paid or payable by a dealer in respect of purchases made by him. When the word includes is used in a definition as in the case of section 2(18) of the GVAT Act it is clear that the legislature does not intend to restrict the definition; it makes the definition enumerative and not exhaustive that is to say the term defined will retain its ordinary meaning but its scope would be extended to bring within the term certain matters which in its ordinary meaning it may or may not comprise. Inclusion of the words duties levied or leviable under the Central Excise Tariff Act 1985 or the Customs Act 1962 is an inherent indicator of the legislative intent to include only those duties/taxes within the purview of the expression purchase price . Therefore the intention of the legislature to exclude value added tax from the ambit of purchase price is clear as otherwise the same would also have found place in the categories - the view adopted by the Tribunal is in consonance with the construction of section 2(18). Since the interpretation of purchase price as defined under section 2(18) of the Act is the foundation for interpretation of the expressions turnover of purchases and taxable turnover once it is held that the purchase price does not include the value added tax component it follows that calculation of input tax credit under section 11(3)(b) of the GVAT Act is also required to be made by excluding the value added tax component from the total turnover of the dealer. It is not possible to state that the impugned order passed by the Tribunal suffers from any legal infirmity so as to give rise to any question of law much less a substantial question of law - Appeal dismissed.

Summary

Issues Involved:
1. Whether the Tribunal erred in law and facts in holding that value-added tax (VAT) paid on purchases should be excluded for computing "taxable turnover of purchases" under section 11(3)(b) of the Gujarat Value Added Tax Act, 2003 (GVAT Act).
2. Whether the Tribunal erred in law and facts in holding that purchases on which VAT is neither claimed nor granted should be excluded for computing "taxable turnover of purchases" under section 11(3)(b) of the GVAT Act.

Issue-wise Detailed Analysis:

Issue 1: Exclusion of VAT Paid on Purchases for Computing "Taxable Turnover of Purchases"

The appellant, State of Gujarat, challenged the Tribunal's decision that VAT paid on purchases should be excluded when computing the "taxable turnover of purchases" under section 11(3)(b) of the GVAT Act. The respondent dealer argued that the definition of "purchase price" under section 2(18) of the GVAT Act is clear and exhaustive, and thus, VAT paid should not be included in the purchase price or taxable turnover. The Tribunal agreed, referencing Supreme Court decisions in Joint Commercial Tax Officer, Division III, Madras v. M/s. Spencer & Co. and Others, and Anand Swarup Mahesh Kumar v. The Commissioner of Sales Tax, which held that amounts collected under statutory obligations do not form part of taxable turnover. The Tribunal concluded that the tax collected by the vendor should not be part of the purchase price and that the calculation of reversal on the taxable turnover of purchases without including the tax is in accordance with the Act. The Tribunal's decision was upheld, noting that the legislative intent was not to include VAT within the definition of "purchase price."

Issue 2: Exclusion of Purchases on Which VAT is Neither Claimed Nor Granted

The Tribunal also held that purchases on which VAT is neither claimed nor granted should be excluded when computing the "taxable turnover of purchases" under section 11(3)(b) of the GVAT Act. The respondent dealer contended that the inclusion of such purchases in the taxable turnover is contrary to the Act. The Tribunal found merit in this argument, stating that the authorities below were unjustified in including the value of purchases on which no tax credit was claimed or granted. The Tribunal's interpretation was based on a conjoint reading of the definitions of "purchase price," "turnover of purchases," and section 11 of the GVAT Act, concluding that tax collected under the VAT Act is not includible in the turnover of purchases.

Conclusion:

The High Court dismissed the appeal, affirming the Tribunal's decision. The court held that the Tribunal's interpretation of "purchase price" under section 2(18) of the GVAT Act was correct, and the exclusion of VAT from the taxable turnover of purchases was in line with the legislative intent. The court found no legal infirmity in the Tribunal's order, and thus, no substantial question of law arose for consideration.