9911796707
TMI Blog2013 (8) TMI 532X X X X Extracts X X X X X X X X Extracts X X X X ..... . Maha Associates, Mr. S. N. Kirubanandam, Mr. S. Sivanandam, Mr. M. Desingu, M/s. Sarvabhauman, Mr. A. P. Srinivas For the Respondents : Mr. A. L. Somayaji, Advocate General, Mr. V. Haribabu, AGP (Taxes) Mr. Cibi Vishnu, AGP(Taxes), Mr. Manohara Sundaram, Govt. Advocate (Taxes) Mr. Kanmani Annamalai, Govt. Advocate (Taxes) Mr. J. Adithya Reddy, Govt. Advocate (Taxes) and Mr.A.R.Jayaprathap, Govt. Advocate (Taxes) ORDER R. Banumathi, J. And T. S. Sivagnanam, JJ. Challenge in these writ petitions is the vires of Section 19(11) of Tamil Nadu Value Added Tax Act, 2006 (for short TN VAT Act) which prescribes modalities and time frame as regards availment or enjoyment of the Input Tax Credit as being inconsistent with Section 3 and the general scheme of TN VAT Act as being arbitrary and irrational infringing the rights of the petitioners under Article 14 and 19(1)(g) of the Constitution of India. 2. In the other set of writ petitions, petitioners seek for Writ of Certiorarified Mandamus to quash the orders/show cause notices issued by the concerned Assessing Authority denying the Input Tax Credit taken in the revised returns invoking Section 19(11) of TN VAT Act. 3. Petitioners ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be termed as unreasonable restrictions. If indefinite period is allowed, it is likely to be misused apart from the fact that after the lapse of long time, the related transactions cannot be verified. 6. We have heard Mr.C.Natarajan, learned Senior counsel, Mrs.R.Hemalatha, Mr.S.P.Asokan, Mr.Pramodkumar Chopda, Mr.V.Sundareswaran, Krishna Srinivas and Mr.P.Rajkumar, learned counsels appearing for the petitioners and the other learned counsels who adopted the arguments of the learned Senior Counsel. 7. Submissions:- The learned Senior Counsel Mr.C.Natarajan interalia contended as follows:- That sub-sections (2) and (3) of Section 3 of the VAT Act together constitute the charging section regarding the scheme of tax levy on the sale of goods specified in Part B or Part C of the First Schedule to the Act. The tax payable under Section 3(2) shall be reduced in the manner prescribed to the extent of tax paid on purchase of goods is premptory and sub-section (3) of Section 3 in a way is a proviso to Section 3(2) of the TN VAT Act. It is submitted that there is no rule prescribed regarding the manner for the tax reduced under Section 3(3) and manner will not include time limit, but indic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch as Section 51 or Section 59. Section 19(11) cannot be read to provide a limitation as no law of limitation can start running before accrual of right, as limitation operates to enforce existing right and not where, there is no right. 10. It is further submitted that Section 19(11) is directory and not mandatory. The question whether shall is mandatory or directory depends on the language, intention of legislature and scheme and design and whether consequences spelt. Reliance was placed on the decision of the Hon'ble Supreme Court in State of U.P. vs. Manbodhan Lal [AIR 1957 SC 912]. It was submitted by one of the counsels that the petitioners mainly insist on the alternative prayer to declare Section 19(11) as directory and not mandatory instead of striking down the provision. 11. It is submitted that Section 19(11) cannot be invoked, where the compliance with the same is impossible of accomplishment such a situation where the claim itself crystallised well after the period. It is further submitted that the impugned provision cannot be read in isolation, but harmoniously construed with every other provision and the provision leads to its repugnancy to various provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmission that the right to claim Input Tax Credit being a concession is available only in situation contemplated under the statute and if the right is not available in a given situation, it only means that the legislature did not intend to grant the right to claim Input Tax Credit in such situations. It is further submitted that all situations as claimed by the petitioners are not covered by Section 19(11), are situation where the tax liability of the vendor increases due to events like price variation, revision of assessment, reassessment etc., and in such situation whether increase in tax liability is transferred by the vendor to the purchaser is entirely a matter of contractual arrangement between the parties. Section 19 is mandatory and the word shall used in the statute intended the provision to be mandatory. According to respondents, the provision for consequences for failure in the form of lapse of credit or reversal of credit in other provisions such as Section 18(3), 19(19) etc., are not relevant inasmuch as under all those provisions the right to claim Input Tax Credit has already accrued to the assessee and the same is to be adjusted or refunded, unlike Section 19(11) w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owered Committee on 17.1.2005 and the said White Paper is a Policy Document indicating the basic policies of the State Sales Tax VAT. The White Paper circulated by the Empowered Committee of State Finance Ministers furnished the following rationale for the introduction of VAT: "In the existing sales tax structure, there are problems of double taxation of commodities and multiplicity of taxes, resulting in a cascading tax burden. For instance, in the exiting structure, before a commodity is produced, inputs are first taxed, and then after the commodity is produced with input-tax load, output is taxed again. This causes an unfair double taxation with cascading effects. In the VAT, a set-off is given for input tax as well as tax paid on previous purchases. In the prevailing sales tax structure, there is in several States also a multiplicity of taxes, such as turnover tax, surcharge on sales tax, additional surcharge, etc. With introduction of VAT, these other taxes will be abolished. In addition, Central sales tax is also going to be phased out. As a result, overall tax burden will be rationalised, and prices in general will also fall. Moreover, VAT will replace the existing system o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the price level and to bring in simplicity and transparency in the tax structure thereby improving the tax compliance and eventually to ensure revenue growth. The above in broad terms is the concept of VAT. 18. There is distinction between the scheme of tax on sale of goods both under the VAT regime and under the Sales Tax Act existing prior to that. Under the Sales Tax Act except a few items, all other goods were taxable at the point of first sale in the State. Therefore tax was levied and collected only from the first seller. Contrary to this, the scheme under the VAT regime is that the tax collected by the first seller is given as Input Tax Credit to the second seller, and the tax paid by the second seller is given as Input Tax Credit to the third seller and ultimately the entire tax is borne by the consumer. In other words, the tax paid on the value addition by a series of dealers is ultimately passed on to the consumer and dealers get reimbursement of the tax paid by them. 19. All the States have implemented VAT and made provisions for Input Tax Credit as per their needs. Under the erstwhile Sales Tax regime, there was multiplicity of taxes like turnover tax, surcharge on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act deals with levy of tax on sales of goods . The manner and extent to which a registered dealer who has paid tax as per the charging provision Section 3(2) would be entitled to credit has been spelt out in sub-section (3) of Section 3. Section 3 reads as under:- 3. Levy of taxes on sales of goods: (1) (a) Every dealer, other than a casual trader or agent of a non-resident dealer, whose total turnover for a year is not less than rupees five lakhs and every casual trader or agent of a nonresident dealer, whatever be his total turnover, for a year, shall pay tax under this Act. (b) Notwithstanding anything contained in clause (a), every dealer, other than a casual trader or agent of a non-resident dealer, whose total turnover in respect of purchase and sale within the State, for a year, is not less than rupees ten lakhs, shall pay tax under this Act. (2) Subject to the provisions of sub-section (1), in the case of goods specified in Part - B or Part - C of the First Schedule, the tax under this Act shall be payable by a dealer on every sale made by him within the State at the rate specified therein. [Provided that all spare parts, components and accessories of such goods shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale by him within the State; or (ii)use as input in manufacturing or processing of goods in the State; or (iii)use as containers, labels and other materials for packing of goods in the State; or (iv)use as capital goods in the manufacture of taxable goods. (v)sale in the course of inter-State trade or commerce falling under sub-section (1) of section 8 of the Central Sales Tax Act, 1956. (vi)Agency transactions by the principal within the State in the manner as may be prescribed (3) (a) Every registered dealer, in respect of purchases of capital goods (for use in the manufacture of taxable goods), shall be allowed input tax credit in the manner prescribed. (b) Deduction of such input tax credit shall be allowed only after the commencement of commercial production and over a period of three years in the manner as may be prescribed. After the expiry of three years, the unavailed input tax credit shall lapse to Government. (c) Input tax credit shall be allowed for the tax paid under Section 12 of the Act, subject to clauses (a) and (b) of this sub-section. (4) to (9) ........ (10) (a) The registered dealer shall not claim input tax credit until the dealer receives an origin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the output tax due on sale by a registered dealer. Proviso to sub-section (1) of Section 19 stipulates that the registered dealer, who claims Input Tax Credit, shall establish that the tax due on such purchases has been paid by him in the manner prescribed. Sub-section (2) of Section 19 enumerates the transactions for which Input Tax Credit shall be allowed. Section 19(3)(a) and (4) provide for allowing Input Tax Credit. As per Section 19(3)(a) and (4), Input Tax Credit shall be allowed in the manner prescribed . Section 19 contains details of sales in respect of which Input Tax Credit is to be allowed and sales in respect of which Input Tax Credit is not to be allowed. Since Input Tax Credit shall be allowed only in the manner prescribed , the registered dealer cannot claim Input Tax Credit independent of Section 19 of TN VAT Act. 27. As per Section 19(11) of TN VAT Act, .... in case any registered dealer fails to claim Input Tax Credit in respect of any transaction of taxable purchase in any month, he shall make the claim before the end of the financial year or before ninety days from the date of purchase, whichever is later . Sub-section (1) of Section 19 contemplates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wise. Though in sub-section (3) the expression used is shall as regards the reduction in the tax payable to the extent of tax paid on purchase of goods inside the State such reduction is not automatic, but is in the manner prescribed under the Act. If such is the case, the only plausible interpretation that could be given is that in the event a registered dealer seeks for reduction of the tax payable by taking umbrage under sub-section (3) of Section 3 such claim shall be decided in the manner prescribed under the statute. The manner and method is spelt out in Section 19. The proviso to sub-section (1) of Section 19, imposes a condition on the registered dealer who claims input tax to establish that the tax due on purchases has been paid by him in the manner prescribed. 31. Sub-section (3) of Section 3 provides for reduction of tax payable by a registered dealer in the manner prescribed to the extent of tax paid on his purchase of goods specified in Part-B or Part-C of the First Schedule, inside the State, to the registered dealer, who sold the goods to him. This claim for Input Tax Credit is not available to a registered dealer in respect of all and any amount of tax paid or paya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchase of goods inside the State. Therefore, it cannot be contended that sub-section (3) of Section 3 is an integral part of sub-section (2) of Section 3 conferring absolute and indefeasible right on the registered dealer. Input Tax Credit provided under sub-section (3) of Section 3 is really a benefit or indulgence. While so, it is open to the State Legislature to provide for conditions and restrictions while extending the concession. Primary obligation of the State is to tax. The concession by way of Input Tax Credit are to be construed very strictly. 35. To contend that Input Tax Credit is only a concession granted under the scheme of TN VAT Act, the learned Advocate General placed reliance upon (1992) 3 SCC 624 [Godrej & Boyce Mfg. Co. Pvt. Ltd. v. Commissioner of Sales Tax and others]. In the said decision, the Hon'ble Supreme Court dealt with Rule 41 of Bombay Sales Tax Rules which provides for setting off the purchase tax paid by the appellant on the raw material purchased by him within the State of Bombay. No set-off is given in respect of the tax paid by the appellant on the purchases of the raw material made by him outside the State of Maharashtra evidently for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. ....... (underlining added) 36. On this issue, useful reference may be made to the recent decision of the Division Bench of Bombay High Court in M/s.Mahalaxmi Cotton Ginning Pressing and Oil Industries vs. the State of Maharastra and Ors., [MANU/MH/0620/2012]. The challenge before the High Court of Bombay was to the constitutional validity of Section 48 (5) of the Maharastra Value Added Tax Act, 2002. Section 48 deals with set-off, refund, etc. Though the terminology used in Section 48 is slightly different from the terminology used in Section 19 of the TNVAT Act, in effect what is contemplated under Section 48 of the MVAT Act is in effect a credit or a refund of duty paid by a dealer subject to fulfillment of the conditions set out in Section 48. The Bombay High Court threadbare analyzed the set-off provision and held that the purpose of set-off is to obviate a cascading effect of the tax burden on the ultimate consumer and this element of legislative policy is to be balanced with the need for securing tax compliance and ensuring against a loss of legitimate revenue owing to Government. After analysing the erstwhile provisions contained in the Bombay Sales Tax Act and the Maha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as may be prescribed" has been used in Sections 2(36) & (38), 3(3), 5(1), 6A(2), 8(2), 14(1), 14(2), 18(2), 20, 21, 22(2), 22(4), 22(6)(a), 31, 32, 33(1), 33(3), 39, 39(8), 48A(1), 50, 51(4), 52(4), 54(4), 58(6), 59(5), 59(6)(b), 60(7)(b), 62(3), 64, 66, 67(3)(5), 67(10), 68, 69(b), 71(3)(d), 87A, 88(6)(a). The usage of the expression in the manner prescribed occurring in Section 3(3) shall be referable only to the manner prescribed in Section 19. The expression "in the manner prescribed" occurring in Section 19 and Section 3(3) makes it clear that Input Tax Credit could be availed in the manner prescribed. The modalities and the time frame in Section 19(11) as regards availment or enjoyment of Input Tax Credit is a pre-condition and not merely procedural. As far as Section 19(11) of TN VAT Act is concerned, the Legislature clearly intended to prescribe a time frame for availment of Input Tax Credit and the contravention of Section 19(11) means forfeiture of Input Tax Credit. Section 19(11) is a pre-condition for availing Input Tax Credit. 41. It is a settled position in law that a person claiming benefit of exemption must show that he satisfies the eligibility criteria and for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ictly complied with. 44. Re.contention : Section 19(11) is only procedural and it cannot whittle down substantive right:- Learned Senior Counsel for petitioners contended that Section 3 is the Charging Section and Section 3(3) provides for Input Tax Credit and Section 19 is the machinery for effectuating the Input Tax Credit and the substantive right under Section 3(3) for availing Input Tax Credit cannot be whittled down by Section 19(11). The learned Senior Counsel submitted that Section 19(11) is in the arena of claiming Input Tax Credit and is only a procedural aspect and such procedural aspect cannot be construed as the provision disabling the Authority from extending Input Tax Credit. The learned Senior Counsel further submitted that but for Section 19(11), there is no impediment for the Assessing Officer from giving Input Tax Credit. Section 19(11) being procedural cannot be a stumbling block for claiming the substantive right. 45. Contending that Section 19(11) cannot curtail the right of assessee in claiming Input Tax Credit, the learned Senior Counsel placed reliance upon 2001 (134) E.L.T. 647 (Mad.) [Commissioner of Central Excise, Madras v. Home Ashok Leyland Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hichever is later. 47. Re.contention : Section 19(11) is a machinery provision to be construed liberally:- Onbehalf of petitioners, it was contended that Section 19 is a machinery provision and it has to be construed more liberally and must be reasonably applied. To support such contention, reliance was placed on the decision of the Hon'ble Supreme Court in Murarilal Mahavir Prasad vs. B. R. Vad ([1976] 37 STC 77). 48. We are unable to accept the said contention, since the scheme of Section 19 is not in the nature of a machinery provision, rather it is a substantive provision stipulating the contingencies and the types of transaction done by a registered dealer which would qualify for availing input tax credit. 49. The machinery provision under the Act for assessment and reassessment are Section 22 to 29 read with Rule 8, whereas Section 19 is a substantive provision under which upon a registered dealer making a claim for input tax credit after establishing that tax due on purchases has been paid by him in the manner prescribed, such claim for tax credit should fall within the scope of the various categories to qualify for the tax credit. A machinery provision provides the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tible with the scheme of the Act. 51. Mr.S.P.Asokan, learned counsel for petitioners submitted that Rule 7(9) permits rectification of errors in the returns and filing of revised returns within the period of six months from the last date of relevant period to which the return relates and Section 19(11) provides other limitation for claiming Input Tax Credit. While so, there cannot be two different limitation periods for claiming Input Tax Credit. 52. There is no force in the contention that Section 19(11) would operate as an embargo to the registered dealer in claiming Input Tax Credit causing prejudice to the registered dealer. The condition stipulated in Section 19(11) effectuates the scheme of the Act and more in the nature of beneficial to the registered dealer. Rule 7 of Tamil Nadu Value Added Tax Rules, 2007 contemplates that .... every registered dealer liable to pay tax under the Act shall file return for each month in Form-I on or before 20th of the succeeding month to the Assessing Authority . In terms of sub-rule (1)(b) of Rule 7 every registered dealer who is liable to pay tax under Section 3(5) shall file return in Form J on or before 20th of succeeding month and such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm within the prescribed period in the prescribed manner along with proof of payment of tax. Section 22 deals with procedure to be followed by the Assessing Authority while making the assessment. In terms of Section 22(4), when the return filed is incomplete or incorrect, after making enquiry, the Assessing Authority shall assess the dealer to the best of its judgment. When non-filing of return within the stipulated period was beyond the control of the dealer, Section 22(6)(a) enables the Authority to make a fresh assessment on the basis of the return submitted. If any dealer is liable to pay tax under the Act fails to submit return within the prescribed period, as per Section 25(1), the Assessing Authority may provisionally determine the tax payable by the dealer to the best of its judgment. Section 27 deals with assessment of escaped turnover and wrong availment of Input Tax Credit. Section 29 deals with 'assessment in cases of price variation'. Section 62 deals with amendment of order of assessment, where as a result of an order passed in appeal, revision or review, any change becomes necessary the Assessing Authority shall be authorized to amend the order of assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hardships for the dealers, it is for the Legislature to intervene and make suitable amendment and not for this Court to do so. 60. In India Agencies case [(2005) 2 SCC 129] the Hon'ble Supreme Court held as follows:- 26. We are of the opinion that a liberal construction was not justified having regard to the scheme of the Act and the Rules in this regard and if there was any hardship, it was for the legislature to take appropriate action to make suitable provisions in that regard. It is also settled rule of interpretation that where the statute is penal in character, it must be strictly construed and followed. 27. We also realise that the section and the rules as they stand may conceivably cause hardship to an honest dealer. He may have lost the declaration forms by pure accident and yet he will be penalised for something for which he is not responsible but it is for the legislature or for the rule-making authority to intervene to soften the rigour of the provisions and it is not for this Court to do so where the provisions are clear, categoric and unambiguous. It is for the Legislature to take action to make suitable amendment. It is not for this Court to do so when the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laws touching civil rights such as freedom of speech, religion etc. The legislature should be allowed some play in the joints and there is no straitjacket formula particularly in case of legislation dealing with economic matters and having regard to the nature of the problem required to be dealt with, greater play in the joins has to be allowed to the legislature. The Court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas, where fundamental human rights are involved. That the Court should remember legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, there may be crudities and in equities in complicated experimental, economic legislation, but on that account alone it cannot be struck down as invalid. The same principle that in the matter of taxation, the Court permits great latitude to the legislature was reiterated in (1997) 5 SCC 536 [Mafatlal Industries Limited v. Union of India]. 65. Question No.3:- Whether Section 19(11) is mandatory or directory:- Learned Senior Counsel for petitioners submitted that undue premium has been put up on Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e following passage in Craies on Statute Law , 5th Edition, p.242 which reads as under :- No universal rule can be laid down as to whether mandatory enactments shall be considered directory only or obligatory with an implied nullification for disobedience. It is the duty of courts of justice to try to get at the real intention of the Legislature by carefully attending to the whole scope of the statute to be construed. 69. After extracting the quote from Maxwell on The Interpretation of Statutes , 10th Edition at page 381 and observing that it is for the Court to ascertain the real intention of the Legislature by carefully examining the scope of Statute, in AIR 1961 SC 751 [State of U.P. and others v. Babu Ram Upadhya], the Hon'ble Supreme Court held as under:- 29. The relevant rules of interpretation may be briefly stated thus: When a statute uses the word shall , prima facie, it is mandatory, but the Court may ascertain the real intention of the legislature by carefully attending to the whole scope of the statute. For ascertaining the real intention of the Legislature the Court may consider, inter alia, the nature and the design of the statute, and the consequences which wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or evasion, time frame is stipulated in Section 19(11) of TN VAT Act to claim Input Tax Credit. The use of the word "shall" is ordinarily indicative of the mandatory nature of the provision. 73. Learned counsel for petitioners then contended that as per Section 18(3) of the Act, where a dealer has not adjusted the Input Tax Credit or has not made his claim for refund within the period of 180 days, such credit shall lapse to Government . Learned counsel for petitioners contended that no such language of "lapse to Government" employed in Section 19(11) would clearly show that Section 19(11) is not mandatory and only directory. 74. The intention of Legislature is to restrict concession of Input Tax Credit on purchases within the particular time frame. If Input Tax Credit on purchases against output taxes are not claimed before the end of the financial year or ninety days from the date of purchase whichever is later, the registered dealer is not entitled to claim Input Tax Credit. The intention of the Legislature is to restrict the benefit of "Input Tax Credit" within a particular time-frame. Consequence of non-compliance is very much available in Section 19(11) dealing with non-enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exibility in the time frame for availing Input tax credit . 79. Learned Advocate General submitted that the time frame for availment of Input Tax Credit is reasonable and the same has been enacted with a view to verify the details furnished by the registered dealers before the end of the financial year and Section 19(11) is equal and similar to all tax payers and there is no discrimination. 80. Scheme of TN VAT Act is based on self assessment. As pointed out earlier, as per Rule 7, every registered dealer is liable to pay tax under the Act, shall file return for each month in Form-I on or before 20th of the succeeding month. It is mandatory on the part of certain categories of dealers to file returns in electronic Form. As pointed out earlier, in Form-I, the registered dealer has to furnish true, correct and complete particulars regarding (i) Input Tax Credit; (ii) Tax payable; (iii) Capital goods; (iv) Output items. Form-I interalia contain the following details viz., (i) Amount of Input Tax Credit excess available; (ii) details regarding Less; (iii) Input Tax Credit, if any, carried forward to next month. Along with Form-I, the registered dealer have to submit four Annexures wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of Section 19(11) having failed the writ petitions challenging assessment orders/show cause notices have no legs to stand and therefore, they should necessarily fail. 85. In cases where final orders of assessment have been challenged, the assessees shall be entitled to prefer statutory appeal against such order and if such appeals are presented, within a period of 60 days from the date of receipt of a copy of this order, the same shall be entertained by the appellate authority subject to the assessee full-filing other mandatory statutory conditions except rejecting those appeals on the ground of limitation. In cases where the petitioners have challenged show cause notices, they are at liberty to submit their explanation. If such explanation is submitted within a period of 30 days from the date of receipt of a copy of this order, the assessing authority shall consider the case in accordance with law. 86. In the result, all the writ petitions are dismissed holding that Section 19(11) is a valid piece of legislation, cannot be struck down as being either unreasonable or discriminatory and violative of Article 265 and 360A of the Constitution of India. The interim stay granted in ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
