TMI Blog2016 (9) TMI 408X X X X Extracts X X X X X X X X Extracts X X X X ..... dment with retrospective effect - Held that:- The entire gamut of retrospective operation of fiscal statues was revisited by this Court in a Constitution Bench judgment in Commissioner of Income Tax (Central) I, New Delhi v. Vatika Township Private Limited [ 2014 (9) TMI 576 - SUPREME COURT] The amendment in-question fails to meet these tests as pronounced in the above decision. - Such a provision, therefore, cannot have retrospective effect, more so, when vested right had accrued in favour of these dealers in respect of purchases and sales made between January 01, 2007 to August 19, 2010. Thus, while upholding the vires of sub-section (20) of Section 19, we set aside and strike down Amendment Act 22 of 2010 whereby this amendment was given retrospective effect from January 01, 2007. - Decided partly in favor of assessee. - CIVIL APPEAL NOS. 8070-8073 OF 2016 (ARISING OUT OF SLP (CIVIL) NOS. 34023-34026/2013), CIVIL APPEAL NOS. 8074-8075 OF 2016 (ARISING OUT OF SLP (CIVIL) NOS. 34960-34961/2013), CIVIL APPEAL NOS. 8076 OF 2016 - - - Dated:- 5-8-2016 - CIVIL APPEAL NOS. 8077-8078 OF 2016 (ARISING OUT OF SLP (CIVIL) NOS. 34966-34967/2013), CIVIL APPEAL NOS. 8079-8082 OF 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0) of Section 19 of the VAT Act, vide amendment brought by Amendment Act 22 of 2013 were challenged. This provision though came into force on August 19, 2010, by the aforesaid Amendment Act, was given retrospective effect from January 01, 2007 by Tamil Nadu Value Added Tax (Special Provision) Act, 2010 (hereinafter referred to as 'Act, 2010'). The retrospectivity of the provision was also questioned by the dealers. The dealers had argued that this provision is confiscatory in nature as well as unreasonable and arbitrary and is, therefore, violative of Article 14 and 19(1)(g) of the Constitution and repugnant to the general scheme of the charging provisions of Section 3(2) and 3(3) of the VAT Act. On both the counts, the dealers' challenge has been repelled by the High Court vide impugned judgment July 17, 2013. 4. We have heard learned counsel for the parties at length. Before us, Mr. Bagaria, learned senior counsel appearing for the dealers in some of these appeals had also argued that even if the aforesaid provision was valid, it was not properly interpreted by the High Court. We have considered this additional submission as well. We may record, at the outset, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the Seller 100 10 2 Less : Discount actually allowed by seller under its applicable incentive/discount scheme by issuing credit note. 10 Net purchase price after discount 90 SALE DETAILS S. No. Description Amount (Rs.) 1 Sale Price 95 2. VAT actually on the sale price @ 10% 9.50 7. From the aforesaid, it is clear that the dealer had paid to the vendor VAT of ₹ 10/-. However, at the time of re-sale VAT actually allowed was ₹ 9.50. That is the effect of sub-section (20) of Section 19, which reads as under: S. 19(20) Notwithstanding anything contained in this section, where any registered dealer has sold goods at a price lesser than the price of the goods purchased by him, the amount of the input tax credit over and above the output tax of those goods shall be reversed. 8. First submission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red or supplied or otherwise disposed of in any of the ways referred to in clause (33), by a dealer either directly or through another, on his own account or on account of others whether for cash or for deferred payment or other valuable consideration, provided that the proceeds of the sale by a person of agricultural or horticultural produce, other than tea and rubber (natural rubber latex and all varieties and grades of raw rubber) grown within the State by himself or on any land in which he has an interest whether as owner, unsufructuary mortgage, tenant or otherwise, shall be excluded from his turnover. Explanation I: Agricultural or horticultural produce shall not include such produce as has been subjected to any physical, chemical or other process for being made fit for consumption, save mere cleaning, grading, sorting or dying; Explanation II: Subject to such conditions and restrictions, if any, as may be prescribed in this behalf- (i) the amount for which goods are sold shall include any sums charged for anything done by the dealer in respect of the goods sold at the time or before the delivery thereof; (ii) any cash or other discount on the price allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (v) sale in the course of inter-State Tax Act, 1956 (Central Act 74 of 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) Input tax credit shall be allowed on tax paid or payable in the State on the purchase of goods, in excess of three percent of tax relating to such purchases subject to such conditions as may be prescribed- (i) for transfer to a place outside the State otherwise than by way of sale; or (ii) for use in manufacture of other goods and transfer to a place outside the State, otherwise than by way of sale: PROVIDED tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts; or (iii) inputs damaged in transit or destroyed at some intermediary stage of manufacture. (10) (a) The registered dealer shall not claim input tax credit until the dealer receives an original tax invoice duly filled, signed and issued by a registered dealer from whom the goods are purchased, containing such particulars, as may be prescribed, of the sale evidencing the amount of input tax. (b) If the original tax invoice is lost, input tax credit shall be allowed only on the basis of duplicate or carbon copy of such tax invoice obtained from the selling dealer subject to such conditions as may be prescribed. (11) 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. (12) Where a dealer has availed credit on inputs and when the finished goods become exempt, credit availed on inputs used therein, shall be reversed. (13) Where a registered dealer without entering into a transaction of sale, issues an invoice, bill or cash memorandum to another registered dealer, wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19) Where any registered dealer has availed input tax credit and has goods remaining unsold at the time of stoppage or closure of business, the amount of tax availed shall be reversed on the date of stoppage or closure of such business and recovered. (20) Not withstanding anything contained in this section, where any registered dealer has sold goods at a price lesser than the price of the goods purchased by him, the amount of the input tax credit over and above the output tax of those goods shall be reversed. 11. From sub-section (10) onwards, provisions are made to follow the procedure and fulfill the requisite conditions for availing ITC. For the purposes of this particular issue, sub-section (10) is the material provision. This provision, which is couched in negative terms, categorically stipulates that such ITC would be admissible to the registered dealer and he would not be entitled to claim this credit 'until the dealer receives an original tax invoice duly filled, signed and issued by a registered dealer from where the goods are purchased.. '. Further, such original tax invoice should evidence the amount of input tax. So much so, even if the original tax invoi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otect the Revenue against clandestine transactions resulting in evasion of tax. High Court has discussed this aspect in detail and our task would be accomplished in reproducing those paras as we are concurring with the discussion: 64. Let us now point out the background/reasons for inserting Section 19(20) by Amendment Act 22 of 2010, by referring to the Chart, the sample instance is detailed in the Chart in paragraph (34). Let us recapitulate the entries in the Chart. Based on the sale price, i.e., ₹ 36,780/- in the tax invoice, an amount of Input Tax Credit, i.e., Input Tax Credit of ₹ 4m597.50 was available to the petitioner when he re-sells goods. Based on the Credit Note, the same goods are re-sold within the State at a lesser price than what was purchased, i.e., ₹ 33,777.78 (taking into account discount price, there is a profit margin for the dealer) and thereby the output tax payable to the Government is reduced, leaving excess Input Tax Credit at the hands of the dealer. The said excess credit in the hands of the dealer might be adjusted to their other liabilities or might claim refund of the said excess Input Tax Credit. Taking excess Input Tax Credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ales, Section 19(20)was introduced, where any dealer has sold goods at a price lesser than the price of the goods purchased by him, the amount of Input Tax Credit over and above the output tax of those goods, shall be reversed. 69. Constitutional Validity of fiscal legislation:- When there is a challenge to the constitutional validity of the provisions of a Statute, Court exercising power of judicial review must be conscious of the limitation of judicial review must be conscious of the limitation of judicial intervention, particularly, in matters relating to the legitimacy of the economic or fiscal legislation. While enacting fiscal legislation, the Legislature is entitled to a great deal of latitude. The Court would interfere only where a clear infraction of a constitutional provision is established. The burden is on the person, who attacks the constitutional validity of a statute, to establish clear transgression of constitutional principle. Observing that the law relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion, etc., in R.K. Garg vs. Union of India [(1981) 4 SCC 675, this Court held a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The validity of such retrospective amendment to Rule 41-E was unsuccessfully challenged before the High Court. The High Court took the view that the impugned amendment of Rule 41-E was clarificatory to remove the doubts in interpretation. However, by the Bombay Sales Tax (Amendment) Rules, 1992 Rule 41-E was amended. That amendment removed the exclusionary clause of goods manufactured out of waste or scrap goods or products and restored the position as it stood prior to 1981. The appellant's appeal and another connected appeal were heard simultaneously. The appellant assessee contended that retrospective operation of a provision depriving the assessee of the vested statutory right and covering a long period (eight years in that case) imposed a prima facie unreasonable restriction and was, therefore, unconstitutional. More so, when the original provision was subsequently reintroduced deleting the amendments and there was no material to justify the special treatment given for the said eight years. The respondent State could not meet the said contention. The assessee company further contended that since the CST Act had not been extended to Dadra and Nagar Haveli, where the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be justified on some tangible and rational ground, when challenged on the ground of unconstitutionality. Unfortunately, the State could not succeed in doing so. The view of the High Court that the impugned amendment of Rule 41-E was of clarificatory nature to remove the doubts in interpretation cannot be upheld. In fact, the High Court did not elaborate as to how the impugned legislation is merely clarificatory. In that view of the matter, although we recognise the fact that the State has enormous powers in the matter of legislation, both prospectively and retrospectively, and can evolve its own policy, we do not think that in the present cases any material has been placed before the Court as to why the amendments were confined only to a period of eight years and not either before or subsequently and, therefore, we are of the view that the impugned provision, namely, Section 26 deserves to be quashed by striking down the words not being waste goods or scrap goods or by-products occurring in the said Section 26 of Maharashtra Act 9 of 1989 and the authorities concerned shall rework assessments as if that law had not been passed and give appropriate benefits according to law to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all statutes other than those which are merely declaratory or which relate only to matters of procedure or of evidence are prima facie prospective and retrospective operation should not be given to a statute so as to affect, alter or destroy an existing right or create a new liability or obligation unless that effect cannot be avoided without doing violence to the language of the enactment. If the enactment is expressed in language which is fairly capable of either interpretation, it ought to be construed as prospective only. (emphasis supplied) 18. When we keep in mind the aforesaid parameters laid down by this Court in testing validity of retrospective operation of fiscal laws, we find that the amendment in-question fails to meet these tests. The High Court has primarily gone by the fact that there was no unforseen or unforeseeable financial burden imposed for the past period. That is not correct. Moreover, as can be seen, sub-section (20) of Section 19 is altogether new provision introduced for determining the input tax in specified situation, i.e., where goods are sold at a lesser price than the purchase price of goods. The manner of calculation of the ITC was entirely ..... X X X X Extracts X X X X X X X X Extracts X X X X
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