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Jayam & Co. Versus Assistant Commissioner & Anr.

2016 (9) TMI 408 - SUPREME COURT

Restriction on input tax credit - reversal of credit when sale price is lower than purchase price - Scope of sub-section (20) of Section 19 of the Tamil Nadu Value Added Tax Act, 2006 - retrospective or prospective effect - Held that: - It is a trite law that whenever concession is given by statute or notification etc. the conditions thereof are to be strictly complied with in order to avail such concession. Thus, it is not the right of the 'dealers' to get the benefit of ITC but its a concessio .....

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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 .....

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VIL) NOS. 34966-34967/2013), CIVIL APPEAL NOS. 8079-8082 OF 2016 (ARISING OUT OF SLP (CIVIL) NO. 35499-35502/2013), CIVIL APPEAL NOS. 8083-8086 OF 2016 (ARISING OUT OF SLP (CIVIL) NOS. 35563-35566/2013), CIVIL APPEAL NOS. 8087-8089 OF 2016 (ARISING OUT OF SLP (CIVIL) NOS. 35824-35826/2013), CIVIL APPEAL NOS. 8090-8093 OF 2016 (ARISING OUT OF SLP (CIVIL) NOS. 36075-36078/2013,) CIVIL APPEAL NOS. 8094-8099 OF 2016 (ARISING OUT OF SLP (CIVIL) NOS. 36670-36675/2013), CIVIL APPEAL NO. 8100 OF 2016 (A .....

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IVIL) NOS. 22464/2014), CIVIL APPEAL NOS. 8124 OF 2016 (ARISING OUT OF SLP (CIVIL) NO. 22465/2014), CIVIL APPEAL NOS. 8125-8126 OF 2016 (ARISING OUT OF SLP (CIVIL) NOS. 24275-24276/2014), CIVIL APPEAL NOS. 8127-8131 OF 2016 (ARISING OUT OF SLP (CIVIL) NOS. 24270-24274/2014), CIVIL APPEAL NOS. 8132-8134 OF 2016 (ARISING OUT OF SLP (CIVIL) NOS. 19860-19862/2014), CIVIL APPEAL NOS. 8135-8138 OF 2016 (ARISING OUT OF SLP (CIVIL) NOS. 1728-1731/2015), CIVIL APPEAL NOS. 8139-8141 OF 2016 (ARISING OUT O .....

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anted only on the issue as to whether sub-section (20) of Section 19 of the Tamil Nadu Value Added Tax Act, 2006 (hereinafter referred to as 'VAT Act') could be given retrospective effect. 3. All these appeals arise out of common judgment dated July 17, 2013 rendered in batch of writ petitions. In the writ petitions filed by the appellants (hereinafter referred to as 'dealers'), vires of newly inserted sub-section (20) of Section 19 of the VAT Act, vide amendment brought by Amend .....

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f 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 .....

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cial leave petitions is granted only to limited extent as indicated in the beginning of this order. However, before coming to the issue of retrospectivity, we would delve into these two aspects briefly as that discussion would be required in order to understand the question of retrospectivity. 5. The appellants are 'dealers' and registered as such under the provisions of VAT Act. For example, the appellant in Civil Appeal No. 24023-26 of 2013 deals in electronic home appliances. It purch .....

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T was paid. Under the scheme of VAT Act, as would be seen hereinafter, on re-sale when the VAT is paid by the dealer, the dealer is entitled to avail Input Tax Credit (for short, 'ITC'), i.e., he is entitled to get the credit of the VAT which was paid by the dealer to M/s. LG Electronics on purchase of these T.V. sets from the said vendors. 6. It so happened that after the original tax invoice and availing ITC, the vendor had given discount and purchase credit note was issued for a lesse .....

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ble 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 secti .....

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as that since the goods were purchased at ₹ 90/- and sold at ₹ 95/-, sub-section (20) of Section 19 had no application at all. Detail submissions were made with reference to the provisions of Sale of Goods Act to buttress the submission that net purchase price would be the price of goods. However, according to the Revenue, purchase price had to be taken as ₹ 100/-, as mentioned in the original tax invoice, without deducting the discount of ₹ 10/- allowed by the issuing of .....

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les laid down in the Sale of Goods Act would not be applicable. 9. We may mention that Section 19 deals with ITC and this Section is to be understood keeping in view the entire scheme of the VAT Act. VAT Act, obviously, deals with payment of value added tax on the goods sold by the dealers. It is not necessary to go into definitions of various expressions like 'business', 'dealer', 'goods', 'sale', 'turnover' etc. Since we are concerned with grant of ITC, .....

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nd containing such details as may be prescribed. S. 2(41) "turnover" means the aggregate amount for which goods are bought or sold, or delivered 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, oth .....

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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 allowed in respect of any sale and any amount refunded in respect of articles returned by customers shall not be included in the turnover; Explanation III: Any amo .....

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s about levy of taxes on transfer of right to make use of any goods for any purpose and Section 5 prescribes the levy of tax on transfer of goods involved in works contract. From Section 13 onward, some concessions/ deductions are allowed. Section 13 deals with deduction of tax at source in works contract. Section 14 is about the reversal of tax credit. Likewise, Section 15 deals with those sales which are exempted from tax. In this scheme of deductions and concessions comes Section 19 which all .....

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e under this Act, by the registered dealer to the seller on his purchases of taxable goods specified in the First Schedule: PROVIDED 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. (2) Input tax credit shall be allowed for the purchase of goods made within the State from a registered dealer and which are for the purpose of- (i) re-sale by him within the State; or (ii) use as input in manufa .....

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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 ta .....

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tax credit shall be allowed in respect of sale of goods exempted under section 15 (b) No input tax credit shall be allowed on tax paid or payable in other States or Union Territories on goods brought into this State from outside the State. (c) No input tax credit shall be allowed on the purchase of goods sold as such or used in the manufacture of other goods and sold in the course of inter-State trade or commerce falling under sub-section (2) of section 8 of the Central Sales Tax Act, 1956 (Cen .....

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oods purchased and accounted for in business but utilized for the purpose of providing facility to the proprietor or partner or director including employees and in any residential accommodation; or (b) purchase of all automobiles including commercial vehicles, two wheelers and three wheelers and spare parts for repair and maintenance thereof, unless the registered dealer is in the business of dealing in such automobiles or spare parts; or (c) purchase of air-conditioning units unless the registe .....

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y. If a dealer has already availed input tax credit against purchase of such goods, there shall be reversal of tax credit; or (ii) inputs destroyed in fire accident or lost while in storage even before use in the manufacture of final products; 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 deal .....

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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, with the intention to defraud the Government revenue, the assessing authority sh .....

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bilities of such business, then, the registered dealer shall be entitled to transfer the input tax credit lying unutilized in his accounts to such sold, merged, amalgamated, leased or transferred concern. The transfer of input tax credit shall be allowed only if the stock of inputs, as such, or in process, or the capital goods is also transferred to the new ownership on which credit has been availed of are duly accounted for, subject to the satisfaction of the assessing authority. (15) Where a r .....

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e, interest at the rate of two per cent, per month, on the amount of tax so payable, for the period commencing from the date of claim of input tax credit by the dealer to the date of its payment. (16) The input tax credit availed by any registered dealer shall be only provisional and the assessing authority is empowered to revoke the same if it appears to the assessing authority to be incorrect, incomplete or otherwise not in order. (17) If the input tax credit determined by the assessing author .....

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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- .....

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is lost, the obligation cast on the registered dealer is to obtain duplicate or carbon copy of such tax invoice from the selling dealer and only then input tax is allowed. From the aforesaid scheme of Section 19 following significant aspects emerge:- (a) ITC is a form of concession provided by the Legislature. It is not admissible to all kinds of sales and certain specified sales are specifically excluded. (b) Concession of ITC is available on certain conditions mentioned in this Section. (c) On .....

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a fortiorari, conditions specified in Section 10 must be fulfilled. In that hue, we find that Section 10 makes original tax invoice relevant for the purpose of claiming tax. Therefore, under the scheme of the VAT Act, it is not permissible for the dealers to argue that the price as indicated in the tax invoice should not have been taken into consideration but the net purchase price after discount is to be the basis. If we were dealing with any other aspect do hors the issue of ITC as per the Sec .....

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power to make the provision stating the form and manner in which such concession is to be allowed. Sub-section (20) seeks to achieve that. There was no right, inherent or otherwise, vested with dealers to claim the benefit of ITC but for Section 19 of the VAT Act. That apart, we find that there were valid and cogent reasons for inserting Section 19(20). Main purport was to protect the Revenue against clandestine transactions resulting in evasion of tax. High Court has discussed this aspect in d .....

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vailable 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 .....

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e goods and thereby reducing the output tax payable to the Government creates a dent of the State revenue. Learned Advocate General further submitted that excess Input Tax Credit available in the hands of the dealer is being adjusted to their other liabilities and the dealer might also make a claim of refund of Input Tax Credit as per Section 19(18) of the Act which were ultimately resulted in creating dent on the State revenue. 66. To contend as to how the so called discount and reduction of sa .....

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67. As rightly contended by the learned Advocate General, the "Input Tax Credit" adjusted in the above illustration comes to ₹ 3,125/- in a single transaction and that it would run to several lakhs and crores for a year for a single dealer. The excess Input Tax Credit earned by the petitioners is being adjusted against the outstanding tax due or carried forward to next year or refunded. If this trend is allowed to continue, the concept of VAT that meant for payment of tax on eve .....

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enge 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 e .....

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egislation, the Legislature has power to make the provision retrospectively. In R.C. Tobacco Pvt. Ltd. V. Union of India (2005) 7 SCC 725 , this Court stated broad legal principles while testing a retrospective statute, in the following manner: (i) A law cannot be held to be unreasonable merely because it operates retrospectively; (ii) The unreasonability must lie in some other additional factors; (iii) The retrospective operation of a fiscal statute would have to be found to be unduly oppressiv .....

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decisive to affect retrospectively. 15. At the same time, this Court has also held that retrospective legislation would be admissible in cases of validation laws, i.e., where the laws as initially passed was held to be inoperative by the court and when there is a new provision inserted, it should normally be prospective. We may refer to the judgment of this Court in Tata Motors Ltd. v. State of Maharashtra and others (2004) 5 SCC 783. In that case, the appellant - assessee company, manufactured .....

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tly, Maharashtra Act 9 of 1989 was enacted and by Sections 26 and 27, the benefit of Rule 41-E was denied altogether for the period 1-7-1981 to 31-3-1988 where the manufactured goods falling under Schedule B were in the nature of waste goods/scrap goods/by-products. 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 interpreta .....

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rs 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 assessee's branch office was locat .....

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. Levies can be imposed or withdrawn but if a particular levy is sought to be imposed only for a particular period and not prior or subsequently it is open to debate whether the statute passes the test of reasonableness at all. In the present case, the High Court sustained the enactment by adverting to Rai Ramkrishna case when the benefit of the rule had been withdrawn for a specific period. The learned counsel for the State contended that the amendments had been made to overcome certain defects .....

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for withdrawal of the benefit retrospectively for a limited period is not forthcoming. It is no doubt true that the State has enormous powers in the matter of legislation and in enacting fiscal laws. Great leverage is allowed in the matter of taxation laws because several fiscal adjustments have to be made by the Government depending upon the needs of the Revenue and the economic circumstances prevailing in the State. Even so an action taken by the State cannot be so irrational and so arbitrary .....

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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 .....

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assed and give appropriate benefits according to law to the parties concerned. 17. 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 [2015] 1 SCC 1 in the following manner: 33. A Constitution Bench of this Court in Keshavlal Jethalal Shah v. Mohanlal Bhagwandas [AIR 1968 SC 1336 : (1968) 3 SCR 623] , while considering the nature of ame .....

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attempted to explain the meaning of that provision. An explanatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. 34. It would also be pertinent to mention that assessment creates a vested right and an assessee cannot be subjected to reassessment unless a provision to that effect inserted by amendment is either expressly or by necessary implication retrospective. (See CED v. M.A. Merchant [1989 Supp (1) SCC 499 : 1989 SCC (Tax) .....

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a statute expressly so provide or necessarily require it, retrospective operation should not be given to a statute so as to take away or impair an existing right or create a new obligation or impose a new liability otherwise than as regards matters of procedure. The general rule as stated by Halsbury in Vol. 36 of the Laws of England (3rd Edn.) and reiterated in several decisions of this Court as well as English courts is that all statutes other than those which are merely declaratory or which r .....

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