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M/s. Prathul Automobiles Pvt. Ltd. Versus The Asst. Commissioner (CT) II, Enforcement Wing, O/o Commissioner of Commercial Taxes

2016 (9) TMI 462 - ANDHRA PRADESH HIGH COURT

Denial of notional input tax credit - Rule 20(3)(a) of the Telangana VAT Rules second hand vehicles tax invoice assessment order - pre-assessment show cause notice - Form VAT 305-A Held that: - If the words already registered in the State under the Motor Vehicles Act, 1988 in Rule 20(3)(a) is construed to include vehicles initially registered in another State and thereafter, on its being brought within the State of Telangana, were again registered within the State, then that would render .....

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essing authority shall afford the petitioner an opportunity of a personal hearing, and to produce documentary evidence to show (1) the price actually paid by them on the purchase of used/second hand vehicle, and (2) that the vehicles purchased by them had suffered VAT at the time of their initial registration, under the Motor Vehicles Act, 1988, within the State of Telangana. - Matter remanded back - Decided partly in favor of assessee. - Writ Petition Nos. 20186, 20199 And 20201 of 2016 - .....

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itions, wherein a common question of law arises for consideration, are being disposed of by a common order at the stage of admission itself. M/s. Tejaswi Motors Pvt. Ltd. have filed W.P. No.20201 and 20199 of 2016 questioning the assessment orders passed for the financial year 2013-2014 and 2014-2015 respectively. W.P. No.20186 of 2016 is filed by M/s. Pratul Automobiles Pvt. Ltd. questioning the assessment order passed for the period April, 2012 to June, 2015. Sri S. Ravi, Learned Senior Counse .....

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Petitions, if the facts in W.P. No.20199 of 2016 are noted. The petitioner in W.P. No.20199 of 2016 is a registered VAT dealer carrying on business of trading in TATA brand passenger cars, and in providing spares and services. A pre-assessment show cause notice, in Form VAT 305-A dated 18.01.2016, was received by the petitioner on 18.01.2016 whereby they were called upon to file their written objections within fifteen days. Thereafter, a revised pre-assessment show cause notice was issued in Fo .....

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they were eligible for notional input tax credit, under Rule 20(3)(a) of the Telangana VAT Rules (Rules for short), on the purchase value of second hand vehicles for ₹ 37,68,40,777/- and the only documentary evidence, needed for calculation of notional input tax credit, was evidence regarding the purchase price at which the petitioner had bought these motor vehicles. After a personal hearing was afforded to the petitioner on 26.05.2016, the Assistant Commissioner (CT) LTU, Hyderabad passe .....

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s, had taken place; no input tax credit was available on the purchases from non-VAT dealers or un-registered dealers; any claim of notional input tax credit was available only on fulfilment of two imperative conditions as explained in the show cause notice i.e, (1) the ITC claim should not be greater than output tax payable, and (2) the ITC claim should be against valid documentary evidence called the tax invoice; Rule 20(3)(a) should be read along with Sections 13 and 16; the ITC restriction an .....

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ils of the purchases and sales of second hand or pre-owned vehicles; the chasis number indicating the manufacturing details, and subsequent registration, related to new vehicles or first sales, and not to pre-owned or second hand sales; details of the purchases and sales of pre-owned vehicles were not the same though the value, as per the Income Tax Annual Returns, was the same; such value could either be erroneous or fictitious; the disallowance of input tax credit did not amount to double taxa .....

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the claim of ITC was not related to supply and replacement of spares of pre-owned vehicles, but was a claim of ITC, upon purchases of pre-owned vehicles without any valid documentary evidence; the dealer was not eligible for notional input tax credit on the sale of second hand cars made in their trade; and, therefore, notional input tax credit was being disallowed for the period April, 2014 to March, 2015 i.e for ₹ 4,77,22,194/-. Sri S. Ravi, Learned Senior Counsel appearing on behalf of .....

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of submitted by the petitioner, in their reply to the show cause notice, for claiming notional input tax credit on the sale of second hand cars; as per Rule 20(3)(a), documentary evidence is required only to find out the purchase price actually paid at the time of purchase by the VAT dealer; rejection of the petitioners contention, that no VAT is payable on the purchase of used or second hand vehicles by the petitioner-VAT dealer, is illegal and arbitrary; the ruling given by the advance ruling .....

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s who are non-VAT dealers, it is not possible for them to issue a tax invoice; there can only be an acknowledgment of sale by them; a tax invoice can be issued only by VAT dealers; the assessing authority had erred in rejecting the petitioners claim on the ground that they had not produced valid documentary evidence called the Tax Invoice; and the impugned assessment order, to the extent notional input tax was denied to the petitioner under Rule 20(3)(a) of the Rules, is arbitrary and illegal. O .....

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n of the assessing authority, was required to be produced regarding the purchase price of the vehicle on which VAT was paid; and mere proof of payment of the purchase price, by the VAT dealer to his immediate vendor, would not suffice. Section 13 of the Act relates to credit for input tax and under sub-section (1) thereof, subject to the conditions, if any, prescribed, an input-tax credit shall be allowed to the VAT dealer for the tax charged in respect of all purchase of taxable goods, made by .....

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credit or sales tax credit in respect of the purchases of such taxable goods as may be prescribed. Section 14 relates to tax invoices and stipulates that a VAT dealer, making a sale liable to tax to another VAT dealer, shall issue, at the time of sale, a tax invoice in such form as may be prescribed. Section 16 relates to burden of proof and, under sub- section (1) thereof, the burden of proving that any sale or purchase effected by a dealer is eligible for input-tax credit shall lie on the dea .....

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the business of dealing in these goods. In view of Rule 20 (2)(a), it is only a dealer, who carries on business in the purchase and sale of vehicles, who is entitled to claim input tax credit, that too on vehicles required to be registered under the Motor Vehicles Act, 1988. While any person who purchases a new automobile, required to be registered under the Motor Vehicles Act, 1988 within the State of Telangana, is required to pay VAT to the dealer i.e., his vendor, the dealer in turn is requir .....

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dealer on the purchase items mentioned in clauses (a) to (r). The VAT dealer is, however, required to maintain a separate account or record without including such purchases in the purchase of eligible inputs taxable at each rate. In effect, when a dealer purchases an used vehicle from an individual who has not claimed input tax credit, no tax can be levied or recovered from such a VAT dealer at the time of purchase of the goods by him. Rule 20(3)(a) of the Rules relates specifically to used or .....

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tax credit at the rate of Fourteen and half percent (14.5%) on the purchase price actually paid supported by documentary evidence. Such notional input tax credit shall not exceed the output tax payable on the sale of used or second hand vehicle by the VAT dealer. The ingredients of Rule 20(3)(a) are: (1) a VAT dealer should have paid tax at the rate of 14.5% on the sale consideration of a used/second hand vehicle; (2) the vehicle sold by the dealer should have already been registered in the Stat .....

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dealers of such used/second hand vehicles which are registered in the State of Telangana under the Motor Vehicles Act, 1988. Notional input tax credit is available only on such used/second hand vehicles purchased by the VAT dealer when they, in turn, are sold by the dealer to others. The restriction placed by Rule 20(3)(a) is that such dealers cannot claim input-tax credit beyond the output-tax payable by them on the sale of second hand/used vehicles. Sri S. Ravi, Learned Senior Counsel appearin .....

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invoice containing such details as may be prescribed and issued by a VAT dealer to another VAT dealer. In using the words supported by documentary evidence in Rule 20(3-a), the rule making authority was conscious that the person from whom the VAT dealer, carrying on business in the purchase and sale of used/second hand vehicles, had purchased a used/second hand vehicle may not be a VAT dealer and has, therefore, not stipulated that a tax invoice should alone be produced to be eligible to claim .....

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rity has, therefore, erred in insisting that the petitioner should have produced a tax invoice to claim input-tax credit, as it would suffice if the dealer produces documentary evidence in support of the purchase price paid by him. As Section 16(1) places the onus on the dealer, the documentary evidence which he produces must be such as to satisfy the assessing authority of the purchase price actually paid by him. What the dealer of used/second hand cars is eligible to, under Rule 20(3)(a) of th .....

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e 20(3)(a) of the Rules, is only on the purchase price actually paid by him to his vendor, the dealer must also submit documentary evidence to show that the said vehicle has been subjected to levy of VAT under the Act. New vehicles, registered outside the State of Telangana under the Motor Vehicles Act, 1988 at the time of its first sale by an automobile dealer, do not fall within the ambit of Rule 20(3)(a) of the Rules. It is only because new vehicles, registered under the Motor Vehicles Act, 1 .....

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from whom they had purchased the used/second hand cars. The scope and ambit of Rule 20(3-a) can be better explained by way of an illustration. When an individual purchases a new car from a VAT dealer within the State of Telangana, he pays VAT on the purchase price of the vehicle and the VAT dealer, in turn, remits the tax, collected from the purchaser of the vehicle, to the Commercial Tax Department. If the individual, who purchased a new vehicle, sells it to another he neither collects tax nor .....

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x invoice as he had purchased the vehicle from C, another individual who is not entitled to issue a tax invoice to him. As VAT of ₹ 87,000/- was paid by A (a registered VAT dealer) when he sold the new vehicle to B, it would be sufficient compliance of Rule 20(3)(a) if documentary evidence of payment of VAT of ₹ 87,000/- is produced for notional input tax credit to be claimed at 14.5% on the purchase price paid by E to D. While notional input tax credit at 14.5% i.e., for ₹ 43, .....

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x on ₹ 4.00 lakhs), and after adjustment of notional input tax credit of ₹ 43,500/- (notional as VAT was not levied on the sale of the vehicle by D to E), the net VAT payable by E would only be ₹ 14,500/-. E, the dealer in used/second cars, cannot claim the benefit of input-tax credit, on the VAT paid on the initial sale of the new vehicle i.e., for ₹ 87,000/-, and thereby seek set off of the entire output-tax of ₹ 58,000/- as the notional input-tax credit which he .....

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er the benefit of notional input-tax credit even in cases where VAT has not been paid on the vehicle under the Act. Section 3 of the A.P. Motor Vehicles Taxation Act, 1963 relates to levy of tax on motor vehicles and, under sub-section (1) thereof, the Government may, by notification from time to time, direct that tax shall be levied on every motor vehicle used, or kept for use, in a public place in the State. Under the fourth proviso thereto, in the case of two to four wheeler motor vehicles co .....

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chedule prescribes, under the head class of vehicles, the tax payable at the time of registration of new vehicles, which is, at present, 12% of the cost of the vehicle. For the purposes of determining the motor vehicles tax, payable at the time of registration of new vehicles, the person, in whose favour the vehicle is to be registered, is required to submit, among others, a copy of the invoice. The invoice value, on which tax under Section 3 of the A.P.Motor Vehicles Taxation Act is levied, is .....

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ehicles Act, 1988, on the sale of which VAT has been paid under the Act, and not vehicles initially registered in another State and which has thereafter been registered again within the State of Telangana, for vehicles in the latter category would not have been subjected to VAT under the Telangana Value Added Tax Act, and only tax under the Motor Vehicles Taxation Act would have been paid thereon. The very object of enacting the Value Added Tax Act is to levy tax on the value addition to the goo .....

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never been subjected to VAT in the State of Telangana? Would such a construction not result in Rule 20(3-a) travelling even beyond what the Act provides? The Legislature, be it State or Central, has wide powers of delegation. This, however, is subject to one limitation, namely, it cannot delegate uncontrolled power. Delegation is valid only when it is confined to legislative policy and guidelines. What is permitted by the concept of delegation is delegation of ancillary or subordinate legislativ .....

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e authority conferred by the Act. Rules are made, on matters permitted by the Act, in order to supplement and not to supplant the Act. A delegate cannot override the Act either by exceeding the authority or by making provisions inconsistent with the Act. (Britnell v. Secretary of State 1991 (2) All ER 726; J.K. Industries Ltd. v. Union of India (2007) 13 SCC 673 ). Delegated legislation involves delegation of rule-making power. This means that the legislature, having laid down the broad principl .....

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are to be enjoyed, is an exercise of delegated legislation. (Hamdard Dawakhana v. Union of India AIR 1960 SC 554 = (1960) 2 SCR 671 ). The legislature can make a law to delegate a power to determine some fact or state of things upon which the law makes or intends to make its own action depend. There are many things, upon which wise and useful legislation must depend, which may not be known to the law maker, and must therefore be the subject of enquiry and determination outside the halls of the .....

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ting the matters/areas in regard to which specific power is delegated by using the words in particular and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters. Such provisions whereby power is conferred to make subordinate legislation in general terms, and the subsequent particularisation of the matters/topics, has to be construed as merely illustrative and not limiting the scope of the general power. Consequently, even if th .....

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ch a power 'will not support attempts to widen the purposes of the Act, to add new and different means to carrying them out, or to depart from or vary its terms'. (Academy of Nutrition Improvement v. Union of India (2011) 8 SCC 274; Petroleum and Natural Gas Regulatory Board v. Indraprastha Gas Ltd (2015) 9 SCC 209 ). The discretion conferred by the delegation of rule making power should not be so wide that it is impossible to discern its limits. There must, instead, be definite boundari .....

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to the validity of the rules have been fulfilled. The Courts therefore (1) will require due proof that the rules have been made and promulgated in accordance with the statutory authority, unless the statute directs them to be judicially noticed; (2) in the absence of express statutory provision to the contrary, may inquire whether the rule-making power has been exercised in accordance with the provisions of the statute by which it is created, either with respect to the procedure adopted, the fo .....

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unity which is enjoyed by a Statute passed by a competent Legislature. It must yield to plenary legislation. (J.K. Industries Ltd. (2007) 13 SCC 673; Indian Express Newspaper v. Union of India (1985) 1 SCC 641 ), and should be framed strictly in consonance with the legislative intent as reflected in the rule-making power contained in the Act. (Ashok Lanka v. Rishi Dixit (2005) 5 SCC 598; Kerala Samsthana Chethu Thozhilali Union (2006) 4 SCC 327). A subordinate legislation, apart from being intra .....

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eunder it is made but must also be in conformity with the provisions of any other Act, as subordinate legislation cannot be violative of any plenary legislation made by Parliament or the State Legislature. As the power of the Government is to make rules for carrying out the purposes of the Act, rules cannot be framed in matters that are not contemplated under the Act. The power to frame rules, and the power to impose terms and conditions, are subject to the provisions of the Act. They must not b .....

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SCC 573; Kunj Behari Lal Butail v. State of H.P (2000) 3 SCC 40; Global Energy Ltd. v. Central Electricity Regulatory Commission (2009) 15 SCC 570 ). A right/protection given, or an obligation created, by a statute cannot be nullified by rules authorised by the statute itself. (D.T.U. v. B.B.L. Hajelay (1972) 2 SCC 744 ). Likewise the conferment of a rule making power by an Act does not enable the rule making authority to make a rule which travels beyond the scope of the enabling Act or which i .....

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power to make subordinate legislation is derived from the enabling Act and the delegate, on whom such a power is conferred, has to act within the limits of the authority conferred by the Act. What is permitted is the delegation of ancillary or subordinate legislative functions, or, what is fictionally called, a power to fill up details. (Indraprastha Gas Ltd (2015) 9 SCC 209; St. Johns Teachers Training Institute v. National Council for Teacher Education (2003) 3 SCC 321). Where the legislature .....

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Lal Butail (2000) 3 SCC 40; Pratap Chandra Mehta (2011) 9 SCC 573). A delegate cannot act contrary to the basic feature of the Act. (B.K. Industries v. Union of India(1993) Supp. 3 SCC 621 ; Kerala Samsthana Chethu Thozhilali Union (2006) 4 SCC 327). The power of the rule making authority must be interpreted keeping in view the provisions of the Act. (Pratap Chandra Mehta (2011) 9 SCC 573; Kunj Behari Lal Butail (2000) 3 SCC 40; Global Energy Ltd (2009) 15 SCC 570). The language of the statute h .....

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a policy, an attempt should be made by the authority making the delegated legislation to follow the policy formulation broadly and substantially and in conformity therewith. [Secy., Ministry of Chemicals & Fertilizers, Govt. of India v. Cipla Ltd (2003) 7 SCC 1; Clariant International Ltd. v. Securities & Exchange Board of India (2004) 8 SCC 524; Kerala Samsthana Chethu Thozhilali Union (2006) 4 SCC 327). The power of delegated legislation cannot be exercised for the purpose of framing .....

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gislative intent, derived from the objects of the Act, should be achieved. The interpretation, furthering the object and purposes of the Act, has to be preferred in comparison to an interpretation which would frustrate the same. (Pratap Chandra Mehta (2011) 9 SCC 573). The regulatory provisions are to be read and applied keeping in view the nature and textual context of the enactment as that is the source of power. (Indraprastha Gas Ltd (2015) 9 SCC 209). The Telangana VAT rules must, therefore, .....

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the impugned Rule is intra vires, the Rule has to be read down to save it from being declared ultra vires if the Court finds, in a given case, that the above presumption stands rebutted. (J.K. Industries Ltd (2007) 13 SCC 673). If the words already registered in the State under the Motor Vehicles Act, 1988 in Rule 20(3)(a) is construed to include vehicles initially registered in another State and thereafter, on its being brought within the State of Telangana, were again registered within the Sta .....

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Act, 1988 must be read down to mean only new vehicles registered within the State, and to exclude vehicles which were earlier registered as a motor vehicle in some other State and subsequently registered again, under the provisions of the Motor Vehicles Act, 1988, within the State of Telangana. While the eligibility to claim input tax credit is no doubt notional, the said benefit is available only on the VAT dealer producing documentary evidence not only regarding the purchase price actually pai .....

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