TMI Blog2018 (10) TMI 887X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, in the process, that there were valid and cogent reasons for inserting that provision and the main purpose was to protect the Revenue against clandestine transaction resulting in invasion of tax - the provision was aimed at achieving a specific and justified purpose and could not be treated as discriminatory. Section 19 of TNVAT Act deals with ITC. It incorporates provision for grant of ITC under certain circumstances and, at the same time, also lays down the conditions in which such ITC would be admissible. It is in this context sub-section (5) of Section 19 is to be analysed. Subsection (5) stipulates certain contingencies where such ITC would not be admissible. There is no quarrel about clauses (a) and (b). We are only concerned with clause (c) of this sub-section which provides that ITC would not 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 subsection (2) of Section 8 of the Central Sales Tax Act. Wherever the State Government buys, sells, supplies or distribute goods, it shall be deemed to be the dealer for the purposes of TNVAT Act. At the same time, T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 19(5)(c) of the Tamil Nadu Value Added Tax Act, 2006, Act No. 32/2006 (hereinafter referred to as TNVAT Act ) and Rule 10(9)(a) of the Tamil Nadu Value Added Tax Rules, 2007 (hereinafter referred to as Rules ) are ultra vires of Articles 14, 19(1)(g), 256 and 301 of the Constitution of India as also the Central Sales Tax Act (hereinafter referred to as CST Act ) and whether Notice dated August 16, 2018 of the Revenue is liable to be quashed? 4. The instant appeals have been preferred against the common impugned judgment of the High Court of Judicature at Madras dated October 29, 2014 (hereinafter referred to as Impugned Judgment I ) in the writ petitions which were filed by the appellants and the impugned judgment dated 17th November, 2017 of the High Court of Judicature at Madras (hereinafter referred to as Impugned Judgment II ) in W.P. No. 29393 of 2017. 5. The brief facts leading to the cases are as follows: 6. All the appellants herein are the Assessees under the TNVAT Act and are duly registered on the file of their respective Jurisdictional Commercial Officers. 7. On January 17, 2005, a White Paper was released by the Committee of Finance Ministers ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it availed against the transactions for which Form C were not filled, and reversing credit on inter-State sales without Forms C in terms of the impugned Section 19(1)(c). 12. Aggrieved by the same, the appellants, who were Assessees under the TNVAT Act, preferred writ petitions challenging the constitutional vires of 19(5)(c) of the TNVAT Act and Rule 10(9)(a) of the Rules contending that the same had been enacted in violation of Articles 14, 19(1)(g), 246 and 301 of the Constitution of India. It was urged by the appellants that Respondent No. 1 State had enacted the Act under Entry 54 of List II of the Constitution of India in terms of consensus amongst States to bring about a nation-wide uniform taxation structure/scheme for VAT and for the promotion of inter-State trade, commerce and industrialization, with its primary object to reduce the cascading effect of tax imposed at successive stages, either at the stage of usage as raw material or at the time of reselling of the article so produced. They further urged that while the White Paper provided for set-off of the ITC even against inter-State sales, Section 19(5)(c) of the Tamil Nadu Act sought to negate the object of promoti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it has allowed the assessees/appellants to submit their responses to the Show Cause Notices and/or challenge the orders passed negativing their request for ITC, in accordance with the TNVAT Act and Rules framed thereunder. 19. The Impugned Judgment-II dated November 17, 2017 arose out of Writ Petition No. 29393 of 2017, challenging the constitutional vires of Section 19(5)(c) of the TNVAT Act and Rule 10(9)(a) of the Rules, where the High Court of Judicature at Madras, while relying on its previous decision dated 29.10.2014 in Impugned Judgment-I, observed that the same issue had arisen in the Impugned Judgment-I and the vires of the TNVAT Act and the Rules had been upheld therein and accordingly, dismissed the Writ Petition No. 29393/2017. 20. Correctness of these judgments is the subject matter of instant appeals. 21. Before adverting to the respective submissions which were made by the counsel for the appellants as well as learned Advocate General who appeared on behalf of the respondents, it would be apposite to scan through the impugned judgment dated October 29, 2014 to understand the rationale and reasoning which is given by the High Court in arriving at its conclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of export of those goods out of the territory of India] [(1A) A dealer shall be liable to pay tax under this Act on a sale of any goods effected by him in the course of inter-State trade or commerce notwithstanding that no tax would have been leviable (whether on the seller or the purchaser) under the sales tax law of the appropriate State if that sale had taken place inside that State.] (2) Notwithstanding anything contained in sub-section (1) or sub-section (1A), where a sale of any goods in the course of inter-State trade or commerce has either occasioned the movement of such goods from one State to another or has been effected toy a transfer of documents of title to such goods during their movement from one State to another, any subsequent sale during such movement effected by a transfer of documents of title to such goods(a) to the Government or (b) to a registered dealer other than the Government if the goods are of the description referred to in sub-section (3) of section or shall be exempt from tax under this Act: Provided that no such subsequent sale shall be exempt from tax under this subsection unless the dealer effecting the sale furnishes to the presc ..... 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(2) Subject to the other provisions of this Act and the rules made thereunder, the authorities for the time being empowered to assess, re-assess, collect and enforce payment of any tax under the general sales tax law of the appropriate State shall, on behalf of the Government of India, assess re-assess, collect and enforce payment of tax, including any [interest or penalty, payable by a dealer under this Act as if the tax or interest or penalty payable by such a dealer under this Act is a tax or interest or penalty payable under the general sales tax law of the State; and for this purpose they may exercise all or any of the powers they have under the general sales tax law of the State; and the provisions of such law, including provisions relating to returns, provisional assessment, advance payment of tax, registration of the transferee of any business, imposition of the tax liability of a person carrying on business on the transferee of, or successor to, such business, transfer of liability of any firm of Hindu undivided family to pay tax in the event of the dissolution of such firm or partition of such family, recovery of tax from third parties, appeals, reviews, revisions, refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year D = Input tax credit refunded during the month or year (2) Every registered dealer who claims input tax credit under sub-section (1) of section 19 shall, produce the original tax invoice, in support of his claim of the input tax credit, containing the following details, namely: (a) A consecutive serial number; (b) The date on which the invoice is issued; (c) The name, address and the Taxpayer IdentificationNumber of the seller; (d) The name, address and the Taxpayer IdentificationNumber of the buyer; (e) The description of the goods; (f) The quantity or volume of the goods; (g) The value of the goods; (h) The rate and amount of tax charged; and (i) The total value of the goods. (9)(a) Input tax credit on inter-state sales shall be allowed only if lots C prescribed in the Central Sales Tax (Registration and turnover) Rules, 1957 is filed. 24. After taking note of the aforesaid provisions, the High Court proceeded to discuss question no. (1). It pointed out that the definition of dealer under Section 2(b) of the CST Act means the assessee under the said Act and he is solely liable to pay tax under the CST Act wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C 408. 27. Discussing the provisions of Section 8(1) and (2) of the CST Act, the High Court pointed out that Section 8(1) gives preferential treatment to sale by a dealer to a registered dealer. Vires of this provision has also been upheld in Gwalior Rayon Silk Manufacturing (Wvg.) Co., Ltd. vs. Assistant Commissioner of Sales Tax and others (1974) 4 SCC 98. 28. Discussing ratio of the aforesaid judgments, the High Court pointed out that this Court noted the proposition that the aforesaid provision was to check the evasion of tax on inter-State sales and to prevent discrimination between the rates in one State and those in other States, the Parliament thought fit to enact Section 8(2)(b) of the CST Act and further held that the object of the law apparently is to deter inter-State sales to unregistered dealers as such inter-State sales would facilitate evasion of tax and the fixation of the rate of local sales tax is essentially a matter for the State legislatures and the Parliament does not have any control in the matter. It has been further held in the said decision that it is in public interest to see that in the guise of freedom of trade, they do not evade the paymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture to provide for conditions and restrictions while extending the concession. Likewise, it was also necessary for any assessee to claim input credit to fulfill those conditions. Thus, the provision made in the statute that unregistered dealers in other States would not be entitled to ITC was justified. The High Court noted that specific stand of the State Government was that in respect of such unregistered dealers in other states, the State of Tamil Nadu had no mechanism to prevent evasion of tax and loss of revenue caused by trade with such unregistered dealers in the State of Tamil Nadu. This kind of evasion, in the opinion of the High Court, was not violative of the constitutional provisions contained in Articles 14, 19(1)(g) and 301. 31. Mr. Giri, learned senior counsel appearing in some of these appeals pressed into service the same arguments which were advanced before the High Court and attempted to find fault with the approach of the High Court. His submission was that once the tax was paid at an intermediary stage, the dealers could not be denied benefit of claiming credit thereof and Section 19(5)(c) of TNVAT Act went contrary to the visions of CST Act and, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epeal the provisions of Section 8(2)(b) adopting the higher rate of tax fixed by the appropriate State Legislature in respect of intra-State sales. If Parliament can repeal the provision, there can be no objection on the score that Parliament has abdicated its legislative function. It retains its control over the fixation of the rate intact. In other words, so long as Parliament can repeal the provisions of Section 8(2)(b) adopting the higher rate of tax fixed by the State Legislatures, it has not abdicated its legislative function. As already stated, this point has been expressly decided by the Privy Council in Cobb Co. Ltd. v. Kropp. 32. Mr. S.K. Bagaria, learned senior counsel appearing in the Civil Appeal arising out of SLP(Civil) No. 9326 of 2015, submitted that the appellant/dealer in this case was making supplies only to the Government and, therefore, there was no reason to nurture any apprehension that there would be evasion of tax. He also submitted that this dealer had sales in Tamil Nadu and Karnataka wherein it was stated that the appellant had effected sales to Karnataka State Government covered under Section 8(2) of the CST Act. However, the appellant was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not getting any tax. Likewise, as per Section 4 of the CST Act situs of such sales would be Tamil Nadu, even when goods go out of the State. In such an eventuality, State gets its share of tax by virtue of Article 269 of the Constitution. 34. He also referred to the insertion of sub-clause (v) to sub-section (2) of Section 19 which provision now enables getting of ITC in those cases also where sale in the course of inter-State trade or commerce falls under Section 8(1) and (2) of the CST Act. In this scenario, according to him, Section 19(5)(c) would apply when there were inter-State sales at the time of incorporation. In support of this submission, he referred to the following two judgments: (i) Bolani Ores Ltd. vs. State of Orissa (1974) 2 SCC 777 29. The question then remains as to whether these vehicles though registrable under the Act are motor vehicles for the purpose of the Taxation Act. It has already been pointed out that before the amendment vehicles used solely upon the premises of the owner, though they may be mechanically propelled vehicles adapted for use upon roads were excluded from the definition of motor vehicle . If this definition which excludes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery concept is embodied in the provisions of Section 7 of the Taxation Act as also the relevant sections in the Taxation Acts of other States, namely, that where a motor vehicle is not using the roads and it is declared that it will not use the roads for any quarter or quarters of a year or for any particular year or years, no tax is leviable thereon and if any tax has been paid for any quarter during which it is not proposed to use the motor vehicle on the road, the tax for that quarter is refundable. If this be the purpose and object of the Taxation Act, when the motor vehicle is defined under Section 2(c) of the Taxation Act as having the same meaning as in the Motor Vehicles Act, 1939, then the intention of the Legislature could not have been anything but to incorporate only the definition in the Motor Vehicles Act as then existing, namely, in 1943, as if that definition was bodily written into Section 2(c) of the Taxation Act. If the subsequent Orissa Motor Vehicles Taxation (Amendment) Act, 1943, incorporating the definition of motor vehicle referred to the definition of motor vehicle under the Act as then existing, the effect of this legislative method would, in our view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effected in the statute viz. the Calcutta Improvement Trust Act, 1911 - referred to by their Lordships as the Local Act - was in express terms and in the form illustrated by 54 and 55 Vict., Ch. 19. The Local Act in dealing with the acquisition of land for the purposes designated by it, made provision for the acquisition under the Land Acquisition Act, and the provisions of the Land Acquisition Act were subjected to numerous modifications which were set out in the Schedule, so that in effect the Local Act was held to be the enactment of a Special Law for the acquisition of land for the special purpose. It was in the context of these and several other provisions which pointed to the absorption of certain of the provisions of the Land Acquisition Act into the Local Act with vital modifications that Privy Council observed at p. 266: But Their Lordships think that there are other and perhaps more cogent objections to this contention of the Secretary of State, and their Lordships are not prepared to hold that the sub-section in question, which was not enacted till 1921, can be regarded as incorporated in the Local Act of 1911. It was not part of the Land Acquisition Act wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 SC 1995 : 1966 Supp SCR 259 : (1966) 2 LLJ 759] this Court was considering the definition of employer in Section 2(e) of the Coal Mines Provident Fund and Bonus Schemes Act, 1948, where that expression was defined to mean the owner of a coal mine as defined in clause (g) of Section 3 of the Indian Mines Act, 1923 . The Indian Mines Act, 1923, had been repealed and substituted by the Mines Act, 1952 (Act 35 of 1952). In the latter Act the word owner had been defined in clause (1) of Section 2. The question was whether by virtue of Section 8 of the General Clauses Act, the definition of the word employer in clause (e) of Section 2 of the Coal Mines Provident Fund and Bonus Schemes Act should be construed with reference to the definition of the word, owner in clause (1) of Section 2 of Act 35 of 1952, which repealed the earlier Act and reenacted it. It may be mentioned that according to Section 2(1) of Act 35 of 1952 the word owner , when used in relation to a mine, means any person who is the immediate proprietor or lessee or occupier of the mine or of any part thereof and in the case of a mine the business whereof is being carried on by a liquidator or receiver, such l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation of Land Act of 1900 has no effect on the continued operation of the Pre-emption Act and the expression agricultural land in the later Act has to be read as if the definition in the Alienation of Land Act had been bodily transposed into it. The above decision of this Court is more in point and supports our conclusion. In our view, the intention of Parliament for modifying the Motor Vehicles Act has no relevance in determining the intention of the Orissa Legislature in enacting the Taxation Act. Apart from this aspect of the power of taxation, as we have said earlier, is not in the Concurrent List III but in List II and construed as a taxation measure we cannot extend the ambit of it by mere implication. As we said it is possible for both the Acts to co-exist even after the definition of motor vehicle in the Act has been amended. It is, therefore, clear that the definition of motor vehicle as existing prior to 1956 Amendment would alone be applicable as being incorporated in the Taxation Act. The principle laid down in Mahindra and Mahindra Ltd. Vs. Union of India and Another (1979) 2 SCC 529 is to the same effect. 35. His second submission was that Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns. The notification has to apply to the entire class and the Government cannot create subclassification thereby excluding one sub-category, even when both the sub-categories are of same genus. If that is done, it would be considered as violating the equality clause enshrined in Article 14 of the Constitution. Therefore, judicial review of such notifications is permissible in order to undertake the scrutiny as to whether the notification results in invidious discrimination between two persons though they belong to the same class. In Aashirwad Films v. Union of India [(2007) 6 SCC 624] , this aspect has been articulated in the following manner: (SCC pp. 628-29, paras 9-12) 9. The State undoubtedly enjoys greater latitude in the matter of a taxing statute. It may impose a tax on a class of people, whereas it may not do so in respect of the other class. 10. A taxing statute, however, as is well known, is not beyond the pale of challenge under Article 14 of the Constitution of India. 11. In Chhotabhai Jethabhai Patel Co. v. Union of India [AIR 1962 SC 1006], it was stated: (AIR p. 1021, para 37) 37. But it does not follow that every other article of Part III ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State Government for exclusion of the properties of Appellants 1 and 3 to 6 and the State Government had not accepted such recommendations only on the ground that the constructions made by the appellants were of B or C class and could not be easily amalgamated into the developed colony which was proposed to be built. There is no averment in the pleadings of the respondents stating the basis of classification of structures as A , B and C class, nor is it stated how the amalgamation of all A class structures was feasible and possible while those of B and C class structures was not possible. It is not the case of the State Government and also not argued before us that there is no policy decision of the Government for excluding the lands having structures thereon from acquisition under the Act. Indeed, as noted earlier, in these cases the State Government has accepted the request of some landowners for exclusion of their properties on this very ground. It remains to be seen whether the purported classification of existing structures into A , B and C class is a reasonable classification having an intelligible differentia and a rational basis germane to the purpose. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble against VAT. In view of these factors, there has been a consensus that the CST should be phased out. This is also a pre-requisite for introduction of an integrated Goods and Services Tax (GST), which the Government purposes to introduce by 1st April, 2010. The issue of phasing out of the CST has been deliberated upon for over a decade. The Empowered Committee of State Finance Ministers (EC), constituted by the Government of India, has been making efforts in this direction since July, 2000. Finally, after a series of meetings, a consensus has been arrived at between the Central Government and the State Governments on the roadmap for phasing out of the CST as also on the package of compensation to the States for revenue loss on this account. 3. Accordingly, it is proposed to phase out the CST in 4 steps, i.e., reducing the CST rate from 4% to 3% w.e.f. 1st April, 2007, from 3% to 2% w.e.f. 1st April, 2008, from 2% to 1% w.e.f.1st April, 2009 and eventually abolishing the tax on 31st March, 2010. An integrated national Goods and Services Tax (GST) is proposed to be introduced w.e.f. 1 st April, 2010. The agreed package for compensation to the States for revenue loss on accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purposes of this particular issue, subsection (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 invoice 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 theLegislature. 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) One of the most important condition is that in order toenable the dealer to claim ITC it has to produce original tax invoice, completed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner 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 and later in the guise of credit note giving discount and reducing the price of the goods which reduces the Output tax payable to the Government dwindles State revenue. 65. Learned Advocate General contended that seller and buyer coalition is issuing purchase invoice at an escalated price thereby taking benefit of excess Input Tax Credit and later in the guise of credit notes giving discount, reduced the price of the same 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 as under: xx xx xx 40. In another judgment in ALD Automotive Pvt. Ltd. Anr. v. The Commercial Tax Officer Ors. (SLP (Civil) Nos.36112-36113 of 2013 ) pronounced in today s date, the scheme of this very provision is discussed again in detail to the same effect. 41. It is very clear from the aforesaid discussion that this Court held that ITC is a form of concession which is provided by the Act; it cannot be claimed as a matter of right but only in terms of the provisions of the statute; therefore, the conditions mentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is to a registered dealer. Prescribing such a condition in order to ensure that there is no evasion, has a rationale purpose and objective. Consideration of this aspect in the context of the very nature of the ITC scheme, which is a concession and not a right, would lead us to the conclusion that it was open to the Legislature to make such a provision. 44. In view of the aforesaid discussion, we do not find any merit in the contentions raised by Mr. Giri. The judgments cited by him would have no application either. 45. One argument of Mr. Bagaria, however, needs little deeper consideration. He has argued that the appellant represented in his case is making sales only to the State of Karnataka. In such a case, there cannot be any apprehension about evasion of tax. 46. Section 2(15) defines the term dealer and includes State Government as well by means of Explanation II which reads as under: Explanation II: The Central Government or any State Government which, whether or not in the course of business, buy, sell, supply or distribute goods, directly or otherwise, for cash, or for deferred payment, or for commission, remuneration or other valuable consideration, s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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