TMI Blog2020 (3) TMI 828X X X X Extracts X X X X X X X X Extracts X X X X ..... ry-54 List-II of Seventh Schedule of the Constitution of India, any transaction could not be added in Article 366(29A) of the Constitution of India, treating the same to be sale by a deeming fiction, even though, it is not a sale, within the meaning of Sale of Goods Act, or does not fall within the Article 366(29A) of the Constitution of India. The law is well settled in this regard right from Gannon Dunkerley s case [ 1958 (4) TMI 42 - SUPREME COURT ], in the year 1959, to Bharat Sanchar Nigam s case [ 2006 (3) TMI 1 - SUPREME COURT ], and Rajasthan Chemists Association s case [ 2006 (7) TMI 17 - SUPREME COURT ], in the year 2006, wherein the Hon ble Apex Court has dealt with the several earlier decisions and has come to the conclusion that in order to levy tax on sale, the transactions must fall within any of the clauses of Article 366 (29A) of the Constitution of India, or within the meaning of the Sales of Goods Act, for the purpose of levy of sales tax. In absence thereof, the Provincial Legislature cannot, in the purported exercise of its power to levy tax on sales or purchases of goods, tax even such transactions, which are not sales or purchases, by merely en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Respondent-State : M/s Atanu Banerjee, S.C.-III., Miss Piyushita Meha Tudu And Miss Pooja Kumari, A.Cs. to S.C.-III ORDER H.C. MISHRA, J.:- Heard learned counsel for the petitioner Company and learned counsel for the State. 2. In the present writ application, the challenge is to the vires of Section 9 (5) of the Jharkhand Value Added Tax Act, 2005, (hereinafter referred to as 'JVAT Act'), which was subsequently brought, by way of amendment, made in the year 2011. Retrospective effect given to this provision with effect from 1.4.2010, is also under challenge in the present writ application. 3. The petitioner Company is the manufacturer and seller of heavy and medium commercial vehicles and its spare parts and accessories. The Company is registered, under the provisions of 'JVAT Act' and is, admittedly, liable to pay VAT on its turnover. The Company, in normal course of its business, allowed trade discounts, both in form of free supply of goods as well as providing cash incentives, or reduction in price to its purchasers, which is a target based discount, i.e., such discounts and incentives are allowed only upon achieving a particular tar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax on the sale or purchase of goods , defined under Article-366(29A) of the Constitution of India. 7. Section 9(5) of the JVAT Act reads as follows:- 9. Levy if Tax on Sale and Determination of Taxable Turnover. - (5) Notwithstanding anything contained in this Act where a registered dealer allows any trade discount or incentive whether in terms of quantity in goods or otherwise in relation to any sale effected by him, the quantity so allowed as trade discount or incentive, shall be deemed to be a sale by the dealer, who allows such trade discount or incentive and a purchase by the dealer who receives such trade discount or incentive and such sale shall form part of the sale in relation to which such trade discount or incentive is allowed. (Emphasis is ours). The terms Sale , purchase and Sale price are defined under Sections 2(xlvii) and 2(xlviii) of the JVAT Act, relevant portions of which read as follows:- (xlvii) Sale with all its grammatical variations and cognate expressions means any transfer of property in goods for cash or deferred payment or other valuable consideration but does not include a mortgage or hypothecation of or a charge or pled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Section-4 of the Act as follows:- 4. Sale and agreement to sell.-(1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another. (2) A contract of sale may be absolute or conditional. (3) Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell. (4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred. Article 366(29A) of the Constitution of India defines tax on the sale or purchase of goods as follows:- (29A) tax on the sale or purchase of goods includes- (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Government of India Act, 1935. The question before the Hon ble Apex Court was whether the said provision of the Madras General Sales Tax Act was ultra vires, in so far as it sought to impose a tax on the supply of materials, in execution of the works contract, treating it as a sale of goods by the contractor. The Hon ble Apex Court held that the answer to the question depended on the meanings of the words sale of goods in Entry-48, List-II of Schedule-VII to the Government of India Act, 1935, as it then existed. 9. The law laid down by the Hon ble Apex Court in the said case has been beautifully explained in a subsequent decision by the Hon ble Apex Court in State of Rajasthan and Anr. Vs. Rajasthan Chemists Association, reported in (2006) 6 SCC 773, in the following terms:- 14. State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. is another decision which needs to be noted. A Constitution Bench of this Court considered the construction of Entry 48 in List II of the Seventh Schedule of the 1935 Act. Taxes on the sale of goods is in pari materia with Entry 54 in List II of Schedule VII of the Constitution. The case arose under the Madras General Sales Tax Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [T]he expression sale of goods in Entry 48 is a nomen juris, its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement. 19. The State Legislature does not have legislative competence to give the expression sale of goods extended meaning and to enlarge its legislative field to cover those transactions for taxing which do not properly conform to the elements of sale of goods within the Sales Act. Tax on value of the material used in construction of building was held to be ultra vires. (Emphasis supplied). Placing reliance on Gannon Dunkerley s case (supra), the Hon ble Apex Court has laid down the law as follows in Rajasthan Chemists Association's case (supra):- 28. The question of tax on sale of goods may be examined in the said background. The subject of tax being sale, measure of tax for the purpose of quantification must retain nexus with sale which is the subject of tax. As noticed above, tax on sale of goods, is tax on the vendor in respect of his sales and is substantially a tax on sale price. The vendor or buyer cannot be taxed dehors the subject of tax, that is, sale by the vend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the entry in the legislative list in that there had to be three essential components to constitute a transaction of sale, namely, (i) an agreement to transfer title, (ii) supported by consideration, and (iii) an actual transfer of title in the goods. It was also held that there was no sale in absence of any one of these elements. In the said case, giving the brief history of Article 366(29A) of the Constitution of India, the law has been laid down by the Hon ble Apex Court in the following terms:- 39. The problem relating to the power of the States to levy tax on the sale of goods was then referred to the Law Commission by the Government of India. The Law Commission submitted its report in 1974 on a consideration of the scope of the levy of sales tax by the State Governments in respect of works contracts, hire-purchase transactions and also the transfer of controlled commodities by virtue of statutory orders. The Law Commission noted that these transactions resembled sales in substance and suggested three drafting devices for conferring the power of taxing these transactions on the States, viz.: (a) amending the State List, Entry 54, or (b) adding a fresh ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther transactions would have to qualify as sales within the meaning of the Sales of Goods Act, 1930 for the purpose of levy of sales tax. (Emphasis supplied). 11. Placing reliance on these decisions, it is submitted by learned counsel for the petitioner that the State Legislature, in its purported exercise of making law, for levying taxes on the sale or purchase of goods, cannot enact a law to give meaning of deemed sale to the transactions, which are not sales either under any of the clauses of Article 366(29 A) of the Constitution of India, or within the meaning of the Sales of Goods Act, for the purpose of levy of sales tax, by treating such transactions by deeming fiction. Learned counsel has submitted that by no stretch of imagination, in absence of the deeming fiction, as brought by sub-Section (5) of Section 9 in the JVAT Act, it can be said that the trade discounts / incentives, given by and received by the petitioner Company, could be treated as sales, inasmuch as, there was no transfer of consideration in so far as the trade discounts / incentives are concerned and, admittedly, prior to bringing Section 9(5) in the JVAT Act, by the amendment in the year 2011, such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n was relating to the constitutional validity of the Special Bearer Bonds (Immunities and Exemptions) Ordinance, 1981, which was promulgated by the President of India to provide for certain immunities to holders of Special Bearer Bonds, 1991 and for certain exemptions from direct taxes in relation to such Bonds and the matters connected therewith . It is submitted by learned counsel that even though, the ordinance was brought in order to help the persons making black money and evasion of tax, but the majority view that was taken by the Hon ble Apex Court is as follows:- 8. Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less a person than Holmes, J., that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait-jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such distortions and abuses. Indeed, howsoever great may be the care bestowed on its framing, it is difficult to conceive of a legislation which is not capable of being abused by perverted human ingenuity. The Court must therefore adjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions. If any crudities, inequities or possibilities of abuse come to light, the legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must guide and inspire the legislature in dealing with complex economic issues. 14. Learned counsel for the State has further placed reliance upon the decision of the Hon ble Apex Court in Government of Andhra Pradesh Ors. Vs. P. Laxmi Devi, reported in (2008) 4 SCC 720, wherein where, the constitutionality of Section 47-A of the Indian Stamp Act, as amended by the A. P. Act 8 Act of 1998, was under challenge, the law has been laid down by the Hon ble Apex Court as follows:- 39. The court is, therefore, faced with a grave problem. On the one hand, it is well se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y this will is not to be lightly frustrated or obstructed. *** *** *** 46. In our opinion, there is one and only one ground for declaring an Act of the legislature (or a provision in the Act) to be invalid, and that is if it clearly violates some provision of the Constitution in so evident a manner as to leave no manner of doubt. This violation can, of course, be in different ways e.g. if a State Legislature makes a law which only Parliament can make under List I to the Seventh Schedule, in which case it will violate Article 246(1) of the Constitution, or the law violates some specific provision of the Constitution (other than the directive principles). But before declaring the statute to be unconstitutional, the court must be absolutely sure that there can be no manner of doubt that it violates a provision of the Constitution. If two views are possible, one making the statute constitutional and the other making it unconstitutional, the former view must always be preferred. Also, the court must make every effort to uphold the constitutional validity of a statute, even if that requires giving a strained construction or narrowing down its scope vide Rt. Rev. Msgr. Mark Netto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reads as follows:- 7. Trade discount etc. deemed to be sale in certain cases.- Notwithstanding anything contained in any other provisions of this Act, where a dealer allows any trade discount or incentive in terms of quality in goods in relation to any sale effected by him, the quantity so allowed as trade discount or incentive, shall be deemed to be a sale by the dealer, who allows such trade discount or incentive and a purchase by the dealer who receives such trade discount or incentive and such sale shall form part of the sale in relation to which such trade discount or incentive is allowed. (Emphasis is ours). 18. It is submitted by learned counsel that though the provision was challenged before the Kerala High Court, but the same was not entertained in M/s Gulf Oil Lubricants India Limited Vs. Commissioner of Commercial Taxes, Thiruvananthpuram Anr., [(W.P.(C) No. 28594 of 2016 (Y), decided on 25th of November, 2016]. 19. Placing reliance on these decisions, learned counsel has submitted firstly, that nothing new has been brought in, by way of amendment, by bringing sub-Section (5) in Section 9 of the JVAT Act, secondly, in the present case only apprehendin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to think that the High Courts have not got this power. If a right has been infringed - whether a fundamental right or a statutory right - and the aggrieved party comes to the court for enforcement of the right it will not be giving complete relief if the court merely declares the existence of such right or the fact that that existing right has been infringed. Where there has been only a threat to infringe the right, an order commanding the Government or other statutory authority not to take the action contemplated would be sufficient. It has been held by this Court that where there has been a threat only and the right has not been actually infringed an application under Article 226 would lie and the courts would give necessary relief by making an order in the nature of injunction. -------------. (Emphasis supplied). 22. Learned counsel for the petitioner has also pointed out that the example given by the learned counsel for the State is fallacious, inasmuch as, the argument that the consideration of the 11th item which has given free as trade discount, on the sale of 10 items, the consideration of the free item shall be the 10 items sold, cannot be accepted for the simple reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Constitution of India, which transactions could be taxed by the State Government. 24. In the present case, we find that the State Government has exceeded its legislative competence and has in that effort, treated the trade discounts / incentives as taxable transactions, treating them to be sale by a deeming fiction by bringing sub-Section (5) in Section 9 of the JVAT Act, and has thus sought to make such transactions taxable, which are in addition to the transactions described under Article 366(29A) of the Constitution of India, which the State Government could not do, and admittedly, prior to bringing of Section 9(5) of the JVAT Act, into the Statute Book, such transactions were never being subjected to tax under the JVAT Act. In fact, Explanation III of Section 2(xlviii) of the JVAT Act, defining 'Sale price', clearly states that sale price shall not include the cash discount, if shown separately, and allowed by the dealer in the ordinary course of trade practice. In spite of the fact that JVAT Act is no more in force, after coming into force of the GST regime, but the fact remains that the transactions, during the JVAT regime, are claimed to be taxed after the amendme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other than the directive principles) -----------------. 27. We do not find any substance in the submission of learned counsel for the State that in the present case only apprehending danger is challenged, and judicial review is not available at the stage prior to making a decision, on the ground of quia timet action. The law relating to quia timet action, is also no more res integra, in view of the law laid down by the Apex Court in Bhilal Bhai's case (supra), and Tashi Delek Gaming Solutions Ltd.'s case (supra), holding that a quia timet application would be maintainable. 28. For the foregoing reasons, we find no difficulty in holding that Section 9(5) of the JVAT Act, brought into force by amendment in the JVAT Act in the year 2011, is beyond the legislative competence of the State Legislature, and the same is ultra vires Article 246(1) of the Constitution of India, and cannot be sustained in the eyes of law. Accordingly, sub-Section (5) of Section 9 of the JVAT Act, as it stood with effect from 1.4.2010 to 30.06.2017 in the Statute Book, is hereby, held to be ultra vires, and accordingly, it has to be treated as if never existing in the Statute Book. 29. In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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