VAT - Proviso ought to be given normal and natural meaning keeping in mind context, object and reasons for its enactment and incorporation: Supreme Court
By TIOL News Service
NEW DELHI, MAY 17, 2016: THESE appeals by special leave challenge correctness of the common judgment and order dated 27.02.2012 passed by the High Court of Delhi in Sales Tax appeals filed by Indo Burma Petroleum Corporation Ltd, Hindustan Petroleum Corporation Limited, Indian Oil Corporation Limited and Bharat Petroleum Corporation Limited.
On 01.06.2006 rates of Petrol and High Speed Diesel were increased by Rs.4 /- and Rs.2 /- respectively from the midnight of 5/6th June, 2006. This increase in rates would have resulted in ad valorem increase in Value Added Tax (VAT) at the rate of 0.66 paise per litre of Petrol and 0.22 paise per litre of High Speed Diesel. With a view to grant some relief in the price rise to the customers, the Government of National Capital Territory of Delhi issued a Memorandum dated 20.06.2006 which was to the following effect:
Diesel and petrol shall be sold in the National Capital Territory of Delhi by not taking into account the component of the Value Added Tax on the increased price with immediate effect, meaning thereby that VAT shall continue to be charged on the pre-revised prices of diesel and petrol till further notification in this regard.
On 21.06.2006 an Ordinance was promulgated by the Lieutenant Governor inserting a proviso to the definition "Sale Price" in Section 2(1)( zd ) of the Act.
Provided that an amount equal to increase in the prices of petrol and diesel (including the duties and levies charged thereon by the Central Government) taking effect from the 6th June 2006 shall not form part of the sale price of petrol and diesel sold on and after the date of promulgation of this Ordinance till such date as the Government may, by notification in the Official Gazette, direct:
On 30.11.2006 there was partial roll back of prices of Petrol and High Speed Diesel which had been enhanced with effect from 06.06.2006. The prices were again rolled back and brought to pre 06.06.2006 status w.e.f . 16.02.2007.
The appellant oil companies filed their VAT Returns with the Tax Authorities on the footing that by reason of the continued operation of the proviso (above) they were permitted to recover VAT only on the amount of sale price currently charged, as reduced by the amounts of Rs.4 /- per litre on Petrol and Rs.2 /- per litre on High Speed Diesel. In other words, even after the partial roll back which came into effect on 30.11.2006 and complete roll back w.e.f . 16.02.2007 the appellants continued to deduct amounts of Rs.4 /- per litre on Petrol and Rs.2 /- per litre on High Speed Diesel from the prevailing sale price and charged/recovered VAT in respect of sale price so reduced by Rs.4 /- and Rs.2 /- as stated above.
Notices were issued and adjudicated. The adjudicating authority held,
"The amendment clearly says that to extend relief from the increase made in the price level of 05-06-2006 Govt. declared to forgo the VAT on the increased portion taking effect from 06-6-2006. The base price fixed by the Govt. in deciding the exemption was the price level prevailing on 05.05.2006. The amendment was made only to stop the prices from further increase. The Govt. had no intention to allow any relief on the price level prevailing on 05.06.2006 and if any intention would have been there then such an amendment should have been made prior to 06.06.2006. Now, with the reduction in price on 30-11-06 and 16-02-07 the prices came down to the level of 05.06.2006 and with prices coming at the level it is implied that, the exemption allowed in VAT would cease as this would not be in conformity with the intentions of the legislature.
The Tribunal and High Court confirmed this order. The High Court took the view that upon the partial roll back w.e.f . 30.11.2006 and upon the complete roll back w.e.f . 16.02.2007 benefit of the proviso ceased to be partly or fully applicable. According to the High Court the proviso simply protected and gave exemption in respect of enhanced ad valorem VAT payable on account of increase in petrol and diesel from 06.06.2006 and the benefit under the proviso ceased to operate partly and fully on and w.e.f . partial and complete roll back respectively.
Thus, the matter is before the Supreme Court.
The Supreme Court observed,
According to the appellants, the benefit in terms of the proviso in question was to the extent of VAT chargeable and payable in respect of the amount of increase and the benefit so quantified must be made available regardless of any variation or decrease in the rates of Petrol and High Speed Diesel.
For example, if the price before the increase in rates is taken to be x and the price were to be x+4 as a result of increase w.e.f . 06.06.2006, the benefit of VAT payable in respect of the element of increase i.e. 4 must be available even if upon partial roll back the price were to be x+1 or upon full roll back the price were to be x itself. If the logic is accepted, upon full roll back, according to the appellants the VAT would be payable on x-4.
In our view, the proviso ought to be given normal and natural meaning keeping in mind the context, object and reasons for its enactment and incorporation. The idea was to protect the interest of the consumers by giving exemption in respect of enhanced ad valorem VAT payable on account of increase in prices of diesel and petrol from 06.06.2006. On the element of increase, no additional ad valorem VAT was payable and according to the proviso the increased component was not to be part of sale consideration. Consequently, VAT was not to be charged in respect of such increased component, as per definition of the term "sale price" which came to be controlled by introduction of the proviso. When there was no increased component and therefore no liability to pay VAT in respect of such increased component, benefit under the proviso ceased to be applicable. The proviso cannot be given operation beyond the element of increase, so much so that even after complete roll back, the benefit in respect of that amount must operate. That certainly was not the intent. The idea was to grant benefit only in respect of that element of VAT respecting increase in rates and not beyond. If that component of increase ceased to be in existence, the benefit of proviso also ceased to be in operation.
We, therefore, affirm the view taken by the High Court and the Appellate Authority and are not persuaded to take a different view in the matters.
The appeals are dismissed.
(See 2016-TIOL-72-SC-VAT)
