TN VAT - Section 19(20) inserted by way of amendment is a provision which is made for first time to detriment of dealers and, therefore, cannot have a retro effect; constitutional validity upheld: SC
By TIOL News Service
NEW DELHI, AUG 25, 2016 : IN the writ petitions filed by the appellants ('dealers'), vires of newly inserted sub-section (20) of Section 19 of the VAT Act were challenged. This provision though came into force on August 19, 2010, by the Amendment Act, was given retrospective effect from January 01, 2007 by Tamil Nadu Value Added Tax (Special Provision) Act, 2010. The retrospectivity of the provision was also questioned by the dealers. The dealers had argued that this provision is confiscatory in nature as well as unreasonable and arbitrary and is, therefore, violative of 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. The dealers' challenge was repelled by the High Court and, therefore, the Civil Appeals.
The issue is illustrated in the following manner:
Under the scheme of VAT Act, 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 T.V. sets from the said vendors.
From the aforesaid tabulation, it is clear that the dealer had paid to the vendor VAT of Rs.10/-. However, at the time of re-sale VAT actually allowed was Rs.9.50.
This is the effect of sub-section (20) of Section 19, which reads as under:
"S. 19(20) Notwithstanding 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."
The Supreme Court inter alia extracted section 19 (Input Tax Credit) of the Act and observed -
++ 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 it's a concession granted by virtue of Section 19.
++ As 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.
++ But, keeping in view the scope of the issue, such a plea is not admissible having regard to the plain language of sections of the VAT Act, read along with other provisions of the said Act as referred to above.
++ For the same reasons given above, challenge to constitutional validity of sub-section (20) of Section 19 of VAT Act has to fail. When a concession is given by a statute, the Legislature has 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.
Noting that this aspect has been dealt in detail by the High Court, the Supreme Court, concurring with the same, reproduced paragraphs 64 to 69 of the said order.
On the aspect of retrospectivity of the aforementioned amendment, the Supreme Court adverted to the decisions in R.C. Tobacco Pvt. Ltd. V. Union of India = 2005-TIOL-115-SC-CX, Tata Motors Ltd. v. State of Maharashtra and others = 2004-TIOL-46-SC-CT & Commissioner of Income Tax (Central) - I, New Delhi v. Vatika Township Private Limited = 2014-TIOL-78-SC-IT-CB and observed -
++ When we keep in mind the aforesaid parameters laid down by this Court in testing validity of retrospective operation of fiscal laws, we find that the amendment in-question fails to meet these tests. The High Court has primarily gone by the fact that there was no unforseen or unforeseeable financial burden imposed for the past period. That is not correct. Moreover, as can be seen, sub-section (20) of Section 19 is altogether new provision introduced for determining the input tax in specified situation, i.e., where goods are sold at a lesser price than the purchase price of goods.
++ The manner of calculation of the ITC was entirely different before this amendment. In the example, which has been given by us in the earlier part of the judgment, 'dealer' was entitled to ITC of Rs. 10/- on re-sale, which was paid by the dealer as VAT while purchasing the goods from the vendors. However, in view of Section 19(20) inserted by way of amendment, he would now be entitled to ITC of Rs. 9.50. This is clearly a provision which is made for the first time to the detriment of the dealers.
++ 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.
Conclusion: While upholding the vires of sub-section (20) of Section 19, we set aside and strike down Amendment Act 22 of 2010 whereby this amendment was given retrospective effect from January 01, 2007.
The Appeals were partially allowed.
(See 2016-TIOL-128-SC-VAT)
