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2016 (5) TMI 912 - HC - VAT and Sales TaxValidity of law - rate of tax - interstate movement of goods - Change in nature of goods merely on the basis of the location in which they are used - Section 2(11) - Petitioner contended that if certain goods are admittedly capital goods, their nature will not change merely because they were sold in the course of inter-state trade or commerce, to persons outside the State - Held that - argument of the petitioners is based merely upon logic and common sense. Unfortunately, law, much less tax law, is not founded upon logic and common sense. The petitioners have forgotten for a moment that they are challenging the vires of a legislation. The law validly enacted by a State Legislature, cannot be challenged on the ground that it defies logic and common sense. A statutory provision can be challenged only on very limited grounds, namely (a) the infringement of any of the fundamental rights, (b) the lack of competence on the part of the relevant legislature, due to the distribution of powers, (c) contravention of any of the mandatory provisions of the Constitution that impose certain limitations upon the powers of the State legislature, (d) the operation of the impugned law beyond the borders of the State, and (e) the abdication of the essential legislative function. The petitioners in these writ petitions could not establish the existence of any of these grounds, for holding the phrase in the State appearing in Section 2(11) of the Tamil Nadu VAT Act, 2006. Therefore, the challenge to the statutory prescription made in these writ petitions has to be failed. The challenge to the validity of Section 2(11) of the Tamil Nadu Value Added Tax Act, 2006, is rejected and the prayer of the writ petitioners for declaration that Section 2(11) is ultra vires and unconstitutional, is dismissed.
Issues Involved:
1. Challenge to the vires of Section 2(11) of the Tamil Nadu Value Added Tax Act, 2006. 2. Objections to the phrase "in the State" in Section 2(11). 3. Individual grievances regarding classification and taxation of capital goods. Issue-Wise Detailed Analysis: 1. Challenge to the vires of Section 2(11) of the Tamil Nadu Value Added Tax Act, 2006: The petitioners sought a declaration that the phrase "in the State" in Section 2(11) of the Tamil Nadu Value Added Tax Act, 2006, is ultra vires the Constitution. They also sought to quash the Orders of Assessment or Orders of recovery of a higher rate of tax. The court examined the grounds for challenging the vires of a legislation, noting that a law can be challenged for contravention of fundamental rights, legislating on a subject not assigned to the relevant legislature, contravention of mandatory constitutional provisions, operation beyond state boundaries, or excessive delegation of legislative function. The court found that the petitioners' challenge, based on logic and common sense, was insufficient. The law validly enacted by a State Legislature cannot be challenged on these grounds. The court cited the Supreme Court's decision in Namit Sharma v. Union of India, which outlined the grounds on which a law can be invalidated and found that the petitioners' arguments did not meet these criteria. 2. Objections to the phrase "in the State" in Section 2(11): The petitioners argued that the phrase "in the State" in Section 2(11) was unconstitutional for several reasons: (i) Goods treated as capital goods within the State cannot become other goods outside the State. (ii) Treating dealers differently based on the place of use offends Article 14. (iii) The prescription in Section 2(11) encroaches on a field occupied by Central Legislation. (iv) The prescription violates Article 286(1)(a) of the Constitution. (v) The prescription violates Article 303 of the Constitution. The court rejected these objections, stating that the State Legislature is entitled to define "capital goods" and treat them differently based on their use within the State. The court emphasized that no words or expressions in a statute can be considered redundant or superfluous, citing the Supreme Court's decision in Grasim Industries Ltd. v. Collector of Customs. 3. Individual grievances regarding classification and taxation of capital goods: The petitioners also raised individual grievances, which were categorized into two groups: (i) Those whose products are not treated as capital goods despite being used in the manufacture of other products. (ii) Those who sell goods to Government entities of other States, which do not hold a registration as a dealer under the Central Sales Tax Act, 1956. For the first category, the court clarified that Section 2(11) should not be read in isolation and that goods used for producing, making, altering, assembling, or processing other goods would be considered capital goods if they meet the definition in Section 2(27). The court directed assessing authorities to apply this understanding while passing orders of assessment. For the second category, the court noted that the inability of Governments of other States to produce 'C' Form declarations was a problem that could not be addressed in this batch of cases. The court emphasized that cases not covered by Section 8(1) of the CST Act are covered by Section 8(2), and the local Sales Tax Laws of respective States usually exempt sales made to the local Government. Conclusion: The court dismissed the challenge to the validity of Section 2(11) of the Tamil Nadu Value Added Tax Act, 2006, and provided a 30-day period for assessees to file statutory appeals. The respondents were restrained from taking coercive steps during this period. The court also directed appellate authorities to consider the observations made in paragraphs 74 to 77 regarding the definition of "manufacture" while deciding appeals. All writ petitions were disposed of accordingly, with no order as to costs, and all connected miscellaneous petitions were closed.
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