2006 (7) TMI 590 - HC - VAT and Sales Tax

Issues Involved:
1. Challenge to the amendment of clause (ii) of Explanation III to section 2(lii) of the Kerala Value Added Tax Act, 2003.
2. Challenge to the deletion of rule 10(a) of the Kerala Value Added Tax Rules, 2005.
3. Challenge to the newly introduced Explanation VII to section 2(lii) of the Kerala Value Added Tax Act, 2003.
4. Constitutionality of retrospective effect given to the amendment.

Issue-wise Detailed Analysis:

1. Challenge to the amendment of clause (ii) of Explanation III to section 2(lii) of the Kerala Value Added Tax Act, 2003:
The petitioners, primarily manufacturers of cement and a dealer in heavy vehicles, challenged the amendment introduced by Act No. 39 of 2005, effective from April 1, 2005. The amendment stipulated that only discounts shown separately in the tax invoice and where the buyer pays the reduced amount would be excluded from the turnover. The petitioners contended that trade discounts granted through credit notes at the end of the month or subsequently should not be treated as part of the sale price. They argued that the amendment was arbitrary, irrational, and unconstitutional, violating Articles 14, 19(1)(g), and 301 of the Constitution. The court, however, held that the Legislature is competent to legislate on how discounts should be treated in the sale price and that the amendment was within jurisdiction and intra vires. The court emphasized that the Legislature can define what should be the law and that the courts' role is to interpret the law, not make it.

2. Challenge to the deletion of rule 10(a) of the Kerala Value Added Tax Rules, 2005:
The petitioners also challenged the deletion of rule 10(a) with retrospective effect from April 1, 2005. Rule 10(a) allowed for the deduction of cash discounts from the total turnover if such discounts were given in accordance with regular trade practice and reflected in the accounts. The court found that the deletion of rule 10(a) was justified as it became redundant following the amendment to clause (ii) of Explanation III. The court held that clarificatory legislation could operate retrospectively and that the deletion was authorized by the provisions of the Act.

3. Challenge to the newly introduced Explanation VII to section 2(lii) of the Kerala Value Added Tax Act, 2003:
The petitioners in some writ petitions also challenged the newly introduced Explanation VII to section 2(lii). The court did not find merit in the challenge, stating that the Explanation provided a clarification on how dealers could avail the benefit of cash discounts. The court held that the actual taxpayer is the consumer, and the dealers only collect and remit the tax to the government. The court concluded that the amendments did not affect the fundamental rights of the petitioners under Articles 14, 19(1)(g), or 301 of the Constitution.

4. Constitutionality of retrospective effect given to the amendment:
The petitioners argued that the retrospective effect given to the amendment was ultra vires and unauthorized, as it was impossible to issue trade invoices showing discounts retrospectively. The court rejected this contention, stating that an Explanation introduced retrospectively only clarifies what was always intended. The court held that the retrospective exclusion of cash discounts did not prejudice the petitioners, as they had already collected tax from the dealers based on the original sale price. Accepting the petitioners' claim would result in unjust enrichment, as they would retain a portion of the tax already collected.

Conclusion:
The court dismissed the writ petitions, upholding the amendment to clause (ii) of Explanation III to section 2(lii) of the Kerala Value Added Tax Act, 2003, the deletion of rule 10(a) of the Kerala Value Added Tax Rules, 2005, and the newly introduced Explanation VII to section 2(lii). The court affirmed the constitutionality of the retrospective effect given to the amendment, emphasizing the Legislature's competence to legislate on these matters.

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