2010 (8) TMI 828 - AT - VAT and Sales Tax

Summary

Issues Involved:
1. Validity of the assessment order disallowing Input Tax Credit (ITC) for the unregistered period.
2. Interpretation of Section 22(1) and Section 2(19) of the West Bengal Value Added Tax Act, 2003.
3. Whether the provisions of the VAT Act restricting ITC to registered dealers are ultra vires the object of the VAT Act.
4. Classification of dealers into registered and unregistered and its reasonableness.

Issue-wise Detailed Analysis:

1. Validity of the assessment order disallowing Input Tax Credit (ITC) for the unregistered period:
The petitioner challenged the assessment order dated November 26, 2008, which disallowed ITC for the period when the petitioner was not registered under the VAT Act. The petitioner argued that she was liable to pay tax from May 10, 2005, but her registration was only effective from March 17, 2006. The disallowance of ITC for the unregistered period was claimed to be contrary to the object of the VAT Act.

2. Interpretation of Section 22(1) and Section 2(19) of the West Bengal Value Added Tax Act, 2003:
The petitioner contended that Section 22(1) and Section 2(19) restrict ITC to registered dealers, which is contrary to the object of the VAT Act. The VAT Act aims to levy tax on the value added at each stage of sale and to remove the cascading effect by allowing set-off of the tax paid at the time of purchase (input tax) against the tax payable at the time of sale (output tax). However, the Act stipulates that only registered dealers can claim ITC, thereby excluding unregistered dealers from this benefit.

3. Whether the provisions of the VAT Act restricting ITC to registered dealers are ultra vires the object of the VAT Act:
The petitioner argued that the provisions restricting ITC to registered dealers are ultra vires the object of the VAT Act, as they create discrimination between registered and unregistered dealers. The petitioner relied on the decision of the Supreme Court in S.C. Prashar v. Vasantsen Dwarkadas, which emphasized that the provisions of an Act should help achieve its object. The petitioner claimed that the restrictive provisions of Sections 22(1) and 2(19) run counter to the object of the VAT Act, which is to remove the cascading effect of taxation.

4. Classification of dealers into registered and unregistered and its reasonableness:
The respondents argued that the classification between registered and unregistered dealers is reasonable and has a strong nexus to the furtherance of the object of the VAT Act. The Legislature intended to restrict ITC to transactions between registered dealers to ensure better compliance and verifiability. The Tribunal referred to the decision in Asit Baran Ghosh v. Sales Tax Officer, Krishnagar Charge, which upheld that a dealer is not eligible for ITC for the pre-registration period. The Tribunal also noted that the VAT Act expressly discourages trading in taxable goods by unregistered dealers and requires dealers liable to pay tax to get registered.

Conclusion:
The Tribunal concluded that the provisions of the VAT Act restricting ITC to registered dealers are not ultra vires the object of the Act. The classification between registered and unregistered dealers is based on intelligible criteria consistent with the purposes of the Act. The Tribunal found no reason to interfere with the assessment order and dismissed the petition on contest, with no order as to costs.