2010 (2) TMI 1070 - HC - VAT and Sales Tax

Whether the words and the tax invoice or bill of sale issued in respect of the sales relating to such discount shows the amount allowed as discount contained in rule 3(2)(c) of the Karnataka Value Added Tax Rules, 2003 as ultra vires? Held that - The reported opinion in Southern Motors v. State of Karnataka 2008 (7) TMI 862 - KARNATAKA HIGH COURT rejected the challenge to the proviso to rule 3(2)(c) of the Rules as discriminatory or ultra vires section 30 of the Act, on the premise that the criteria to hold discrimination between the dealers cannot be based on how it affects different assessees or dealers. The value of the sale transaction is as fixed at the time of sale and even in terms of the charging section. There is no scope for fixing the price later. If under the rule, the benefit is made available subject to the condition that the discounted price should have been so indicated in the invoice value of the goods, the conditions is neither ultra vires section 30 of the Act nor is discriminatory.Thus do not find any infirmity in the rule nor the rule being ultra vires under the provisions of section 30 of the KVAT Act. Thus do not find the order being totally in violation of the principles of natural justice though the authority could have given some more time to the petitioner. Be that as it may, it is not a fit case for interference in writ jurisdiction when the assessee is provided statutory remedies under the Act. It is open to the petitioner to avail of statutory remedies available under the provisions of the Act. Without prejudice, the writ petition is dismissed.

Summary

Issues Involved:
1. Validity of Rule 3(2)(c) of the Karnataka Value Added Tax Rules, 2005.
2. Legality of the assessment order dated January 16, 2010 (Annexure H).
3. Application of discounts and their reflection in tax invoices.
4. Transfer of property in contracts involving teflon coating and painting of motor vehicles.
5. Levy of tax on the sale of bearing parts for motor vehicles.
6. Levy of penalty and interest.

Detailed Analysis:

1. Validity of Rule 3(2)(c) of the Karnataka Value Added Tax Rules, 2005:
The petitioner challenged the vires of Rule 3(2)(c) on the grounds that:
- Levy of Tax on Discounts: It transgresses the power of the State under entry 54 of List II of the Seventh Schedule to the Constitution of India by levying tax on discounts not received or receivable.
- Conflict with the Act: The rule's mandate that discounts must be reflected in the tax invoice for deduction conflicts with Sections 2(36), 4, and 30 of the Karnataka Value Added Tax Act, 2003.
- Discrimination: The rule creates hostile discrimination by treating discounts reflected in the tax invoice differently from those not reflected, violating Article 14 of the Constitution.
- Article 19(1)(g): The rule is ultra vires Article 19(1)(g) by imposing unreasonable restrictions on business.

The court held that:
- Statutory Provisions: A registered dealer must issue a tax invoice at the time of sale, and taxable turnover is determined by allowing deductions from the total turnover as per Rule 3(2)(c).
- Conditions of Rule 3(2)(c): The rule requires that the discount is allowed as per regular practice or agreement, reflected in the tax invoice, and the buyer pays the sum less the discount.
- Credit Notes: Section 30 allows for credit notes within six months from the tax invoice date if the tax charged exceeds the payable tax.
- Legality: The rule ensures that the sale price is fixed at the time of sale without scope for later adjustments, and the requirement to disclose discounts in the tax invoice is not ultra vires the Act or the Constitution.
- Non-discriminatory: The rule does not create discrimination as it applies uniformly to all dealers, and the challenge under Article 19(1)(g) fails due to lack of necessary pleadings.

2. Legality of the Assessment Order Dated January 16, 2010 (Annexure H):
The petitioner contended that the assessment order:
- Non-application of Tribunal Decision: Failed to apply the decision in S.T.A. Nos. 410-415 of 2007, which allowed deductions for discounts through credit notes.
- Teflon Coating Contract: The contract with M/s. Shakti Management Services does not involve a transfer of property.
- Painting of Motor Vehicles: Does not result in a transfer of property as held by the Supreme Court in Gannon Dunkerley & Co. v. State of Rajasthan.
- Tax on Bearing Parts: The levy of tax on both the supplier and the petitioner is arbitrary and illegal.
- Penalty and Interest: The levy is without jurisdiction.

The court noted that:
- Alternative Remedy: The petitioner has an alternative and efficacious remedy of a statutory appeal and thus declined to interfere with the assessment order.

3. Application of Discounts and Their Reflection in Tax Invoices:
- Discount Practices: The petitioner applied discounts based on various factors and issued credit notes post-sale.
- Rule 3(2)(c) Compliance: The rule mandates that discounts must be reflected in the tax invoice for deduction from taxable turnover.
- Credit Notes: Section 30 allows for adjustments through credit notes within six months from the tax invoice date.

4. Transfer of Property in Contracts Involving Teflon Coating and Painting of Motor Vehicles:
- Teflon Coating: The contract with M/s. Shakti Management Services does not involve a transfer of property.
- Painting: The painting of motor vehicles does not result in a transfer of property, aligning with the Supreme Court's ruling in Gannon Dunkerley & Co. v. State of Rajasthan.

5. Levy of Tax on the Sale of Bearing Parts for Motor Vehicles:
- Double Taxation: The petitioner argued that tax was levied on both the supplier and the petitioner, despite the supplier discharging the tax difference.
- Arbitrary and Illegal: The court did not specifically address this issue in detail, but the overall assessment was left to be challenged through statutory appeal.

6. Levy of Penalty and Interest:
- Jurisdiction: The petitioner argued that the levy of penalty and interest was without jurisdiction.
- Statutory Appeal: The court suggested that these issues could be addressed through the statutory appeal process.

Conclusion:
The court dismissed the writ petitions, reserving liberty for the petitioner to challenge the assessment order through appropriate appeal proceedings. The court upheld the validity of Rule 3(2)(c) and emphasized the statutory requirement for discounts to be reflected in tax invoices. The petitioner's challenges regarding the transfer of property in specific contracts and the levy of tax and penalties were left to be addressed through statutory remedies.