2011 (2) TMI 1308 - HC - VAT and Sales Tax

Whether value added tax is different in nature from sales tax? Whether the requirement of furnishing of sales tax clearance certificate in a tender process would, since after enactment of the Value Added Tax Act, mean VAT clearance certificate or not? Whether sales tax clearance certificate is, by its very nature, different from VAT clearance certificate? Whether the requirement of submission of VAT clearance certificate on supply of woollen blankets can be said to be fulfilled on the submission of VAT registration certificate granted under a scheme of composition of the fiscal statute in respect of a works contract? What is the scope of interference in a writ appeal with an order passed in the writ petition dismissing the appeal where a new plea is wholly barred from being raised in a writ appeal if the plea was not taken in the writ petition? What is the scope of judicial review in contractual matters? Held that - Since the sum of the value added, at each successive stage, is equal to the final value or price of a commodity or service, the sum of tax collected, at the successive stages, will be equivalent to the tax, which would be payable if it were to be charged once on the final value or price of the produce. Section 2(56) of the Assam VAT Act, 2003, defines VAT to mean a tax on sale of any goods, at every point, in the series of sale made by the registered dealer, with the provisions of credit of input tax paid at the points of previous purchase thereof. In short, VAT is nothing, but a modern system of sales tax. By quoting a rate exclusive of VAT , the writ petitioner had not only failed to fulfil the terms of the tender notice, but it also goes without saying that since the writ petitioner had itself mentioned its rate as exclusive of VAT , the rate, quoted by the writ petitioner, shall have to be calculated by taking into account the element of VAT. On taking into account the element of VAT, when the rate, quoted by the writ petitioner, becomes higher than the rate quoted by the appellant, the finding of the learned single judge, that the rate quoted by the writ petitioner was lower than that of the appellant, cannot, but be termed as erroneous and calls for interference therewith. In the case at hand, considering the fact that the tender notice specifically provided for submission of VAT registration certificate, the same must be treated to be with regard to the item sought to be purchased. We have, therefore, no hesitation in holding that the writ petitioner-respondent No. 1 herein had not fulfilled the condition of submission of VAT registration certificate as was required to be done under the tender notice and, hence, the writ petitioner s tender was not a valid tender. As petitioner-respondent No. 1 had not fulfilled the essential conditions of the tender notice, the writ petitioner s tender was not a valid tender and was rightly rejected by the State respondents/ authorities concerned. Extended logically, it would mean, and we hold, that the learned single judge erred in law in treating the writ petitioner s tender as a valid tender and also in treating the writ petitioner as a tenderer, who had quoted, for supply of blanket, a rate lower than that of the appellant.

Issues Involved:
1. Whether VAT is different from sales tax and whether the requirement of a sales tax clearance certificate in a tender process means a VAT clearance certificate.
2. Whether the submission of a VAT registration certificate under a composition scheme fulfills the requirement of a sales tax clearance certificate.
3. The scope of interference in a writ appeal with an order passed in the writ petition.
4. The scope of judicial review in contractual matters.

Detailed Analysis:

1. VAT vs. Sales Tax and Requirement of Clearance Certificate:
The court examined whether VAT is different from sales tax and whether the requirement of a sales tax clearance certificate in a tender process means a VAT clearance certificate. The court concluded that VAT is a modern system of sales tax, replacing the earlier system to avoid cascading effects. Both the Assam General Sales Tax Act, 1993, and the Assam Value Added Tax Act, 2003, are fiscal legislations enacted under entry 54, List II of the Seventh Schedule to the Constitution of India. Therefore, VAT is essentially a form of sales tax. The court found the learned single judge's view erroneous, stating that the requirement of a sales tax clearance certificate should be interpreted to include VAT clearance certificates, as VAT is also a sales tax.

2. Submission of VAT Registration Certificate under Composition Scheme:
The court evaluated whether a VAT registration certificate under a composition scheme for works contracts fulfills the requirement of a sales tax clearance certificate. The VAT registration certificate submitted by the writ petitioner was under a composition scheme for works contracts, which the court determined was not appropriate for the tender process involving the sale of woollen blankets. The court emphasized that the supply of woollen blankets is a contract for sale, not a works contract. Thus, the writ petitioner's VAT registration certificate did not meet the tender requirements.

3. Scope of Interference in a Writ Appeal:
The court discussed the scope of interference in a writ appeal, emphasizing that a writ appeal is a continuation of the original order passed in the writ petition. It can be set aside only when there is a patent error on the face of the record or the judgment is against established principles of law. The court held that new pleas could be raised in a writ appeal, especially when such pleas are of law and can help the court reach a correct decision. The appellant's plea regarding the inappropriateness of the VAT registration certificate was allowed to be considered.

4. Scope of Judicial Review in Contractual Matters:
The court outlined the scope of judicial review in contractual matters, stating that the writ court does not sit as an appellate forum over the decision of the authorities unless the decision-making process is unfair, non-transparent, arbitrary, motivated, biased, or contrary to law and public interest. Judicial review focuses on the decision-making process rather than the decision itself. The court found that the essential conditions of the tender notice must be adhered to, and the writ petitioner's failure to submit an appropriate VAT registration certificate rendered its tender invalid.

Conclusion:
The court concluded that the writ petitioner had not fulfilled the essential conditions of the tender notice, making its tender invalid. The learned single judge erred in treating the writ petitioner's tender as valid and in holding that the rate quoted by the writ petitioner was lower than that of the appellant. Consequently, the writ petition was incorrectly allowed. The appeal was allowed, setting aside the judgment and order under appeal, and the writ petition was dismissed.

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