2010 (12) TMI 1097 - HC - VAT and Sales Tax

Section 13(4) of the Andhra Pradesh Value Added Tax Act, 2005 and rule 20(2)(h) of the Andhra Pradesh Value Added Tax Rules, 2005 challenged Held that - The impugned section 13(4) of the Andhra Pradesh Value Added Tax Act, 2005 does not suffer from the vice of excessive delegation. The rule 20(2)(h) of the Andhra Pradesh Value Added Tax Rules, 2005 is valid with effect from the date it is notified i.e., December 31, 2005. All the assessment orders be and hereby are set aside and stand remitted to the respective authorities to take action in accordance with this judgment and order.

Summary

Issues Involved:
1. Constitutional validity of section 13(4) of the VAT Act.
2. Constitutional validity of rule 20(2)(h) of the VAT Rules.
3. Validity of the impugned assessment orders.

Issue-wise Detailed Analysis:

I. Constitutional Validity of Section 13(4) of the VAT Act:
(i) Enacting History:
The Andhra Pradesh Value Added Tax Act, 2005 (VAT Act) was enacted to replace the Andhra Pradesh General Sales Tax Act, 1957 (APGST Act) to minimize tax evasion, prevent cascading effects, and improve revenue collections. The VAT system was introduced following recommendations from the Empowered Committee of State Finance Ministers, with the aim of rationalizing consumption tax and ensuring better compliance.

(ii) Analysis of VAT Act and the Rules:
The VAT Act includes provisions for charging tax, tax administration, and offenses. Section 13(1) allows VAT dealers to claim input tax credit (I.T.C.) on purchases of taxable goods used in their business, except for goods specified in Schedule VI. Section 13(4) empowers the government to prescribe purchases for which I.T.C. shall not be allowed. Rule 20(2) of the VAT Rules lists items/goods not eligible for I.T.C.

(iii) Scope and Extent of Section 13(4):
Section 13(4) allows the government to prescribe any taxable goods for which I.T.C. shall not be allowed. This power is broad and includes goods not listed in Schedule VI. The court held that interpreting section 13(4) narrowly to only include non-taxable goods or goods with special rates would be impermissible.

(iv) Constitutional Vires of Section 13(4):
The petitioners argued that section 13(4) conferred unguided power, suffering from excessive delegation. The court held that section 13(4) did not suffer from excessive delegation as the Legislature had provided sufficient guidelines and retained control over the delegated authority through section 78(5), which requires rules to be laid before the legislative assembly for approval.

II. Constitutional Validity of Rule 20(2)(h) of the VAT Rules:
(i) Vires of Rule 20(2)(h):
Rule 20(2)(h) includes natural gas, naphtha, and coal in the negative list for I.T.C. The court held that the rule was within the scope of the authority conferred by section 13(4) and section 78(1) of the VAT Act. The rule was found to be rational and aimed at preventing revenue loss.

(ii) Infringement of Article 14 of the Constitution:
(a) Whether the Impugned Rule is Unreasonable:
The court held that the rule was not manifestly arbitrary or irrational as it aimed to prevent revenue loss by denying I.T.C. on high-tax goods like natural gas, naphtha, and coal.

(b) Whether the Impugned Rule is Discriminatory:
The rule classifies purchases of goods into two categories: traders who deal in these goods and non-traders who use them for manufacturing. The court held that this classification was reasonable and had a rational nexus with the object of preventing revenue loss.

(c) Whether Retrospectivity is Unreasonable and Arbitrary:
The rule was given retrospective effect from April 1, 2005. The court found this retrospective application inequitable and arbitrary as it affected the petitioners' vested rights to I.T.C. for the period from April to December 2005 without providing any reasons for the retrospective amendment.

III. Validity of the Impugned Assessment Orders:
The assessment orders for the period from April 2005 to December 2005 were challenged on the grounds of being passed without notice and opportunity of being heard. The court set aside the assessment orders due to the retrospective invalidity of the rule and remitted the cases to the respective authorities for fresh assessment in accordance with the judgment.

Conclusions:
1. Section 13(4) of the Andhra Pradesh Value Added Tax Act, 2005 does not suffer from the vice of excessive delegation.
2. Rule 20(2)(h) of the Andhra Pradesh Value Added Tax Rules, 2005 is valid with effect from the date it is notified, i.e., December 31, 2005.
3. All the assessment orders are set aside and remitted to the respective authorities for fresh action in accordance with the judgment.
4. There shall be no order as to costs.