2013 (8) TMI 532 - HC - VAT and Sales Tax

Constitutionality of Section 19(11) - Whether Section 19(11) of TN VAT Act was violative of Article 265 and 360A of the Constitution of India and was liable to be struck down Whether Section 19(11) was to be struck down on the ground that Section 19(11) was inconsistent with the Charging Section 3(2) and whether Section 19(11) was inconsistent with the scheme of the Act like Sections 21, 22, 27 and 29 of TN VAT Act Held that - After An analysis of various provisions of TN VAT Act and Rules thereon the assessment or revision of assessment made under Sections 22, 24, 27, 28 or 29 of the Act, Section 19(11) does not operate as an embargo for claiming Input Tax Credit - The availment of Input Tax Credit was creature of Statute - The concession of Input Tax Credit was granted by the State Government so that the beneficiaries of the concession were not required to pay the tax or duty which they were otherwise liable to pay under TN VAT Act - Section 19(11) TN VAT Act was enacted because Legislature consciously wanted to set up a time frame for availment of Input Tax Credit before the end of the financial year or ninety days from the date of purchase, whichever is later - Section 19(11) being part of Section 19, to avail Input Tax Credit, the conditions thereon were to be strictly complied with. The intention of the Legislature was to restrict the benefit of Input Tax Credit within a particular time-frame - Consequence of non-compliance was very much available in Section 19(11) dealing with non-entitlement of Input Tax Credit - challenging the assessment order/show cause notices denying the credit taken in the revised returns involving Section 19(11) of TN VAT Act were not maintainable. Section 19(11) Directory of mandatory - Whether Section 19(11) was only directory and not mandatory Held that - Value Added Tax structure had the ultimate goal of augmenting the revenue by making the procedure simple and more transparent. Legislature in its wisdom mandated time frame for availment of Input Tax Credit accrued on purchases before the end of the financial year or ninety days from the date of purchase whichever is later. Section 19(11), being mandatory, the time-frame stipulated for Input Tax Credit is to be strictly construed. Section 19(11) of TN VAT Act cannot be struck down as being either unreasonable or discriminatory - We do not find any merit in the challenge to the provision of Section 19(11) of TN VAT Act. Section 19(11) specifically used the word shall as regards compliance with the time-frame for claiming Input Tax Credit accumulated on purchases either before or end of the financial year or before ninety days after the purchase whichever is later - in order to verify the entries and to prevent any tax avoidance or evasion, time frame was stipulated in Section 19(11) of TN VAT Act to claim Input Tax Credit - The use of the word shall is ordinarily indicative of the mandatory nature of the provision. Section 19(11) was mandatory and its contravention will result in forfeiture of the concession of availments of Input Tax Credit -M/s.Mahalaxmi Cotton Ginning Pressing and Oil Industries vs. the State of Maharastra and Ors. 2012 (5) TMI 152 - BOMBAY HIGH COURT - Provision for availing concession was to be strictly construed and COMMISSIONER OF C. EX., MADRAS Versus HOME ASHOK LEYLAND LTD 2007 (3) TMI 257 - SUPREME COURT OF INDIA - Only in case of any of failure or omission to claim Input Tax Credit, in Section 19(11), a time frame had been fixed to claim Input Tax Credit before the end of the financial year or ninety days from the date of purchase, whichever is later. All the writ petitions were dismissed holding that Section 19(11) was a valid piece of legislation, cannot be struck down as being either unreasonable or discriminatory and violative of Article 265 and 360A of the Constitution of India The Legislature consciously enacted Section 19(11) of TN VAT Act with avowed object of incorporating the time frame for availing Input Tax Credit before the end of financial year or ninety days from the date of purchase whichever is later - The provision was for safeguarding the interest of the revenue and to prevent the cascading effect of tax burden on the ultimate consumer.

Summary

Issues Involved:
1. Constitutional validity of Section 19(11) of the Tamil Nadu Value Added Tax Act, 2006.
2. Consistency of Section 19(11) with the Charging Section 3(2) and the scheme of the Act.
3. Whether Section 19(11) is mandatory or directory.

Issue-wise Detailed Analysis:

1. Constitutional Validity of Section 19(11):
The petitioners challenged Section 19(11) of the Tamil Nadu Value Added Tax Act, 2006 (TN VAT Act) as being inconsistent with Section 3 and the general scheme of the Act, arguing that it infringes their rights under Articles 14 and 19(1)(g) of the Constitution of India. The court noted that the legislature has the authority to impose conditions for availing Input Tax Credit (ITC) to prevent misuse and tax evasion. The court emphasized that fiscal legislations are entitled to a great deal of latitude and the burden of proving unconstitutionality lies on the petitioner. The court concluded that regulating the claim of ITC is within the legislative competence and Section 19(11) is a valid piece of legislation.

2. Consistency with the Charging Section and Scheme of the Act:
The petitioners argued that Section 19(11) is inconsistent with the Charging Section 3(2) and the scheme of the Act, particularly Sections 21, 22, 27, and 29. They contended that ITC is a substantive right under Section 3(3) and cannot be curtailed by procedural provisions like Section 19(11). The court held that ITC is a concession rather than an absolute right, and the legislature can impose conditions for availing it. The court examined the provisions of the TN VAT Act and concluded that Section 19(11) is not inconsistent with the Charging Section or the scheme of the Act. The court noted that the provision aims to set a time frame for claiming ITC to ensure proper verification and prevent tax evasion.

3. Mandatory or Directory Nature of Section 19(11):
The petitioners argued that Section 19(11) should be considered directory rather than mandatory, citing various precedents. The court examined the language, intent, and design of the statute, concluding that the use of "shall" in Section 19(11) indicates its mandatory nature. The court emphasized that the provision aims to restrict the concession of ITC within a specific time frame, and non-compliance results in forfeiture of the concession. The court rejected the argument that Section 19(11) is merely procedural and held that it is a pre-condition for availing ITC, thus mandatory.

Conclusion:
The court dismissed the writ petitions, upholding the validity of Section 19(11) of the TN VAT Act. It held that the provision is neither unreasonable nor discriminatory and does not violate Articles 14 and 19(1)(g) of the Constitution. The court also directed that appeals against final assessment orders should be entertained if filed within 60 days, and explanations to show cause notices should be submitted within 30 days. The interim stay granted in all writ petitions was vacated, and the miscellaneous petitions were closed with no order as to costs.