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2014 (12) TMI 1144 - HC - VAT and Sales TaxConstitutional validity of restriction on input tax credit (ITC) when goods are sold below the purchase price - Constitutional validity of section 18(3A) of the Rajasthan VAT Act, 2003 inserted by Finance Act 7(iii) w.e.f. 9.3.2011 Violative of Articles 14, 19(1)(g) and 300A of the Constitution of India - Whether sales made by him at lesser rates do not amount to sale at subsidized rates , falling foul to Section 18(3A) of the VAT Act, 2003 Held that - The entire arguments, put forward by the petitioner that he has not made sales at a price lower than the purchase price, has been advanced without looking into the reply filed by the petitioner on 17.6.2014 to the show cause notice dated 6.6.2014 given by the Commercial Taxes Officer (Anti Evasion), Bikaner, in which it was pleaded and argued that the goods were sold at a lesser price than the purchase price, in anticipation of getting quantity discount, or sales incentive, on achieving a particular sale figure or reaching the target, which cannot be treated as subsidized price - the assessee has not sold the goods at a price below the purchase price - The net amount of trading account has been arrived at, after making adjustments of discount, purchase returns and other direct expenses. There is distinction between the scheme of tax on sale of goods both under the VAT regime and under the Sales Tax Act existing prior to that - Under the Sales Tax Act except a few items, all other goods were taxable at the point of first sale in the State - Therefore tax was levied and collected only from the first seller - Contrary to this, the scheme under the VAT regime is that the tax collected by the first seller is given as Input Tax Credit to the second seller, and the tax paid by the second seller is given as Input Tax Credit to the third seller and ultimately the entire tax is borne by the consumer - the tax paid on the value addition by a series of dealers is ultimately passed on to the consumer and dealers get reimbursement of the tax paid by them. ITC is not a concession granted under the scheme of Rajasthan VAT Act, 2003 - No set-off is given in respect of the tax paid by the appellant on the purchases of the raw material made by him outside the State of Maharashtra evidently for the reason that such tax is paid to such other States - While considering the provisions for grant of setting off under Rule 41 of Bombay Sales Tax Rules and observing that such set-off is a concession or indulgence and that it is open to the Legislature while granting concession to restrict or curtail the extent of entitlement as condition for availing the concession. A person claiming benefit of exemption must show that he satisfies the eligibility criteria and for that purpose the provision must be strictly construed - If exemption is available on complying with certain conditions, the conditions have to be mandatorily complied with - when there is a challenge to the constitutional validity of the provisions of a Statute, the Court exercising power of judicial review must be conscious of the limitation of judicial intervention, particularly, in matters relating to the legitimacy of the economic or fiscal legislation - while enacting fiscal legislation, the Legislature is entitled to a great deal of latitude - The Court would interfere only where a clear infraction of a constitutional provision is established - The burden is on the person, who attacks the constitutional validity of a statute, to establish clear transgression of constitutional principle. Legislative entries in the Seventh Schedule to the Constitution have to be read in a broad and comprehensive sense to include all subsidiary and ancillary matters - an entry, which authorises the imposition of a tax, such as Entry 54 of List II, also authorises an enactment, which prevents the tax evasion or taking excess credit - Regulating the claim of Input Tax Credit is within the powers of legislative competence - The Legislature consciously enacted Section 18(3) and (3A) of the Rajasthan VAT Act, 2003, with an object of incorporating the time frame and conditionalities for availing the ITC - Prescribing such conditions for availing ITC is well within the legislative competence of the State - R.K. Garg vs. Union of India 1981 (11) TMI 57 - SUPREME Court - there is always a presumption in favour of the constitutionality of a statute and the burden is upon him who attacks it to show that there has been a clear transgression of the constitutional principles - Laws relating to economic activities should be viewed with greater attitude than laws touching civil rights such as freedom of speech, religion etc. The legislature should be allowed some play in the joints and there is no straitjacket formula particularly in case of legislation dealing with economic matters and having regard to the nature of the problem required to be dealt with, greater play in the joins has to be allowed to the legislature - The Court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas, where fundamental human rights are involved - the word subsidize would mean the price to be subsidized by the government, under any scheme - The word subsidize , in sub-section (3A) of Section 18, has not been used in a sense, in which the goods are sold on any concession, exemption, or subsidy, given by the State Government under any scheme - the constitutional validity of sub-section (3A) of Section 18 of the Rajasthan VAT Act, 2003 is upheld Decided against petitioner.
Issues Involved:
1. Validity of sub-section (3A) of Section 18 of the Rajasthan VAT Act, 2003. 2. Denial of Input Tax Credit (ITC) and imposition of penalty under Section 61 of the Rajasthan VAT Act, 2003. 3. Challenge to the assessment order dated 17.6.2014. 4. Imposition of interest under Section 55 of the Rajasthan VAT Act, 2003. Detailed Analysis: 1. Validity of sub-section (3A) of Section 18 of the Rajasthan VAT Act, 2003: The petitioner challenged the validity of sub-section (3A) of Section 18 of the Rajasthan VAT Act, 2003, arguing that it is arbitrary, illegal, and violative of Articles 14, 19(1)(g), and 300A of the Constitution of India. The court noted that the petitioner contended that the insertion of Section 18(3A) is against the basic concept of the law governing Input Tax Credit (ITC) and curtails the vested rights of the dealer. The petitioner argued that ITC is an indefeasible right and cannot be curtailed by the legislature. However, the court emphasized that ITC is a concession granted by the statute and can be regulated by the legislature. The court upheld the constitutional validity of sub-section (3A) of Section 18, stating that the Legislature is competent to enact such provisions to prevent tax evasion and ensure compliance. 2. Denial of Input Tax Credit (ITC) and imposition of penalty under Section 61 of the Rajasthan VAT Act, 2003: The petitioner, a partnership firm engaged in the business of purchasing and selling cement, was found to be selling cement at a price lower than the purchase price during a survey conducted by the Assistant Commercial Taxes Officer. Consequently, a show cause notice was issued, and the petitioner was denied ITC of Rs. 16,31,935/- and penalized under Section 61 of the VAT Act, 2003. The petitioner argued that the sales were not at subsidized prices but were influenced by market conditions and sales incentives from the manufacturer. However, the court found that the petitioner did sell goods at a price lower than the purchase price, as evidenced by the trading account. The court upheld the denial of ITC and the imposition of the penalty. 3. Challenge to the assessment order dated 17.6.2014: The petitioner sought to set aside the assessment order dated 17.6.2014, which levied a penalty of Rs. 4,73,520/- under Section 61 of the VAT Act, 2003. The court noted that the assessment order is subject to appeal under the VAT Act, 2003, and thus, it did not interfere with the assessment made by the Assessing Officer. The court emphasized that the petitioner should avail the alternative remedies of filing an appeal and review petition under the Act before approaching the court. 4. Imposition of interest under Section 55 of the Rajasthan VAT Act, 2003: The petitioner contended that the imposition of interest under Section 55 of the VAT Act, 2003, is not legally sustainable as there was no default in making the payment of tax levied. The court observed that the question of interest should be considered by the Appellate Authority in an appeal to be filed by the petitioner. The court refrained from deciding the question about the demand of interest in the assessment order, noting that it is a matter to be addressed through the appellate process. Conclusion: The court upheld the constitutional validity of sub-section (3A) of Section 18 of the Rajasthan VAT Act, 2003, and dismissed the writ petition. The petitioner was advised to file an appeal against the assessment order in accordance with the provisions of the Rajasthan VAT Act, 2003.
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