2015 (8) TMI 539 - HC - VAT and Sales Tax

Levy of tax on deemed sale price Constitutional validity Explanation 2, Section 2(1)(zd) Prior to amendment to Explanation to Section 2 (1) (zd) input tax liability was included in sale price and passed on to purchaser However by explanation 2 VAT was to be levied on price charged for sale which was yet to take place sale and purchase of petroleum products - It was assailed by petitioners that it was contrary to statutory provisions, concept of VAT and completely deprives dealers of claiming any input tax credit Whether Explanation 2 added to Section 2 (i) (zd) was constitutionally sustainable inasmuch as it seeks to levy VAT on deemed sale price. Held that - subject of tax not goods or goods sold, but transaction of sale of goods Addition of Explanation 2 was to permit levy of VAT on sale price of transaction which is yet to take place and to that extent such levy cannot be sustained in law It was not on price of actual completed sale but price of sale which is yet to take place Law prohibits taxing of transaction which is not completed sale Expression sale within meaning of Section 3 was confined to actual sale that has taken place and it was only price of that sale that can legitimately constitute measure for levy of tax. As explained in State of Rajasthan v. Rajasthan Chemists Association 2006 (7) TMI 17 - SUPREME COURT OF INDIA this cannot be overridden by devising measure of tax which relates to event which has not come into existence Devise adopted was beyond legislative competence of legislature with reference to Entry 48 in List II to Constitution Therefore, Explanation 2 hereby struck down as being ultra vires to Constitution Consequently, omission in Form DVAT-16 of relevant column to enable dealer to claim input credit was also declared to be unsustainable in law Petition allowed Decided in favour of Assesse.

Issues Involved:
1. Constitutional validity of Explanation 2 inserted by the Delhi Value Added Tax (Fourth Amendment) Act, 2012 to Section 2(1)(zd) of the DVAT Act, 2004.
2. Amendment made in the return form DVAT-16.
3. Issue of evaporation loss (not pressed by the Petitioners).

Issue-wise Detailed Analysis:

1. Constitutional Validity of Explanation 2 Inserted by the Delhi Value Added Tax (Fourth Amendment) Act, 2012 to Section 2(1)(zd) of the DVAT Act, 2004:

The Petitioners challenged the constitutional validity of Explanation 2 to Section 2(1)(zd) of the DVAT Act, arguing that it permits VAT to be levied on the price charged for a sale which is yet to take place. They contended that the tax should be levied on the sale price actually received or receivable by the dealer for the sale, as per Section 3 of the DVAT Act. The Petitioners argued that it is beyond the legislative competence of the NCTD under Entry 54 of List II of the 7th Schedule of the Constitution of India to levy tax with reference to a price not reflective of the actual sale price but that of a subsequent sale which is yet to take place.

The Respondents countered that the price paid by the ultimate consumer for petrol and diesel is fixed by the oil companies, and VAT is charged on the actual value, not a notional value. They argued that the commission paid to dealers does not affect the sale price, and the sale of petrol and diesel is essentially a single point sale with one sale price.

The Court found that there are two distinct transactions of sale: one from the oil companies to the dealer and another from the dealer to the ultimate consumer. The taxable event under the DVAT Act is the sale that has taken place, and the tax liability is on the dealer who effects the sale. The Court held that Explanation 2 seeks to levy VAT on a 'deemed' sale price, different from the actual price at which petrol and diesel are sold by the oil companies to the dealers, which is not sustainable in law.

The Court relied on the Supreme Court's decision in State of Rajasthan v. Rajasthan Chemists Association, which held that the tax on sale must be related to the actual sale and not a subsequent sale that has not yet taken place. The Court concluded that Explanation 2 to Section 2(1)(zd) of the DVAT Act is ultra vires the Constitution, as it permits the levy of VAT on the sale price of a transaction yet to take place.

2. Amendment Made in the Return Form DVAT-16:

The Petitioners also challenged the amendment in the return form DVAT-16, which omitted the column for claiming input tax by petroleum dealers. They argued that this amendment is contrary to the statutory provisions, the concept of VAT, and the scheme of the DVAT Act, as it deprives dealers of claiming any input tax credit.

The Court held that the omission in Form DVAT-16 of the relevant column to enable a dealer to claim input credit is unsustainable in law, as it is a consequence of the ultra vires Explanation 2 to Section 2(1)(zd) of the DVAT Act.

3. Issue of Evaporation Loss (Not Pressed by the Petitioners):

The Petitioners initially raised the issue of natural evaporation loss of petrol and diesel, but they did not press this issue during the hearing. The Court noted that the assessing authorities would examine claims for evaporation losses on a case-by-case basis without reference to any circular under challenge. The Court did not express any opinion on this issue, leaving it open for determination by the assessing authorities.

Conclusion:

The Court struck down Explanation 2 to Section 2(1)(zd) of the DVAT Act as being ultra vires the Constitution. Consequently, the omission in Form DVAT-16 of the relevant column to enable a dealer to claim input credit was also declared unsustainable in law. The Court did not express any opinion on the issue of evaporation losses, leaving it for determination by the assessing authorities on a case-by-case basis. The writ petitions were disposed of with no order as to costs.

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