2016 (9) TMI 408 - SC - VAT and Sales Tax

Restriction on input tax credit - reversal of credit when sale price is lower than purchase price - Scope of sub-section (20) of Section 19 of the Tamil Nadu Value Added Tax Act, 2006 - retrospective or prospective effect - Held that - It is a trite law that whenever concession is given by statute or notification etc. the conditions thereof are to be strictly complied with in order to avail such concession. Thus, it is not the right of the 'dealers' to get the benefit of ITC but its a concession granted by virtue of Section 19. - As a fortiorari, conditions specified in Section 10 must be fulfilled. Challenge to constitutional validity of sub-section (20) of Section 19 of VAT Act has to fail. When a concession is given by a statute, the Legislature has power to make the provision stating the form and manner in which such concession is to be allowed. Sub-section (20) seeks to achieve that. - Decided against the assessee. Validity of amendment with retrospective effect - Held that - The entire gamut of retrospective operation of fiscal statues was revisited by this Court in a Constitution Bench judgment in Commissioner of Income Tax (Central) I, New Delhi v. Vatika Township Private Limited 2014 (9) TMI 576 - SUPREME COURT The amendment in-question fails to meet these tests as pronounced in the above decision. - Such a provision, therefore, cannot have retrospective effect, more so, when vested right had accrued in favour of these dealers in respect of purchases and sales made between January 01, 2007 to August 19, 2010. Thus, while upholding the vires of sub-section (20) of Section 19, we set aside and strike down Amendment Act 22 of 2010 whereby this amendment was given retrospective effect from January 01, 2007. - Decided partly in favor of assessee.

Summary

Issues Involved:
1. Whether sub-section (20) of Section 19 of the Tamil Nadu Value Added Tax Act, 2006 (VAT Act) could be given retrospective effect.
2. The constitutional validity of sub-section (20) of Section 19 of the VAT Act.
3. Proper interpretation of sub-section (20) of Section 19 of the VAT Act.

Detailed Analysis:

1. Retrospective Effect of Sub-section (20) of Section 19 of the VAT Act:

The Supreme Court examined whether sub-section (20) of Section 19 of the VAT Act could be given retrospective effect. The amendment, introduced by Amendment Act 22 of 2010, was given retrospective effect from January 01, 2007. The Court noted that while the Legislature has the power to make fiscal legislation retrospectively, such retrospective operation must not be unduly oppressive or confiscatory. The Court found that sub-section (20) of Section 19 was a new provision that altered the manner of calculating Input Tax Credit (ITC). It was detrimental to the dealers and imposed a new liability. The Court held that such a provision could not have retrospective effect, especially when vested rights had accrued in favor of the dealers for the period between January 01, 2007, and August 19, 2010. Therefore, the retrospective effect of the amendment was struck down.

2. Constitutional Validity of Sub-section (20) of Section 19 of the VAT Act:

The dealers challenged the constitutional validity of sub-section (20) of Section 19, arguing that it was confiscatory, unreasonable, arbitrary, and violative of Articles 14 and 19(1)(g) of the Constitution. The High Court had rejected these contentions. The Supreme Court concurred with the High Court's reasoning, noting that ITC is a concession provided by the Legislature, not a right. The Legislature has the power to stipulate the conditions under which this concession is granted. Sub-section (20) was introduced to protect the revenue against clandestine transactions and tax evasion. The Court found that the provision was reasonable and served a valid purpose, thus upholding its constitutional validity.

3. Proper Interpretation of Sub-section (20) of Section 19 of the VAT Act:

The dealers argued that the price for calculating ITC should be the net purchase price after discounts, not the price mentioned in the tax invoice. The Revenue contended that the purchase price should be the price mentioned in the original tax invoice. The High Court had accepted the Revenue's contention. The Supreme Court agreed with the High Court, stating that under the VAT Act's scheme, the price as per the tax invoice is relevant for claiming ITC. The Court emphasized that ITC is a concession subject to strict compliance with statutory conditions, including the requirement to produce the original tax invoice. The Court found no merit in the dealers' argument that the net purchase price should be considered.

Conclusion:

The Supreme Court upheld the constitutional validity of sub-section (20) of Section 19 of the VAT Act but struck down its retrospective application from January 01, 2007. The Court also affirmed the interpretation that the purchase price for ITC purposes is the price mentioned in the tax invoice, not the net price after discounts. The appeals were partially allowed to the extent of setting aside the retrospective effect of the amendment.