2018 (4) TMI 48 - HC - VAT and Sales Tax

Input tax credit - inter-state sale - stock transfer - irregular credit on account of capital goods received from a 100% EOU - Whether in the earlier legal action as instituted by the petitioner-company the challenge to the vires of Section 10(3)(a) and Section 10(3)(b) of the TVAT Act was considered and settled? Held that - Even in the transaction of stock or consignment transfer and export, the State does not get any tax, neither VAT nor CST even then those transactions are under the umbrella of getting benefit of the Input Tax Credit. Thus, the classification made for purpose of the subject matter is unintelligible. Difference in treatment cannot be explained in the light of the object for which Section 10 of TVAT Act generally stands for. The classification is not based on any reasonable distinction. The differential treatment could not be reasonably explained or justified by the respondents and hence, denial of the Input Credit Tax for sale in the course of interstate trade or commerce is discriminatory as already noted, even after we have unconventionally delved into the records, preceded the enactment, but did not get any explanation there for purpose of the above differential which we have now declared as discriminatory. The benefit of Input Tax shall be available to the petitioner-company for carrying out sale in the course of interstate trade or commerce - But that benefit shall not be extended to the petitioner-company in respect of the returns or the assessment orders unrelated to the assessment order dated 16.06.2015 or prior to but such benefit shall continue in respect of the return or the assessment order posterior to 16.06.2015. On comparison between the sale in the course of interstate trade or commerce and the transaction of stock-transfer, inference that has been in the premise of the said impression, has not persuaded us to utilize the same in this case. Petition allowed.

Summary

Issues Involved:
1. Input Tax Credit (ITC) under Tripura Value Added Tax (TVAT) Act for inter-state sales.
2. Classification and discrimination under Article 14 of the Constitution.
3. Restriction on inter-state trade under Article 301 of the Constitution.
4. Judicial precedents and res judicata.

Issue-wise Detailed Analysis:

1. Input Tax Credit (ITC) under Tripura Value Added Tax (TVAT) Act for inter-state sales:
The petitioner, a company registered under the Companies Act, 1956, and the TVAT Act, 2004, engaged in processing Indian Standard Natural Rubber (ISNR/TSR), sought to adjust ITC against the Central Sales Tax (CST) payable for inter-state sales. The Superintendent of Taxes rejected this adjustment, citing Section 10(3) of the TVAT Act, which restricts ITC to intra-state sales. The petitioner argued that this denial was incorrect and sought a refund of CST paid. The Commissioner of Taxes upheld the initial decision, and the High Court also dismissed the revision petition, referencing the judgment in Abhisar Buildwell Private Ltd. vs. State of Tripura.

2. Classification and discrimination under Article 14 of the Constitution:
The petitioner challenged Sections 10(3)(a) and 10(3)(b) of the TVAT Act as discriminatory, arguing that they unjustly differentiate between inter-state sales and stock transfers, violating Article 14. The petitioner provided examples from other states where ITC is allowed for inter-state sales, claiming that Tripura's provisions lack reasonable nexus with the objective of the TVAT Act. The High Court examined whether the classification was arbitrary and found that the exclusion of inter-state sales from ITC benefits did not serve the Act's purpose of promoting industrialization and was therefore discriminatory.

3. Restriction on inter-state trade under Article 301 of the Constitution:
The petitioner contended that the restrictions imposed by Sections 10(3)(a) and 10(3)(b) of the TVAT Act on inter-state sales impeded free trade, violating Article 301. However, the court noted that the TVAT Act had received Presidential Assent, which could potentially validate such restrictions. The petitioner eventually did not insist on this ground, focusing instead on the discrimination argument under Article 14.

4. Judicial precedents and res judicata:
The respondents argued that the issue had been settled in previous litigation (Abhisar Buildwell Private Ltd. vs. State of Tripura) and was thus barred by res judicata. The petitioner countered that the previous case did not address the constitutional validity of the provisions, and thus, the current challenge was not precluded. The court agreed with the petitioner, noting that the principle of res judicata did not apply as the constitutional validity was not previously adjudicated.

Conclusion:
The court found that the classification made under Sections 10(3)(a) and 10(3)(b) of the TVAT Act was arbitrary and discriminatory, violating Article 14 of the Constitution. The provisions were read down to include ITC for inter-state sales, aligning with the objective of promoting industrialization. The assessment order dated 16.06.2015 and the demand notice dated 17.06.2015 were set aside, with directions for reassessment within six months. The court emphasized that legislative intent must align with constitutional principles, ensuring non-discriminatory treatment of similarly situated entities.