2019 (5) TMI 4 - HC - VAT and Sales Tax

Rate of VAT - Tax at 13% on spirit - vires of Article 14, 19 and 265 of the Constitution - HELD THAT - In the present case, liquor has been taxed @ 5% whereas, the Rectified Spirit/ Extra Neutral Alcohol is taxed at higher rate of 13% (presently 14%) - The spirit which is a liquor containing alcohol is obtained by distillation under Madhya Pradesh Distillery Rules, 1995, the spirit takes different form. As per Rule 2(3) it can be Denatured Spirit or Denatured Alcohol which means alcohol of any strength which has been rendered effectively unfit for human consumption by admixture of such denaturant as may be approved by the Excise Commissioner - when the sale or purchase is of ENA/ Rectified Spirit the State will be within its competence to charge levy at the rate under residual entry. Under Entry 56 in part II of Schedule II and Entry 6 in part III A of Schedule II of the VAT Act 2002, the liquor which is sold by the holder of licence FL2, FL3, FL3A, FL4 and FL4A is only subjected to 5 % tax and not other species of the liquor which as rightly construed by the State functionaries will be covered by residuary entry - there is no ultra vires or an arbitrary act on the part of the State in charging tax at the rate 13% on ENA/Rectified Spirit. Input Tax Rebate (ITR) - Constitutional validity of sub-section (6-A) of Section 14 of 2002 Act - HELD THAT - There is no force in the submissions made on behalf of the petitioner that they are not afforded opportunity to prove the bonafide of their claim - the challenge to the validity of Section 14 (6A) fails. Constitutional validity of Section 20(5) of VAT Act, 2002 - HELD THAT - The contention that the provisions contained under sub-section (5) lacks jurisdictional foundation and therefore it is ultra vires, are taken note of and are rejected outright. If the petitioners have any grievance as regard to the procedural irregularity they are always at liberty to take recourse to forum of appeal for redressal of the grievance. Merely on assumption that the procedural irregularity may occur, a statutory provision cannot be held to ultra vires constitution - The challenge to validity of sub-section (5) of Section 20 also fails. Constitutional validity of the procedure prescribed under Section 46 and 53 of VAT Act, 2002 read with Rule 60 of the Madhya Pradesh VAT Rules, 2006 - procedure of filing of appeal and its summary rejection - HELD THAT - A Co-ordinate Bench of this Court in ASSOCIATED ALCOHOLS BREWERISE LTD. VERSUS STATE OF M.P. ORS. 2018 (10) TMI 145 - MADHYA PRADESH HIGH COURT had an occasion to examine the validity of these provisions where it was held that It is clear that rectified spirit is not alcohol and not fit for human consumption and hence, not an excisable article. In absence of such excise ability under the M.P. Excise Act, the question of levying excise or power to levy does not arise and hence the goods in question do not fall within preview of Entry 47, List I of VAT Act to be considered Tax free goods. The challenge to the validity of Section 46 and 53 of Act 2002 read with Rule 60 of the Rules of 2006 is negativated. Petition disposed off.

Summary

Issues Involved:
1. Levy of Value Added Tax (VAT) at 13% on spirit.
2. Levy of VAT on lease rental.
3. Constitutional validity of sub-section (6-A) of Section 14 of VAT Act, 2002.
4. Constitutional validity of Section 20(5) of VAT Act, 2002.
5. Constitutional validity of the procedure under Sections 46 and 53 of VAT Act, 2002 read with Rule 60 of the Madhya Pradesh VAT Rules, 2006.

Issue-wise Detailed Analysis:

1. Levy of Value Added Tax (VAT) at 13% on Spirit:
The petitioners argued that the imposition of VAT at 13% on spirit is arbitrary and ultra vires Articles 14, 19, and 265 of the Constitution. They contended that spirit falls under the categorization of 'liquor' as per the VAT Act and should be taxed at 5%. The court considered the amendments to the VAT Act and noted that the word 'liquor' includes spirit, and the State has the competence to charge a higher rate of tax on ENA/Rectified Spirit under the residual entry. The court concluded that there is no ultra vires or arbitrary act by the State in charging 13% VAT on ENA/Rectified Spirit, and the challenge fails.

2. Levy of VAT on Lease Rental:
The issue of VAT on lease rental is sub-judice before the Hon'ble Supreme Court in SLP (c) No. 21700/2018. The court deferred the matter to the final outcome of the pending SLP.

3. Constitutional Validity of Sub-section (6-A) of Section 14 of VAT Act, 2002:
The petitioners challenged sub-section (6-A) of Section 14, arguing that it unfairly holds them accountable for unpaid VAT by the selling vendor without providing an opportunity to prove their bonafides. The court noted that the provision contains an inbuilt mechanism for affording an opportunity to the assessee to establish their entitlement to input tax rebate. The court found no ambiguity in the provision and held that the challenge to the validity of Section 14 (6A) fails.

4. Constitutional Validity of Section 20(5) of VAT Act, 2002:
The petitioners contended that sub-section (5) of Section 20 lacks jurisdictional foundation and is ultra vires. The court rejected this contention, stating that if procedural irregularities occur, the petitioners have the liberty to seek redressal through the forum of appeal. The court concluded that the challenge to the validity of sub-section (5) of Section 20 fails.

5. Constitutional Validity of the Procedure under Sections 46 and 53 of VAT Act, 2002 read with Rule 60 of the Madhya Pradesh VAT Rules, 2006:
The petitioners challenged the provisions mandating pre-deposits for filing appeals. The court referred to a previous judgment (Associated Alcohols and Breweries Ltd. Vs. State of M.P. & others) that upheld the validity of these provisions. The court reiterated that the requirement of pre-deposit is a common legislative practice and does not violate any constitutional rights. The court upheld the validity of Sections 46 and 53 of the VAT Act, 2002, read with Rule 60 of the Rules of 2006.

Conclusion:
The court disposed of the writ petitions, allowing the petitioners to challenge the assessment order in appeal, which should be decided on merit. No costs were awarded.