2022 (4) TMI 1204 - HC - VAT and Sales Tax

Reversal of Input Tax Credit - interstate sale of goods - applicability of proviso to Section 19 (2) (v) of the TNVAT Act to manufacturers also or not - inputs used in manufacturing or processing of goods in the State, when such manufactured/processed goods are sold in the course of intra-State trade or commerce under sub-section (1) of Section 8 of the Central Sales Tax Act, 1956 - Whether the omission of the proviso to Section 19 (2) (v) by Tamil Nadu Act 5 of 2015 is curative in nature and would have retrospective effect from the date of its insertion i.e., 11.11.2013? HELD THAT - As a matter of fact, the position in India or throughout the world, is not different. Judiciary as the pillar of democracy is the premise on which the rule of law and democracy rests. The Constitution of the India being law of the land, is the touchstone on which all substantive, procedural or any other law in any form falling under Article 13 of the Constitution, is tested. The High Courts and the Supreme Court created under the Constitution serve as Constitutional bodies to uphold the rule of law. Any law much less the fiscal law is tested on its constitutionality. The question as to whether a law violates any fundamental or constitutional right guaranteed by the Constitution is to be reviewed only by this pillar of democracy. Whenever the executive and the legislature encroach upon the rights guaranteed, judicial review cannot be curtailed. The power of a High Court under Article 226, as agreed and settled by the Apex Court is in fact much wider even than the powers of the Apex Court in its Writ Jurisdiction as the High court is not only entitled to interfere qua infringement of fundamental rights, but also Constitutional rights. In COMMISSIONER OF CUSTOMS (IMPORT) , MUMBAI VERSUS M/S. DILIP KUMAR AND COMPANY ORS. 2018 (7) TMI 1826 - SUPREME COURT , the Constitutional Bench, while dealing with a reference regarding the interpretation of an exemption notification, differentiating it with the interpretation of the provisions contained in the statute, after analysing various judgments on the issue, held that a taxing statute must be literally construed in a strict manner and in case of ambiguity in the statute, the view favourable to the assessee must be taken and in case of an exemption or exemption notification, the balance must be tilted in favour of the revenue. From the language employed, it is very clear that there is no ambiguity qua the legislature never intended to give a separate meaning to sale deviating from its plain and natural meaning to exclude the manufactured goods from the ambit of Section 19 (2) (v) similar to section 19(4) and 19 (5) (c). - The issue is therefore, decided in favour of the revenue. Applicability of the proviso to the manufacturers - HELD THAT - The claim of ITC by the manufacturers will fall under section 19 (2) (ii) only as long as they effect local sales, the moment they sell the goods to a dealer in other State, section 19 (2) (v) or section 19(5) (c) would come into operation. Therefore, the proviso introduced to cover section 19 (2) (v) is applicable to the manufacturers also, at the point of inter-state sale falling under Section 8(1) as the word sale includes sale of goods in the same or different form. As rightly contended by the learned Additional Advocate General by placing reliance upon the settled proposition of law that ITC is only a concession, it is open to the State to impose restrictions or conditions for availing the ITC. In the present case, prior to the introduction of the proviso, every dealer who effected interstate sale availed ITC under section 19 (2) (v) and the State imposed a restriction on such availment by the proviso, which naturally is binding on the assessees. Effect of omission of section 19(2)(v), the proviso and 19 (5) (c) - Scope of the Budget Speech - statement of objects and reasons - HELD THAT - As already seen, the original provision along with the proviso was omitted and a new provision was substituted. The word retrospective would mean to look back or to go back in time . A curative provision is held to be effective from a date prior to which it was enacted and so, will have a retrospective effect. - the amendment to Section 19 (2) brought about in the year 2015 is held to be curative in nature. The position insofar as the right of the manufacturers to avail ITC is, it becomes an absolute right, once the inputs are used in the manufacture or processing of the goods within the State, the subsequent event of the manufactured goods being sold by way of inter-state/ intra-state sale would have no bearing nor does it result in imposing any limitation/restriction or whittle down the right to ITC earned in terms of Section 19(2)(ii) or 19(2)(v) of the TNVAT Act in the interregnum period. Consequential refund and applicability of doctrine of unjust enrichment - taxes paid on raw material and captively consumed in the manufacture of finished goods within the State - HELD THAT - the doctrine of unjust enrichment would apply to duty paid on raw materials and captively consumed, it was held that passing of incidence of duty to any other person may be direct such as when the goods imported are themselves sold and the burden of tax thereon is passed on to the buyer or it may be indirect when the goods imported are captively consumed by importer himself and the duty paid thereon is added to the price of the finished goods which are sold to others Period of limitation - HELD THAT - The Apex Court has held that Article 62 of the Limitation Act, 1908 would appear implying that the period of limitation would be three years from the date of receipt of tax that has been retained by the Revenue. - Article 62 is pari materia to Article 24 of the present Limitation Act, 1963. The plea to invoke the residuary Article 120 under the old Act was turned down. Therefore, for the assessees to claim refund of the tax collected or retained by the State, steps must have been taken by them within three years from the date of their payments to the department. Conclusion. The position as regards section19(2)(ii) and the proviso inserted vide Act 28 of 2013 and its subsequent omission vide Amendment Act 5 of 2015 and the claim of refund, shall be examined - To that extent, the appeals filed by the State are partly allowed. When the power to the statutory authority is granted upto five years to modify the order, it cannot be said that the constitutional authorities would not have power to review the action. Therefore, concurring with the Division Bench, we do not concur with the decision of the Learned Judge to dismiss the writ petitions on the technicality of limitation, that too, when the batch was pending. The appeals filed by the Revenue and the appeals and writ petitions filed by the assessees are partially allowed.

Summary

Issues Involved:

1. Applicability of the proviso to Section 19(2)(v) of the Tamil Nadu Value Added Tax Act, 2006 to manufacturers.
2. Retrospective effect of the omission of the proviso to Section 19(2)(v) by Tamil Nadu Act 5 of 2015.
3. Judicial review of policy decisions.
4. Doctrine of unjust enrichment in the context of refund claims.

Issue-wise Detailed Analysis:

1. Applicability of the Proviso to Section 19(2)(v) of the TNVAT Act, 2006 to Manufacturers:

The core issue is whether the proviso to Section 19(2)(v) of the TNVAT Act, inserted by Act 28 of 2013, applies to manufacturers. The proviso states, "Provided that input tax credit shall be allowed in excess of three percent tax for the purpose specified in clause (v)." The court held that the proviso applies to manufacturers as well, who sell goods in the course of inter-state trade or commerce under Section 8(1) of the CST Act. The term "sale" in Section 19(2)(v) includes both goods sold as such and manufactured goods. The court emphasized that the legislative intent was to cover all dealers effecting inter-state sales, including manufacturers, under Section 19(2)(v). The proviso, therefore, restricts the input tax credit (ITC) to the extent of three percent for such inter-state sales.

2. Retrospective Effect of the Omission of the Proviso by Tamil Nadu Act 5 of 2015:

The court examined whether the omission of the proviso to Section 19(2)(v) by Tamil Nadu Act 5 of 2015 has retrospective effect. The amendment omitted the proviso and substituted Section 19(2)(v) with a new provision. The court held that the amendment is curative in nature and thus has retrospective effect from the date of its insertion, i.e., 11.11.2013. The legislative intent was to rectify the adverse impact on manufacturers caused by the proviso. The court noted that the amendment aimed to restore the original position and eliminate the unintended consequences of the proviso. Therefore, the amendment is deemed to have retrospective effect, allowing manufacturers to claim ITC without the restriction imposed by the proviso.

3. Judicial Review of Policy Decisions:

The court addressed the contention that judicial review should be restrained in fiscal matters. While recognizing the state's authority to enact laws and make policy decisions, the court emphasized that judicial review is essential to ensure that such decisions comply with constitutional provisions and statutory mandates. The court noted that it is within its jurisdiction to interpret the law and review the actions of the state, especially when the interpretation of statutory provisions is in question. The court clarified that judicial review does not equate to interference with policy decisions but ensures that such decisions are implemented in accordance with the law.

4. Doctrine of Unjust Enrichment in the Context of Refund Claims:

The court addressed the applicability of the doctrine of unjust enrichment in refund claims. The doctrine prevents a person from retaining a benefit that is unjust or inequitable. The court held that the doctrine applies even in the absence of a specific statutory provision. In the context of taxes paid on raw materials and captively consumed in manufacturing, the court held that the doctrine of unjust enrichment applies. The court emphasized that any claim for refund must be examined to ensure that the claimant has not passed on the burden of the tax to another party. The court also noted that claims for refund must be made within the limitation period prescribed by law, and any claim beyond this period would be barred.

Conclusion:

The court partially allowed the appeals filed by the Revenue and the assessees. It held that the proviso to Section 19(2)(v) applies to manufacturers, and the omission of the proviso by Tamil Nadu Act 5 of 2015 has retrospective effect. The court emphasized the importance of judicial review in ensuring compliance with constitutional and statutory provisions. It also applied the doctrine of unjust enrichment to refund claims, requiring claimants to prove that they have not passed on the tax burden to others. The court directed that claims for refund must be examined in light of these principles.