MACHINERY PROVISION

[Mr. M. GOVINDARAJAN]

The term ‘machinery provision’ is not defined in any Act.  The term ‘machinery’ normally refers to plant and machinery. But the said term has been used in law.  The meaning can be inferred from the provisions of the Act. For example the Industrial Dispute Act is meant for resolving the dispute of the employees and the employer.  The said Act provides machinery provision giving the procedure to settle the dispute. Therefore it can be inferred that machinery provision provides procedure for carrying out certain activities. The scope of machinery provision is clearly explained in  ‘USA Agencies V. Commercial Tax Officer, Attur’ – 2013 (8) TMI 532 - MADRAS HIGH COURT.

In this case  the petitioners are carrying on business in various goods and are registered dealers under the provisions of Tamil Nadu Value Added Tax Act, 2006.   The petitioners are periodically filing returns as per the provisions of the Act and the rules thereon. The return of the petitioners was not accepted by the authorities on one ground or the others. The revised return was also denied invoking the provisions of Section 19(11) of the Act which provides that if the registered dealers fail to claim the input tax credit in respect of any transaction of taxable purchase in any month, he shall make the claim before the end of the financial year or before 90 days from the date of purchase, whichever is later.

The petitioner filed a writ petition against the findings of the authority before the High Court challenging Section 19(11) which fixes time in an arbitrary manner and it is unworkable and is inconsistent with the general scheme of the Act.  The Revenue contended that there is nothing unreasonable or arbitrary in prescribing the time limit for claiming input tax credit in respect of any transaction of taxable purchase. Since the intention of the legislature is to avoid misuse and tax evasion, the time limit prescribed under Section 19(11) of the Act for claiming input tax credit cannot be termed as unreasonable restrictions.   If indefinite period is allowed, it is likely to be misused apart from the fact that after the lapse of long time, the related transactions cannot be verified.

Among the various contentions the petitioner contended that Section 19(11) is a machinery provision and it has to be construed more liberally and must be reasonably applied. Section 19 deals with the input tax credit. Section 19(1) provides that there shall be input tax credit of the amount of tax paid or payable under this Act, by the registered dealer to the seller on his purchases of taxable goods specified in the First Schedule. The registered dealer, who claims input tax credit, shall establish that the tax due on such purchases has been paid by him in the manner prescribed. Section 19(2) provides that input tax credit shall be allowed for the purchase of goods made within the State from a registered dealer and which are for the purpose of-

• Re-sale by him within the State; or
• Use as input in manufacturing or processing of goods in the State; or
• Use as containers, labels and other and other materials for packing of goods in the State; or
• Use as capital goods in the manufacture of taxable goods;
• Sale in the course of inter-state trade or commerce falling under Section 8(1) of Central Sales Tax Act, 1956;
• Agency transactions by the principal within the State in the manner as may be prescribed.

Section 19(11) provides that in case any registered dealer fails to claim input tax credit in respect of any transaction of taxable purchase in any month, he shall make the claim before the end of the financial year or before 90 days from the date of purchase, whichever is later.

The High Court did not accept the contentions of the petitioner, since the scheme of Section 19 is not in the nature of a machinery provision, rather it is a substantive provision stipulating the contingencies and the types of transaction done by a registered dealer which would qualify for availing input tax credit.

The High Court points out the difference between the machinery provisions and substantive provision.   The High Court held that the machinery provisions under the Act for the assessment and reassessment under Sections to 22 to 29 read with Rule 8, whereas Section 19 is a substantive provision under which upon a registered dealer making a claim for input tax credit after establishing that tax due on purchases has been paid by him the manner prescribed, such claim for tax credit should fall within the scope of various categories to qualify for the tax credit.

The High Court indicates what machinery provision is.   A machinery provision provides the manner in which the assessment or reassessment has to be made.  It may be confirmed by perusing the provisions of Section 22 to 29 of the Act and Rule 8.

Section 20 of the Act provides for assessment of tax.   Section 21 provides for filing of returns.  Section 22 to 29 deals with the procedure for assessment or reassessment of tax.

• Section 22 deals with deemed assessment and procedure to be followed by assessing authority;
• Section 23 deals with the procedure when assessee claims identical question of law is pending before High Court or Supreme Court;
• Section 24 deals with assessment of sales shown in accounts at low prices;
• Section 25 deals with the procedure to be followed in assessment of certain cases;
• Section 26 deals with assessment of legal representatives
• Section 27 deals with assessment of escaped turnover and wrong availment of input tax credit;
• Section 28 deals with the  assessment of turnover not disclosed under compounding provisions;
• Section 29 deals with assessment in cases of price variations.

Rule 8 deals with the procedure for assessment.

The High Court held that Section 19 on the contrary qualifies the entitlement of ITC and does not deal with machinery of assessment.  By way of illustration, if a registered dealer has purchased goods and sold in the course of inter-state trade or commerce falling under Section 8(2) of the CST Act, 1956, he shall not be entitled to input tax credit.   Therefore such provision cannot be termed as a machinery provision, rather it clearly demarcates which are the transactions, which done by a registered dealer would be entitled to a tax credit.   Section 19(11) is in the nature of a reprieve to a ‘defaulting’ dealer who has failed to claim input tax credit in respect of any transaction of taxable purchase in any month.   If a dealer avails such benefit and makes a claim for input tax credit within the end of the financial year or before 90 days from the date of purchase whichever is later than such claim has to fall within one of the categories mentioned in Section 19 to qualify for credit.   The High Court, thus, held that even in such belated claim within the time permitted under Section 19(11) the claim is not automatic and should satisfy the other stipulation as contained in Section19.   This is one more reason for the High Court to hold that Section 19 is a substantive provision and not a machinery provision.