2012 (5) TMI 152 - HC - VAT and Sales Tax

Meaning and Scope of the term Actually paid - Constitutional validity of Section 48(5) of the Maharashtra Value Added Tax Act, 2002 (MVAT Act, 2002) - Petitioner seeks that the words actually paid be read down to mean ought to have been paid - Claim of set off and refund - electronic filing of return - held that - In the context in which the words actually paid are used in the MVAT Act, actually paid means what has been as a matter of fact deposited in the treasury. Hence, in the context of the provisions of Section 48(5), we cannot accept the contention of the Petitioner that actually paid .. in the government treasury means or should be read to mean what tax ought to have been deposited but has not actually been deposited in the treasury. To accept the submission would be to rewrite the legislative provision. Moreover, the concept of a set off presupposes that tax has been paid in respect of the goods in respect of which a set off is claimed. To allow a set off though the tax has not been paid actually would be to defeat the legitimate interests of the Revenue. The constitutionality of the provision of Section 48(5) upheld. Similarly Section 51(7) which requires an application for refund and specifies the period within which an application can be made, cannot be assailed as being invalid. Regulating the process of refunds is as much within the province of a legitimate tax enactment and the legislature is within its power in requiring a refund to be applied for within a reasonable period. The right to obtain a set off is a right conferred by statute and the legislature while recognizing an entitlement to a set off in certain circumstances is lawfully entitled to prescribe the conditions subject to which a set off can be obtained. If the legislature, as in the present case, prescribes that a set off should be granted only to the extent to which tax has been deposited in the treasury on the purchase of goods, it is within a reasonable exercise of its legislative power in so mandating. This does not offend Article 14. A plea of hardship cannot result in the invalidation of a statutory provision in a fiscal enactment which is otherwise lawful.

Issues Involved:
1. Constitutional validity of Section 48(5) of the Maharashtra Value Added Tax Act, 2002 (MVAT Act, 2002).
2. Interpretation of the phrase "actually paid" in Section 48(5).
3. The burden on the purchasing dealer when the selling dealer fails to deposit tax.
4. The role and responsibilities of the selling dealer in collecting and depositing tax.
5. The process and conditions for claiming Input Tax Credit (ITC) and set-off under the MVAT Act, 2002.
6. The balance between preventing tax evasion and ensuring compliance.
7. The judicial approach to fiscal legislation and the presumption of constitutionality.

Issue-wise Detailed Analysis:

1. Constitutional Validity of Section 48(5) of the MVAT Act, 2002:
The Petitioner challenged the constitutional validity of Section 48(5) on the grounds that it violates Article 14 of the Constitution by giving unequal treatment to equals and imposing an unreasonable burden on the purchasing dealer. The Court upheld the constitutionality of Section 48(5), emphasizing that the legislature has the power to impose conditions on the grant of a set-off to prevent tax evasion and ensure compliance. The Court noted that fiscal legislation is entitled to a presumption of constitutionality, and the burden is on the challenger to prove otherwise.

2. Interpretation of the Phrase "Actually Paid" in Section 48(5):
The Court interpreted the phrase "actually paid" in Section 48(5) to mean that the tax must have been physically deposited into the Government Treasury. The Court rejected the Petitioner's argument that "actually paid" should be read to mean "ought to have been paid," stating that such an interpretation would defeat the legislative intent and the purpose of preventing tax evasion.

3. The Burden on the Purchasing Dealer:
The Petitioner argued that it is unreasonable to deny the purchasing dealer the benefit of a set-off if the selling dealer fails to deposit the tax. The Court held that the purchasing dealer cannot be absolved of responsibility simply because the selling dealer failed to deposit the tax. The Court emphasized that the set-off is a concession granted by the legislature, and the conditions for availing of this concession must be strictly observed.

4. Role and Responsibilities of the Selling Dealer:
The Court reiterated that the primary liability to pay sales tax is on the selling dealer, who collects the tax on behalf of the Government. The selling dealer is not an agent of the Government, and the purchasing dealer is not responsible for ensuring that the selling dealer deposits the tax. However, the purchasing dealer must comply with the statutory requirements to claim a set-off.

5. Process and Conditions for Claiming ITC and Set-off:
The Court detailed the conditions under Section 48(2) and Section 48(5) for claiming a set-off. The purchasing dealer must produce a tax invoice containing a certificate that the registration certificate of the selling dealer was in force on the date of sale and that the due tax has been paid or shall be paid. The set-off is limited to the amount of tax actually paid into the Government Treasury.

6. Balance Between Preventing Tax Evasion and Ensuring Compliance:
The Court emphasized the need to balance the prevention of a cascading tax burden with ensuring regulatory compliance. The VAT regime aims to avoid a cascading effect by allowing a set-off for taxes paid at prior stages, but it also requires compliance to protect legitimate revenue. The Court highlighted the steps taken by the State Government to pursue recoveries from defaulting selling dealers and to ensure that the purchasing dealers are not unduly burdened.

7. Judicial Approach to Fiscal Legislation:
The Court reiterated the principle of judicial deference in matters of economic and fiscal legislation. The legislature is entitled to a great deal of latitude in enacting fiscal laws, and the Court will interfere only where a clear infraction of a constitutional provision is established. The Court emphasized that the object of judicial review is to ensure that the legislature has not transgressed constitutional boundaries, not to second-guess legislative policy choices.

Conclusion:
The Court upheld the constitutional validity of Section 48(5) of the MVAT Act, 2002, and rejected the Petitioner's plea to read down the provision. The Court emphasized the importance of compliance with the statutory conditions for claiming a set-off and the balance between preventing tax evasion and ensuring regulatory compliance. The Petition was disposed of with no order as to costs.

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