2016 (5) TMI 667 - SC - VAT and Sales Tax

VAT on petroleum products - Interpretation to Section 2(1)(zd) of DVAT - Roll back in Petrol and High Speed Diesel prices - High Court held that upon the partial roll back w.e.f. 30.11.2006 and upon the complete roll back w.e.f. 16.02.2007 benefit of the proviso ceased to be partly or fully applicable - Held that - the proviso ought to be given normal and natural meaning keeping in mind the context, object and reasons for its enactment and incorporation. The idea was to protect the interest of the consumers by giving exemption in respect of enhanced ad valorem VAT payable on account of increase in prices of diesel and petrol from 06.06.2006. On the element of increase no additional ad valorem VAT was payable and according to the proviso the increased component was not to be part of sale consideration. Consequently VAT was not to be charged in respect of such increased component, as per definition of the term sale price which came to be controlled by introduction of the proviso. When there was no increased component and therefore no liability to pay VAT in respect of such increased component, benefit under the proviso ceased to be applicable. The proviso cannot be given operation beyond the element of increase, so much so that even after complete roll back, the benefit in respect of that amount must operate. That certainly was not the intent. The idea was to grant benefit only in respect of that element of VAT respecting increase in rates and not beyond. If that component of increase ceased to be in existence, the benefit of proviso also ceased to be in operation. Therefore, the view taken by the High Court and the Appellate Authority are affirm. - Decided against the appellant

Summary

Issues Involved:
1. Interpretation of the first proviso to Section 2(1)(zd) of the Delhi Value Added Tax Act, 2004.
2. Applicability of VAT on the increased prices of petrol and diesel post partial and complete roll back.
3. Legality of the Notices of default issued to the appellants under Section 32 of the Act.
4. Validity of the penalties imposed on the appellants.

Issue-wise Detailed Analysis:

1. Interpretation of the first proviso to Section 2(1)(zd) of the Delhi Value Added Tax Act, 2004:
The core issue revolved around the interpretation of the first proviso to Section 2(1)(zd) of the Act, which exempted VAT on the increased prices of petrol and diesel from June 6, 2006. The proviso stated that the increased amount in prices (including duties and levies by the Central Government) shall not form part of the sale price. The appellants argued that this exemption should continue even if the prices were rolled back, meaning VAT should be calculated on the pre-increase prices. However, the court held that the proviso's intent was to protect consumers from the increased VAT due to price hikes and not to provide a perpetual benefit regardless of subsequent price reductions. The court emphasized that the proviso should be given its normal and natural meaning, which was to exempt VAT only on the increased component of the prices and not beyond.

2. Applicability of VAT on the increased prices of petrol and diesel post partial and complete roll back:
The appellants continued to deduct ?4/- per litre on petrol and ?2/- per litre on diesel from the sale price for VAT calculation even after the partial roll back on November 30, 2006, and complete roll back on February 16, 2007. The court found this practice incorrect. It ruled that the benefit of the proviso ceased to apply once the prices were rolled back to their pre-increase levels. The court clarified that the proviso was meant to exempt VAT on the increased component due to the price hike and not to allow deductions once the prices returned to their original levels.

3. Legality of the Notices of default issued to the appellants under Section 32 of the Act:
The Government of NCT issued Notices of default to the appellants, stating that the exemption allowed by the notification dated November 24, 2006, was only for the incremental price increase from June 6, 2006. The court upheld the legality of these notices, agreeing with the government's stance that the appellants were not entitled to continue deducting the increased amounts for VAT calculation after the roll backs. The court supported the view that the appellants' interpretation of the proviso was incorrect and that the notices were validly issued.

4. Validity of the penalties imposed on the appellants:
The Appellate Tribunal had set aside the penalties imposed on the appellants while upholding the tax demands. The court did not specifically address the issue of penalties in its final judgment, focusing instead on the interpretation of the proviso and the applicability of VAT. By affirming the High Court's decision, the court implicitly upheld the Appellate Tribunal's decision to set aside the penalties, indicating that while the appellants' interpretation was incorrect, the imposition of penalties was not warranted.

Conclusion:
The Supreme Court affirmed the High Court's judgment, holding that the benefit of the first proviso to Section 2(1)(zd) ceased to apply once the prices of petrol and diesel were rolled back to their pre-increase levels. The court dismissed the appeals, emphasizing that the proviso was intended to protect consumers from the increased VAT due to price hikes and not to provide a perpetual benefit. The court upheld the legality of the Notices of default issued to the appellants and implicitly supported the Appellate Tribunal's decision to set aside the penalties.