2018 (9) TMI 1111 - HC - VAT and Sales Tax

Constitutional validity of Madhya Pradesh Value Added Tax Amendment (Validation) Act, 2017 - Madhya Pradesh VAT Act, 2002 - Validation clause. Held that - The object and reason to bring the said Validation Act is that there is belief that in case of manufacture of taxable as well as tax free goods proportionate Input Tax Rebate on inputs is permissible, especially in view of specific provisions of admissibility of full amount of Input Tax Rebate in case of taxable goods and of the amount which is in excess of 4% in case of tax free goods, proportionate Input Tax Rebate was being allowed since beginning i.e. from 1st April, 2006 - Since there was a need of explaining the VAT Act regarding the Input Tax Rebate on the entire raw material, whereas by-products are both taxable and nontaxable, therefore, using the powers conferred under the Constitution, the amending notification has been issued providing explanation for Input Tax Rebate which shall be computed after apportioning the Input Tax in proportion to the value of Schedule-I and Schedule-II goods so manufactured. It is well settled law that validating act cannot validate and effect if it simply deem legal consequences, without amending law from which the said legal consequence could follow - As per Validation Act, it is clear that by a competent legislative provision, the substratum of foundation of a judgment has been removed with retrospectively, the said exercise is a valid legislative exercise and it does not suffer from any invalidity. Petition dismissed.

Issues Involved:
1. Constitutional validity of the Madhya Pradesh Value Added Tax Amendment (Validation) Act, 2017.
2. Retrospective application of tax laws.
3. Validity of the Input Tax Rebate (ITR) provisions.
4. Legislative power to validate judicially invalidated levies.

Detailed Analysis:

1. Constitutional Validity of the Madhya Pradesh Value Added Tax Amendment (Validation) Act, 2017:

The petitioners challenged the constitutional validity of the Madhya Pradesh Value Added Tax Amendment (Validation) Act, 2017, arguing that it should be declared ultra vires, unconstitutional, and illegal. The petitioners, registered dealers under the Madhya Pradesh Value Added Tax Act, 2002, contended that the retrospective amendment deprived them of the full benefit of Input Tax Rebate (ITR) on the purchase of raw materials used in the manufacture of cotton seed oil.

2. Retrospective Application of Tax Laws:

The court examined whether the retrospective application of the amendment was permissible. The petitioners argued that the retrospective effect of the amendment, which reduced the ITR on a proportionate basis for tax-free commodities like "Oil Cake," was not permissible in law. The court noted that the amendment was introduced to nullify the effect of previous judgments that allowed full ITR without proportionate reduction for tax-free by-products.

3. Validity of the Input Tax Rebate (ITR) Provisions:

The petitioners claimed that the benefit of ITR was available on the entire amount of tax paid on raw materials without any deduction on a proportionate basis for the generation of tax-free commodities like "Oil Cake." This argument was supported by previous judgments from the Madhya Pradesh High Court, which held that the principle of apportionment could not be invoked. However, the court noted that the amendment inserted an explanation in Section 14 of the VAT Act, which required ITR to be computed after apportioning the Input Tax in proportion to the value of Schedule I and Schedule II goods.

4. Legislative Power to Validate Judicially Invalidated Levies:

The court discussed the legislative power to validate judicially invalidated levies retrospectively. The court referred to several Supreme Court judgments, including *State of Tamil Nadu v. Arooran Sugars Limited* and *Cheviti Venkanha Yadav v. State of Telangana*, which upheld the power of the legislature to retrospectively amend laws to remove defects pointed out by the courts. The court concluded that the legislature had the power to enact the Validation Act with retrospective effect, thereby removing the basis of the previous judgments that allowed full ITR without proportionate reduction.

Conclusion:

The court held that the Madhya Pradesh Value Added Tax Amendment (Validation) Act, 2017, was constitutionally valid and dismissed the writ petition. The court found that the retrospective amendment was a valid legislative exercise, aimed at clarifying the provisions of the VAT Act and preventing tax evasion. The court emphasized that the legislature had the power to enact laws with retrospective effect to rectify defects and ensure the proper functioning of the tax system.

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