2018 (10) TMI 814 - SC - VAT and Sales Tax

Input tax credit - time limit for claiming credit - legality and validity of provision of Section 19(11) of Tamil Nadu Value Added Tax Act, 2006 - appellant contend that substantive and vested right of a registered dealer to claim Input Tax Credit cannot be curtailed and fettered by an unreasonable restriction imposed under Section 19(11) of the Tamil Nadu VAT Act, 2006 requiring claim to be made within 90 days from the date of purchase or before the end of the financial year whichever is later. Challenge to a fiscal legislation - principles of statutory interpretation of a fiscal legislation - Whether Section 19(11) violates Article 14 and 19(1)(g) of the Constitution of India? - Whether Section 19(11) is inconsistent to Section 3(3) of the Act? - Held that - Input Tax Credit is being allowed under Section 3 which is provision on levy of taxes on sale of goods . Section 3 is a charging section which provides for levy of taxes on sale of goods. Sub section (3) is the part of the same scheme where tax payable under sub section (2) by registered dealer shall be reduced, in the manner prescribed, to the extent of tax paid on his purchase of goods - this Court noticed the contradiction in phraseology of Section 8 sub-Section (4) and Section 13 sub section (4) and held that non mention of time in Section 8(4) is for clearly denying the rule making power to make any rule pertaining to the time. The input credit is in nature of benefit/ concession extended to dealer under the statutory scheme. The concession can be received by the beneficiary only as per the scheme of the Statute. The judgment on which learned Advocate General of Tamil Nadu had placed much reliance i.e. Jayam and Company versus Assistant Commissioner and Another, 2016 (9) TMI 408 - SUPREME COURT , is the judgment which is relevant for present case - In the above case, this Court had occasion to interpret provisions of Tamil Nadu Value Added Tax Act, 2016, Section 19(20), Section 3(2) and Section 3(3). Validity of Section 19(20) was under challenge in the said case. The interpretation put up by this Court on Section 3(2) and 3(3) and Section 19(2) is fully attracted while considering the same provisions of Section 3(2) and 3(3) and provision of Section 19(11) of the Act. The Statutory scheme delineated by Section 19(11) neither can be said to be arbitrary nor can be said to violate the right guaranteed to the dealer under Article 19(1) (g) of the Constitution - the validity of Section 19(11) of the Act upheld. Whether Section 19(11) is directory provision, non compliance of which cannot be a ground for denial of input tax credit to the appellants? - Whether denial of input tax credit to the appellants is contrary to the scheme of VAT Act, 2006? - Held that - The conditions under which Input Tax Credit is to be given are all enumerated in Section 19. The condition under which the concession and benefit is given is always to be strictly construed. In event, it is accepted that there is no time period for claiming Input Tax Credit as contained in Section 19(11), the provision become too flexible and give rise to large number of difficulties including difficulty in verification of claim of Input Credit. Taxing Statutes contains self contained scheme of levy, computation and collection of tax. The time under which a return is to be filed for purpose of assessment of the tax cannot be dependent on the will of a dealer. The use of word shall in Section 19(11) does not admit to any other interpretation except that the submission of Input claimed cannot be beyond the time prescribed. Section 19(11), in fact, gives additional time period for claim of Input Credit - Section 19(11) thus allowed an extended period for Input Credit which if not claimed in any month can be claimed before the end of the financial year or before the 90 days from the date of purchase whichever is later. The provision of Section 19(11) is thus an additional benefit given to dealer for claiming Input Credit in extended period. The use of word shall make the claim needs no other interpretation - time period as provided in Section 19(11) is mandatory. The decision in the case of Dal Chand versus Municipal Corporation, Bhopal and another 1982 (6) TMI 252 - SUPREME COURT , has no bearing in the present case as in that case it was held that whether particular provision is mandatory or directory has to be determined on the basis of object of particular provision and design of the statute. The period of 10 days in submitting the report of the public analyst was held to be directory for the reason that on the negligence of those to whom public duties are entrusted no one should suffer. Such interpretation should not be put which may promote the public mischief and cause public inconvenience and defeat the main object of the statute - The interpretation of the Rule 9(j) in the above case was on its own statutory scheme and has no bearing in the present case. Whether Assessing Authorities could have extended the period for claiming Input Tax Credit beyond the period as provided in Section 19(11) of Tamil Nadu VAT Act, 2006? - Held that - The expression shall occurring in Section 19(11) is mandatory whose compliance is necessary for claiming Input Tax Credit - The statute having not given any indication for extension of time which is a condition for claiming Input Tax Credit, the submission that period could have been extended by assessing authority is unfounded and cannot be accepted. Appeal dismissed.

Summary

Issues Involved:
1. Whether Section 19(11) violates Article 14 and 19(1)(g) of the Constitution of India.
2. Whether Section 19(11) is inconsistent with Section 3(3) of the Tamil Nadu VAT Act, 2006.
3. Whether Section 19(11) is a directory provision, non-compliance of which cannot be a ground for denial of input tax credit.
4. Whether denial of input tax credit to the appellants is contrary to the scheme of the VAT Act, 2006.
5. Whether Assessing Authorities could have extended the period for claiming Input Tax Credit beyond the period as provided in Section 19(11) of Tamil Nadu VAT Act, 2006.

Issue-wise Detailed Analysis:

Issue 1: Violation of Article 14 and 19(1)(g)
The appellants argued that Section 19(11) imposes an unreasonable restriction on the substantive right to claim Input Tax Credit (ITC), making it violative of Articles 14 and 19(1)(g) of the Constitution. The court held that fiscal legislations should be viewed with greater latitude and that the legislature has the discretion to impose conditions on economic regulations. The court emphasized that the provision in question is part of a statutory scheme aimed at regulating tax credits and does not violate constitutional rights.

Issue 2: Inconsistency with Section 3(3)
The appellants contended that Section 19(11) is inconsistent with Section 3(3) of the Act, which allows for the reduction of tax payable by a registered dealer. The court clarified that Section 19 elaborates the conditions under which ITC can be claimed and is not inconsistent with Section 3(3). Section 19(11) is an integral part of the statutory scheme and does not contradict the charging section of the Act.

Issue 3: Directory vs. Mandatory Provision
The appellants argued that Section 19(11) should be considered a directory provision, meaning non-compliance should not result in denial of ITC. The court disagreed, stating that the use of the word "shall" in Section 19(11) indicates a mandatory requirement. The provision sets a clear time frame for claiming ITC, and non-compliance with this timeframe justifies the denial of the credit. The court emphasized that taxing statutes must be strictly construed, and conditions for claiming benefits must be adhered to.

Issue 4: Scheme of VAT Act
The appellants claimed that the denial of ITC was contrary to the overall scheme of the VAT Act. The court reiterated that ITC is a concession provided under specific conditions outlined in the Act. The conditions, including the time frame for claiming ITC, are part of the statutory scheme and must be strictly followed. The court found no inconsistency between the denial of ITC and the scheme of the VAT Act.

Issue 5: Extension of Time by Assessing Authorities
The appellants argued that the assessing authorities should have the discretion to extend the time for claiming ITC beyond the period specified in Section 19(11). The court rejected this argument, stating that the statute does not provide any authority the power to extend the time frame. The court emphasized that the language of the statute is clear and must be strictly followed. The provision is mandatory, and no extension of time is permissible under the statutory scheme.

Conclusion:
The Supreme Court upheld the validity of Section 19(11) of the Tamil Nadu VAT Act, 2006, and dismissed all the appeals. The court found that the provision does not violate constitutional rights, is consistent with the statutory scheme, is mandatory in nature, and does not allow for any extension of the time frame for claiming ITC. The judgment of the High Court was affirmed, and the appeals were dismissed.