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2018 (10) TMI 887 - SC - VAT and Sales TaxInput tax credit - set off against tax liability on all intra-state and inter-state sales - TNVAT Act - amendment in the law relating to the levy of tax on the sale or purchase of goods in the State of Tamil Nadu. Whether Section 19(5)(c) of TNVAT Act, 2006 and Rule 10(9)(a) of TNVAT Rules, 2007 are ultra vires the provision of CST Act, 1956? Whether the impugned provisions are violation of Articles 14, 19(1)(9) and 301 of the Constitution of India? Held that - This Court held that ITC is a form of concession which is provided by the Act; it cannot be claimed as a matter of right but only in terms of the provisions of the statute; therefore, the conditions mentioned in the aforesaid Section had to be fulfilled by the dealer; and subsection (20) of Section 19 was constitutionally valid. It was also noted, in the process, that there were valid and cogent reasons for inserting that provision and the main purpose was to protect the Revenue against clandestine transaction resulting in invasion of tax - the provision was aimed at achieving a specific and justified purpose and could not be treated as discriminatory. Section 19 of TNVAT Act deals with ITC. It incorporates provision for grant of ITC under certain circumstances and, at the same time, also lays down the conditions in which such ITC would be admissible. It is in this context sub-section (5) of Section 19 is to be analysed. Subsection (5) stipulates certain contingencies where such ITC would not be admissible. There is no quarrel about clauses (a) and (b). We are only concerned with clause (c) of this sub-section which provides that ITC would not be allowed on the purchase of goods sold as such or used in the manufacture of other goods and sold in the course of inter-State trade or commerce falling under subsection (2) of Section 8 of the Central Sales Tax Act. Wherever the State Government buys, sells, supplies or distribute goods, it shall be deemed to be the dealer for the purposes of TNVAT Act. At the same time, TNVAT Act does not require registration by the State Government inasmuch as Section 38 which deals with registration of dealers explicitly provides, under sub-section (8) thereof, that this provision shall not apply to any State Government or Central Government - This situation puts those dealers who are making sales to the State Government in disadvantageous position, even when it is clear that there is no possibility of tax evasion as there cannot be any such apprehension in case of sales to the State Government - benefit of ITC is given whenever sale is made to a dealer outside State of Tamil Nadu and the said dealer is a registered dealer. The provisions of Section 19(5)(c) are to be read down by construing that those dealers who are making sales exclusively to the other State Governments (i.e. outside the State of Tamil Nadu), the said States would be deemed as registered dealers for the purposes of availing benefits of ITC. Benefit of ITC would be allowed without insisting on the furnishing of Form C . However, in order to avail this benefit, a certificate from said the State Government to whom the supplies are made would be obtained by the dealer claiming ITC and submitted to the VAT authorities. Appeal allowed.
Issues Involved:
1. Whether Section 19(5)(c) of the Tamil Nadu Value Added Tax Act, 2006 (TNVAT Act) and Rule 10(9)(a) of the Tamil Nadu Value Added Tax Rules, 2007 (Rules) are ultra vires Articles 14, 19(1)(g), 256, and 301 of the Constitution of India and the Central Sales Tax Act (CST Act). 2. Whether the Notice dated August 16, 2018, of the Revenue is liable to be quashed. Issue-wise Detailed Analysis: 1. Constitutionality of Section 19(5)(c) of TNVAT Act and Rule 10(9)(a) of the Rules: - High Court's Formulation of Questions: The High Court formulated two key questions: (1) Whether Section 19(5)(c) of TNVAT Act and Rule 10(9)(a) of TNVAT Rules are ultra vires the CST Act, and (2) Whether the impugned provisions violate Articles 14, 19(1)(g), and 301 of the Constitution of India. - Provisions and Definitions: The Court examined relevant provisions of the CST Act, TNVAT Act, and Rules, including definitions of "dealer," "sale," and "input tax credit" (ITC). Section 19(5)(c) disallows ITC on goods sold in inter-State trade or commerce under Section 8(2) of the CST Act. Rule 10(9)(a) allows ITC on inter-State sales only if Form C is filed. - High Court’s Analysis: The High Court noted that the CST Act differentiates between sales to registered and unregistered dealers. Section 8(1) gives preferential treatment to sales to registered dealers, while Section 8(2) applies to sales to unregistered dealers. The High Court upheld the vires of Section 19(5)(c) and Rule 10(9)(a), stating that these provisions are consistent with the CST Act and aim to prevent tax evasion. - Supreme Court's Analysis: The Supreme Court concurred with the High Court's reasoning, emphasizing that ITC is a concession, not a right. The Court noted that Section 19(5)(c) aims to prevent tax evasion by requiring Form C for ITC on inter-State sales. The Court upheld the validity of Section 19(5)(c) and Rule 10(9)(a), finding them consistent with the CST Act and constitutional provisions. 2. Violation of Articles 14, 19(1)(g), and 301 of the Constitution: - Arguments by Appellants: The appellants argued that Section 19(5)(c) and Rule 10(9)(a) violate Articles 14, 19(1)(g), and 301 of the Constitution by discriminating against dealers making inter-State sales without Form C. They contended that the provisions negate the objective of promoting inter-State trade and commerce. - High Court’s Reasoning: The High Court found that the right to claim ITC is not a vested right but a concession subject to conditions. It held that the provisions are justified as they aim to prevent tax evasion and ensure compliance with statutory requirements. - Supreme Court's Analysis: The Supreme Court upheld the High Court's reasoning, emphasizing that ITC is a concession subject to conditions. The Court found that the classification between sales to registered and unregistered dealers is based on intelligible differentia and serves a rational purpose. The Court rejected the argument that the provisions violate Articles 14, 19(1)(g), and 301. 3. Special Consideration for Sales to State Governments: - Argument by Mr. Bagaria: Mr. Bagaria argued that sales to State Governments should not be subject to the same ITC restrictions as sales to unregistered dealers, as there is no risk of tax evasion in such cases. - Supreme Court's Conclusion: The Supreme Court agreed with this argument, holding that sales to State Governments should be treated differently. The Court ruled that in cases where a dealer makes sales exclusively to State Governments, the State Governments should be deemed registered dealers for the purpose of availing ITC. The Court directed that a certificate from the State Government should be obtained and submitted to the VAT authorities to claim ITC. 4. Quashing of Revenue Notice: - Supreme Court's Decision: The Supreme Court did not find sufficient grounds to quash the Revenue Notice dated August 16, 2018, as the appellants had not demonstrated that the notice was issued in violation of statutory provisions or constitutional principles. Conclusion: The Supreme Court upheld the validity of Section 19(5)(c) of the TNVAT Act and Rule 10(9)(a) of the Rules, except in cases where sales are made exclusively to State Governments. In such cases, the Court ruled that State Governments should be deemed registered dealers for the purpose of availing ITC. The Court dismissed the appeals with costs, except for the appeal concerning sales to State Governments, which was allowed to the extent indicated.
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