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TMI Blog2015 (8) TMI 1005X X X X Extracts X X X X X X X X Extracts X X X X ..... ave no retrospective effect” – Any reduction in tax payable by selling dealer on account of reduction in sale price would correspondingly result in reassessment of tax credit claimed by buyer in cases where goods have been sold by one registered dealer to another – Same would necessarily involve issuance of credit notes as without issuance of such credit notes, it would not be open for buying dealer to adjust tax credit. In assessment order, nothing has been brought on record by Department to show that arrangement by which discounts/incentives were offered to purchasing dealers by selling dealers was with view to "defeat the application or purposes of" any provision of DVAT Act – Thus, Tribunal erred in holding that Appellants were required to reverse Input Tax Credit claimed on purchases made by them and returns filed by Appellants could not be held to be false, misleading or deceptive – Impugned judgment of Tribunal unsustainable in law and hereby set aside – Decided in favour of Appellant. - ST.APPL. 76/2014, ST.APPL. 98/2014 , ST.APPL. 80/2014, ST.APPL. 83/2014 , ST.APPL. 86/2014 , ST.APPL. 88/2014 , ST.APPL. 99/2014 , ST.APPL. 16/2015 , ST.APPL. 19/2015 , ST.APPL. 20/2015 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it furnished necessary details to the VATO. Nevertheless, the VATO issued notices of default assessment of tax and interest under Section 32 of the DVAT Act and notices of assessment of penalty under Section 33 of the DVAT Act both dated 28th July, 2010, creating various demands for each of the months from April, 2008 till March, 2009. The contention of the Department was that in terms of Section 10(1) read with Section 51(a) of the DVAT Act it was incumbent on the purchasing dealer to claim ITC only to the proportionate extent after accounting for the discount received from the selling dealer. Consequently it was insisted by the Department that the purchasing dealer has to adjust the input tax and reverse the ITC claimed by him against the discount/incentives received from the selling dealer. The contention of the purchasing dealers, i.e. the Appellants, on the other hand, was that such reversal would be lawful only if the selling dealer has adjusted his output tax in terms of Section 8 and has issued a credit note disclosing the amount of tax separately in terms of Rule 45 of the Delhi Value Added Tax Rules, 2005 (DVAT Rules). It was pointed out that the selling dealer had not ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the sale does go to reduce the sale price. It has an impact of increasing the purchase price shown in the invoice and the ITC claimed on that basis thereon and violates the DVAT scheme. ii. The decision of the Madras High Court in Jayam Co. v. Assistant Commissioner (2013) 65 DST 260 (Madras) would squarely apply to the facts and circumstances of the case. The Madras High Court had in the said decision upheld the validity of Section 19 (20) of the Tamil Nadu Value Added Tax, 2006 (TNVAT Act) which was impari materia Section 10 (5) of the DVAT Act. iii. The Madras High Court further upheld the retrospective operation of Section 19(20) of the TNVAT Act. The relevancy of Section 10(5) of the DVAT Act could not be allowed to be diluted only because it had not been made retrospective. In any event, since the provision was only clarificatory, it was not necessary to make Section 10(5) of the DVAT Act retrospective. iv. The arrangement whereby the selling dealer issues a credit note is nothing but a plan or understanding in collusion with the partner in transaction which could easily be termed as tax advantage in terms of clause (b) of Section 40A, clause (2), which has in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... less - (a) any sum allowed as discount which goes to reduce the sale price according to the practice, normally, prevailing in trade; (b) the cost of freight or delivery or the cost of installation in cases where such cost is separately charged; and the words purchase price with all their grammatical variations and cognate expressions, shall be construed accordingly; [PROVIDED that where the dealer makes sale of goods imported into the territory of India, the sale price shall be greater of the following: (a) the valuable consideration received or receivable by the dealer; (b) value determined by the Custom authorities for payment of custom duty at the time of the import of such goods.] .... .... .... .... 3 Imposition of tax (1) Subject to other provisions of this Act, every dealer who is - (a) registered under this Act; or (b) required to be registered under this Act; shall be liable to pay tax calculated in accordance with this Act, at the time and in the manner provided in this Act. [(2) Every dealer shall be liable to pay tax at the rates specified in section 4 of this Act on every sale of goods effected by him - (a) while he is a register ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Act. (2) No tax credit shall be allowed - (a) in the case of the purchase of goods for goods purchased from a person who is not a registered dealer; (b) for the purchase of non-creditable goods; (c) for the purchase of goods which are to be incorporated into the structure of a building owned or occupied by the person; (d) for goods purchased from a dealer who has elected to pay tax under section 16 of this Act; [(e) for goods purchased from a casual trader;] {(f)} to the dealers or class of dealers specified in the Fifth Schedule except the entry no.1 of the said Schedule.] [(g) to the dealers or class of dealers unless the tax paid by the purchasing dealer has actually been deposited by the selling dealer with the Government or has been lawfully adjusted against output tax liability and correctly reflected in the return filed for the respective tax period.] .... ..... .... .... 10 Adjustment to tax credit (1) Where any purchaser has been issued with a credit note or debit note in terms of section 51 of this Act or if he returns or rejects goods purchased, as a consequence of which the tax credit claimed by him in any tax period in respect of whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er or not, such dealer or person is a party to the arrangement, in such manner as the Commissioner considers appropriate so as to counteract any tax advantage obtained by that dealer from or under the arrangement. (2) For the purposes of this section - (a) arrangement includes any contract, agreement, plan or understanding, whether enforceable in law or not, and all steps and transactions by which the arrangement is sought to be carried into effect; (b) tax advantage includes, - (i) any reduction in the liability of any dealer to pay tax, (ii) any increase in the entitlement of any dealer to claim input tax credit or refund, (iii) any reduction in the sale price or purchase price receivable or payable by any dealer.] .... ..... .... .... 51 Credit and debit notes Where a tax invoice has been issued in respect of a sale and - (a) the amount shown as tax in that tax invoice exceeds the tax payable in respect of the sale, the dealer shall provide the purchaser with a credit note, containing such particulars as may be prescribed; or (b) the tax payable in respect of the sale exceeds the amount shown as tax on the tax invoice, the dealer shall provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant avails of a pre-tax discount at 10%, the taxable value itself comes down to ₹ 95 (after adding the Appellant s margin of ₹ 5). VAT on 12.5% works out to ₹ 11.74 and the bill value comes to 95+11.74=106.74. After a post-tax discount is given at ₹ 5 in the bill raised on the Appellant s customer then the final bill value comes to 101.74. The output tax liability works out in the above example to ₹ 11.74. The next tax liability is negative at 0.76. In either case, HUL does not adjust the discount amount against its tax value. It does collect upfront the tax at 12.5% and remits it to the Department. 14. In all these cases, the Appellants have been able to produce certificates from the selling dealers who have clarified that they are not claiming any output tax credit or seeking any refund. In other words, the entire amount of VAT collected by the selling dealer from the buying dealer is remitted to the Department. Therefore, there is no question of the selling dealer resorting to the procedure under Section 51(a) of the DVAT Act to raise a credit note in accordance with Rule 45 of the DVAT Rules, or to notify that on account of an arrangement with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from a collective reading of Section 51 (a), Section 10 (1) and Section 8 (1) of the Act. The scheme, prior to the insertion of Section 10 (5) appears to be this. Where a selling dealer intends to claim a refund or reduce his output tax qua a transaction for whatever reason including offering a discount, he will have to resort to the procedure set out in Section 51 (a) of the DAVT Act. He will have to raise a credit note and issue a tax invoice in respect of that sale. Rule 45 of the DVAT Rules is consistent to the above legal position. The obligation thereunder is again of the selling dealer. A reading of Section 10 (1) also reveals that it is the selling dealer that has to take steps to adjust the tax credit and issue to the purchasing dealer the credit note or debit note as the case may be. If the purchasing dealer is not given the credit note by the selling dealer under Section 51 (a) read with Section 10 (1), the question of the purchasing dealer adjusting the input tax in terms of Section 8 (1) does not arise. 18. Section 10(5) of the DVAT Act introduced for the first time an obligation on the buying dealer to reduce the ITC in proportion to the difference in the price at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs like unforeseeable financial burden or the measure being unduly oppressive or confiscatory. Answering those questions in the negative, it was held that there was no invalidity in the said provision having retrospective effect from 1st January 2007. It was further held that there was no ambiguity in Section 19 (20) of the TNVAT Act and it was not beyond the legislative power of the State Legislature under Entry 54 of List II of the Seventh Schedule to the Constitution. 22. The Court finds the decision in Jayam Co. distinguishable. Although the wording and purport of Section 10 (5) of the DVAT Act and Section 19(20) of the TNVAT Act are similar, viz., reversal of the ITC by the purchasing dealer where he sells the goods at a price less than for which he purchased them, Section 10 (5) of the DVAT Act has not been made expressly retrospective. 23. On the other hand, it has been made explicit by the Department of Trade and Taxes, GNCTD by Circular No.3 of 2011-12 dated 10th June 2011 that the said provision is prospective. The operative portion of the said Circular reads as under: In continuation to Circular No.1 of 2011-12 dated 02.05.2011 and in order to further clarify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harged expressly includes the amount of tax. Section 38(9) of the Act reads as under: 38 Refunds (9) Where - (a) a registered dealer has sold goods to another registered dealer; and (b) the price charged for the goods expressly includes an amount of tax payable under this Act, the amount may be refunded to the seller or may be applied by the seller under clause (b) of sub-section (3) of this section and the Commissioner may reassess the buyer to deny the amount of the corresponding tax credit claimed by such buyer, whether or not the seller refunds the amount to the buyer. 28. It is apparent from the aforesaid provision that any reduction in the tax payable by the selling dealer on account of reduction in the sale price would correspondingly result in reassessment of the tax credit claimed by the buyer in cases where the goods have been sold by one registered dealer to another. It is also clear from the scheme that the same would necessarily involve issuance of credit notes under Section 51(a) of the DVAT Act as without issuance of such credit notes, it would not be open for the buying dealer to adjust the tax credit in terms of Section 10 of the Act. The scheme of the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have issued credit notes towards incentives earned by the dealer from time to time on account of their achieving the sales targets. during the financial year 2008-09, we have issued credit notes to M/s Amba Aircool Pvt Ltd, New Delhi, which were not to make good any losses. while issuing these credit notes we have not returned back the tax paid by the dealer, reason being that neither we have claimed refund of tax from the department nor have sought any adjustment in our output tax liability. 32. The introduction of Section 10(5) of the DVAT Act does not alter the aforesaid scheme in any manner. The only effect of Section 10(5) of the DVAT Act is that the tax credit available to a purchasing dealer would not exceed the amount of tax payable on its sale. Section 40-A not attracted 33. Although in the assessment order of the VATO in STA No. 26 of 2015, a reference is made to Section 40 A of the DVAT Act, nothing has been brought on record by the Department in any of these appeals to show that the arrangement by which discounts/incentives were offered to the purchasing dealers by the selling dealers was with a view to defeat the application or purposes of any provision of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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