9911796707
TMI Blog2022 (5) TMI 1300X X X X Extracts X X X X X X X X Extracts X X X X ..... Government Pleader (Taxes) for respondent. 2. On 27.02.2018, learned Single Judge, Mr Justice P B Suresh Kumar, noticing that the fifth proviso to Section 11 was not considered in Cement House v. State of Kerala ; State of Kerala v. Syed Muhammed and Tenny Devassy v. State of Kerala , referred W.P.(C) No.5467/2017 and two other petitions to Division Bench for examination of the issues noted therein. On 24.07.2020, a Division Bench of Mr Justice K Vinod Chandran and Mr Justice T R Ravi referred the matters to a Full Bench, particularly because the views taken by the learned Judges in the Reference Order are inconsistent with the view taken in the three Division Bench judgments (a) Cement House v. State of Kerala (2011) 38 VST 74 (Ker); (b) State of Kerala v. Syed Muhammed 2016 (4) KLT 462 and (c) Tenny Devassy v. State of Kerala O.T.Rev. No.98/2012. Hence, the matters are posted before the Full Bench. 2.1 W.P.(C) No.5467/2017 is treated as the representative case to appreciate the circumstances raising the question of law by us. The counsel appearing for the parties stated that the reference to circumstances in all the cases is unnecessary. Even if a slight variation in circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessing authority would vary based on the provisions of the KVAT Act. 9. Firstly, there cannot be an insistence on an automatic reversal of input tax credit availed by the petitioners, proportionate to the discount subsequently received by them from their suppliers. The assessing authority would have to first ascertain the sale price of the product in the hands of the petitioners and determine the output tax paid by the petitioners. If thereafter, it is found that the output tax paid by the petitioner is less than the input tax that he has taken credit of, then the appropriate course of action would be to direct the petitioners to restrict the input tax credit to the extent provided in the second proviso to Section 11 (3) of the KVAT Act. 10. Secondly, if the discount amounts received by the petitioners from their suppliers, can be demonstrated to be amounts received by them towards balance of the sale price of the goods, then the sales turnover of the petitioners can be enhanced to that extent alone and the output tax payable by the petitioner computed accordingly. Against this output tax found to be payable by the petitioners, the input tax availed by them would have to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invoice price. The dealers, after achieving targets set by the manufacturers, receive credit notes from the manufacturers. The manufacturer is not claiming a refund or adjustment of input tax already paid by it on or from the input tax deposited. The manufacturer/supplier is filing a declaration or affidavit stating that it is not claiming refund or adjustment of input tax deposited on invoice value. Therefore, the inclusion of credit notes in turnover would amount to levy of tax on the component which has already suffered tax and contrary to the scheme of value-added taxation implemented under the Act. Section 2(lii) deals with 'turnover', and Explanation VII deals with cases where the dealer sells goods purchased by him at a price lower than at which it was purchased and subsequently receives any amount from any person towards reimbursement of the balance of the price. Such difference received is deemed to be turnover in respect of such goods. Firstly, the Revenue is not appreciating the distinction between purchase cost and purchase value. The Legislature, appreciating the working of the scheme insofar as a few cases were concerned, where the discount is given for a variety of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of discount/credit notes as part of turnover is contrary to the scheme of Value Added Tax under the Act. The counsel appearing for the dealers rely on the following judgments: "Vettathil Agencies (M/s.) v. Commercial Tax Officer, Cherthala 2017 (1) KHC 141; J K Cotton Spinning and Weaving Mills Co. Ltd v. State of U P 1961 KHC 653; M/s. Mahim Patram Private Ltd. V. Union of India 2007 KHC 3135; Ashok Leyland Ltd. V. State of Tamil Nadu 2004 KHC 463; Andhra Agencies v. State of Andhra Pradesh (2009) 17 KTR 476 (SC); Commissioner of Sales Tax, U P v. Hind Lamps Limited (2009) 17 KTR 480 (SC); and Union of India v. Bombay Tyres International (P) Ltd. 2005 KHC 519. 5. Mr Mohammed Rafiq argues that under Section 6 of the Act, the dealer is liable to pay tax on sales or purchases and the liability is determined by the taxable turnover. Section 2(lii) deals with turnover, and the Explanation deals with deemed turnover as well. In the case on hand, the dealers are selling at a price lower than at which the dealer purchased and, subsequently, received amount, whatever name, from the manufacturer/supplier as reimbursement of the balance of the price, so Explanation VII to Section 2(lii) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Explanation VII to Section 2(lii) of the Act. He places reliance on the following judgments which deal with the concept of discount and consideration of such discount either for assessment or turnover: Priya Agencies v. Commercial Tax Officer (A.A.) (2008) 14 VST 293; Madras Cements v. Assistant Commissioner 2010 (2) KHC 847; Cement House; Tenny Devassy; Syed Muhammed (supra); Southern Motors v. State of Karnataka (2017) 3 SCC 467; C Mohanan v. State of Kerala 2017 SCC OnLine Ker 15549; and Ali M K v. State of Kerala (2003) 11 SCC 632. 6. We have gone through the case law relied on by both sides. The three decisions: Cement House, Tenny Devassy, Syed Muhammed (supra), admittedly did not notice the Fifth proviso to Section 11(3) of the Act. The counsel appearing for the parties admit that the other judgments are not directly on the point or deal with the scope and object of Explanation VII to Section 2(lii) on the one hand and, on the other hand, the ambit of operation of the Fifth proviso to Section 11(3) of the Act. 6.1 Therefore, what falls for the consideration of the Full bench is the construction of Explanation VII to Section 2(lii) and the Fifth proviso to Section 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to their assessing authorities and ensure that excess input tax is not claimed for 2005-06. On submission of the above declaration the assessing authorities will drop all further action under KVAT Act, 2003 on account of the credit notes issued by the companies up to 31-3-2006. (iv) Only those companies/dealers who withdraw unconditionally all writ petitions/appeals filed by them on account of amendment made in this context will get the benefit. All assessing authorities shall see that the above instructions are complied with. Commissioner To All Concerned." 6.3 Now, let us look at the amended Fifth proviso to Section 11(3), which reads as follows: Provided also that input tax credit shall not be available in respect of the tax paid on the turnover subsequently allowed as discount, and shall be disallowed where it is found that the dealer has claimed input tax credit under this section on such turnover or of such goods used in the manufacture of goods sent outside. But the amount covered under credit notes issued by a supplier that do not affect the input tax credit already availed of or on account of reimbursement of any expenses incurred by the dealer shall not be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... input tax credit to the exchequer by the manufacturer/supplier. 7. In the case on hand, the first portion of the legislative declaration on what constitutes turnover is covered by Section 2(lii), read with Explanation VII. The definition and extended meaning of 'turnover' are part of Section 2 of the Act, which reads, "In this Act, unless the context otherwise requires". Section 11 deals with the input tax credit. 7.1 A definition is appreciated in different backdrops, settings, and for our purpose, the following principles are helpful and excerpted: [Dr. Vepa P Sarathi - Interpretation of Statutes Edition 2010 Page Nos.267 and 268] "*** *** *** (b) The definition must ordinarily determine the application of the word or phrase defined; but the definition must itself be interpreted first before it is applied. (c) When the definition of a word gives it an extended meaning, the word is not to be interpreted by its extended meaning every time it is used, for the meaning ultimately depends on the context; and a definition clause does not, ordinarily enlarge the scope of an Act. (emphasis supplied) *** *** *** *** ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtain basic ideas have been recognised, while heeding to the text and context. Justice G.P. Singh, in his seminal text, Principles of Statutory Interpretation formulates the governing principles of interpretation which have been adopted by courts while construing a statutory proviso. The first rule of interpretation is that: "The normal function of a proviso is to except something out of the enactment or to qualify something enacted therein which but for the proviso would be within the purview of the enactment. As stated by Lush, J.; (QBD p. 173). '.... When one finds a proviso to the section, the natural presumption is that but for the proviso the enacting part of the section would have included the subject-matter of the proviso. In the words of Lord Macmillan (SCC Online PC) '... The proper function of a proviso is to except and to deal with a case which would otherwise fall within the general language of the main enactment, and its effect is confined to that case. The proviso may, as Lord Macnaghten laid down, be a qualification of the preceding enactment which is expressed in terms too general to be quite accurate (AC p. 62). The general rule has been stated by Hidayatullah, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.4. An effort should be made while construing a statute to give meaning both to the main enactment and its proviso bearing in mind that sometimes a proviso is inserted as a matter of abundant caution: "The general rule in construing an enactment containing a proviso is to construe them together without making either of them redundant or otiose. Even if the enacting part is clear effort is to be made to give some meaning to the proviso and to justify its necessity. But a clause or a section worded as a proviso, may not be a true proviso and may have been placed by way of abundant caution." 92.5. While ordinarily, it would be unusual to interpret the proviso as an independent enacting clause, as distinct from its main enactment, this is true only of a real proviso and the draftsperson of the statute may have intended for the proviso to be, in substance, a fresh enactment: "... To read a proviso as providing something by way of an addendum or as dealing with a subject not covered by the main enactment or as stating a general rule as distinguished from an exception or qualification is ordinarily foreign to the proper function of a proviso. However, this is only true of a real pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dra Maganlal & Co. Ltd. the Court in Hiralal Rattantal adverted to the earlier decisions in State of Rajasthan v. Leela Jain and Bihta Coop. Development Cane Mktg. Union Ltd. v. Bank of Bihar." 8. Let us turn to the Fifth proviso to Section 11(3) of the Act. With effect from 01.04.2005, the Fifth proviso was introduced by Act 21 of 2008. Explanation VII to Section 2(lii) was made effective from 01.04.2005. 8.1 The Fifth proviso of Section 11(3) has two limbs. Section 11(3) provides for input tax credit, subject to subsections (4) to (13) and facilitates payment of difference of tax between output tax and input tax payable to the Government by the dealer. Unamended Fifth proviso deals with a situation where a dealer allows discount subsequent to the sale, the input tax in relation to the discount so allowed will be disallowed to the buyer. The unamended Fifth proviso denies credit of input tax on subsequent discount to the buyer. The proviso as amended by Act 21 of 2008 begins with the word 'But' the amount covered under credit notes issued by a supplier that do not affect the input tax credit already availed of, or amounts covered by credit notes received by the dealer on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e by a person not being a Company or Firm registered under the Companies Act, 1956 (Central Act 1 of 1956) and Indian Partnership Act, 1932 (Central Act 9 of 1932) ¹8[or society including a co-operative society or association of individuals whether incorporated or not] of agricultural or horticultural produce grown by himself or grown on any land in which he has an interest whether as owner, usufructuary mortgagee, tenant or otherwise, shall be excluded from his turnover. *** *** *** Explanation VII:- Where a dealer sells any goods purchased by him at a price lower than that at which it was purchased and subsequently receives any amount from any person towards reimbursement of the balance of the price, the amount so received shall be deemed to be turnover in respect of such goods." The extended meaning of the word is not applied every time it is used, but the meaning ultimately depends on the context. The definition clause does not extend the scope of the Act or shadow the second limb of the Fifth proviso to Section 11(3) of the Act in its application. Section 2(lii) Explanation VII must be read and interpreted as defined in the Act unless the cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the scope of assessment but tax also is levied. The language of Section 11(3) read with the Fifth proviso does not permit such levy. We have construed and interpreted whether the proviso as it stands from 01.04.2005 warrants a different view because of contextual change. The context in the second limb of the Fifth proviso to Section 11(3) warrants a different understanding, and through a restricted interpretation, we ought not to deny what is expressed by the State Legislature to a few of the credit notes, subject to complying with the condition set out in the Fifth proviso to Section 11(3) of the Act. 10. To sum up: (a) The definition of the word 'turnover' in Section 2(lii) is applicable unless the context otherwise demands. (b) The deemed turnover subject to satisfying a condition stipulated in Explanation VII could arise if the context in which the demand allows such definition to operate. (c) The Legislature incorporated the second limb to the Fifth proviso to Section 11(3) and by such amendment, the Legislature has taken out from the purview of assessment, credit notes received subsequent to invoice and payment of tax by the manufacturer/supplier and not claiming re ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
