IMPORTANT
JUDGEMENT RELATING TO SECTION 19(20)
IN THE HIGH COURT OF JUDICATURE AT
MADRAS
Coram: Mrs. Justice R.BANUMATHI and Mr.
Justice T.S.SIVAGNANAM
Date of Judgment: 17.07.2013
USA Agencies,
rep. by its Proprietrix A.Umamaheswari, No.139-A, Therkukadu, Attur Town, Attur Taluk, Salem District.- Petitioner.
rep. by its Proprietrix A.Umamaheswari, No.139-A, Therkukadu, Attur Town, Attur Taluk, Salem District.- Petitioner.
Vs.
The Commercial Tax Officer,
Attur (Rural)Assessment Circle
Attur (Rural)
AIT
Head Note: Challenge in these writ petitions is the vires of Section 19(11) of
Tamil Nadu Value Added Tax Act, 2006 (for short “TN VAT Act”) which prescribes
modalities and time frame as regards availment or enjoyment of the Input Tax Credit as being inconsistent
with Section 3 and the general scheme of
TN VAT Act as being arbitrary and irrational infringing the rights of the
petitioners under Article 14 and 19(1)(g) of the Constitution of India.
In
the other set of writ petitions, petitioners seek for Writ of Certiorarified
Mandamus to quash the orders/show cause notices issued by the concerned
Assessing Authority denying the Input Tax Credit taken in the revised returns
invoking Section 19(11) of TN VAT Act.
all
the writ petitions are dismissed holding that Section 19(11) is a valid piece
of legislation, cannot be struck down as being either unreasonable or
discriminatory and violative of Article 265 and 360A of the Constitution of
India.(Para 86)
W.P.Nos.902,
1202, 2016, 2233, 3732, 4329 to 4331, 5766, 20302, 25124 and 26281 of
2009;
2832,
5385, 5386, 5770, 5955, 6790, 6791, 8717, 8718, 9175, 9176, 9462, 9463, 10027,
11715, 11724, 11726,12101 to 12103, 12502, 13442, 13468, 14461, 14732, 14993,
15475, 16639, 16651, 17066, 18160, 18161, 21504 to 21508, 22332 to 22335,
22580, 22581, 23808, 23809, 25945, 27966 and 27967 of 2010;
9
to 12, 47, 1140 to 1142, 1838, 3567, 10275, 10648 to 10652,10667, 10673, 10674,
11745, 13061, 13062, 14049, 14833, 15821, 15842 to 15846, 16691, 17437, 17438,
18132, 18133, 19065, 19160, 19919 to 19922, 20056 to 20060,20124, 20178 to
20180, 20779, 20780, 21514 to 21516, 21571, 21829, 22328, 22329, 22925,23123 to
23127, 24286, 24631, 25329, 25376 to
25380, 25777 to 25779, 25802, 26646, 26678, 26679, 26994, 26995, 28350, 28351,
29716 and 29717 of 2011;
2, 3, 7, 10, 11, 22 to 24, 842, 843, 2733, 2734,
2799, 2800, 3231, 3232, 3736 to 3738, 4022, 4387, 4509, 4648, 4914, 4915, 6197,
6198, 7530 to 7532, 7539, 7540, 7873, 7883, 9935 to 9938, 10555 to 10557,
10564, 10565, 10912 to 10914, 12119 to 12123, 12549, 12550, 13044, 13045,
14535, 15804, 17118, 18530, 18743, 19005, 19756, 19775, 19891, 20806, 20864,
20921, 22498, 23381, 23779, 23822, 24060, 26806, 27968, 27969, 28897 to 28900,
30615, 30621, 31817, 31818, 31967, 33574, 33575, 33626 to 33630, 33863,
34543 and 34544 of 2012;
And
1833
to 1835, 1932, 1933, 4655, 4656, 5269 to 5271, 5387 to 5390, 5568, 5569, 5668,
5669, 6302, 9524 to 9526, 10206, 12584, 14807, 14808, 15662, 15663, 15678,
16452, 16453, 16796, 16797, 16992, 16993 and 17993 to 17995, 18161, 18162,
19313 and 19314 of 2013
W.P.No.902 of 2009:
For
Petitioner in W.P.Nos.: Mr.C.Natarajan, 20302, 25124 and 26281 Sr.Counsel of
2009, 10275,10648 to 10652, for 13061, 13062 and Mr.N.Inbarajan 15842 to 15846
of 2011 and 4022, 19775 of 2012 16796 and 16797 of 2013
For
Petitioner in W.P.Nos. : Mrs.R.Hemalatha 2016, 2233, 3732 and 5766 of 2009,
5770, 14461, 15475, 16639, 18160, and 18161 of 2010; 9 to 12, 10667, 10673, 10674, 11745, 16691,
19919 to 19922, 20056 to 20060, 20779, 20780, 22328, 22329, 24631, 25777 to
25779, 26994 and 26995 of 2011, 10, 11, 2799, 2800, 4387, 4509, 4648, 6197,
6198, 7530 to 7532, 7539, 7540, 9935 to, 9938, 13044, 13045, 18530, 18743,
19005, 19756, 22498, 30615, 33574, 33575 and 33863 of 2012 and 4655, 4656,
5668, 5669, 9524 to 9526, 10206, 15662,
15663, 16992, 16993 and 17993 to 17995 of 2013;
For
Petitioner in W.P.No. : Mr.K.Vaitheeswaran 25329 of 2011
For
Petitioner in W.P.Nos.: Mr.P.Rajkumar 2832, 12101 to 12103, 12502 and 22332 to
22335 of 2010; 1838, 15821, 21514 to 21516, 21571, 21829, 24286, 26646, 26678
and 26679 of 2011 and 7883, 20864, 20921,
23381 and 23779 of 2012 and 5269 to 5271
of 2013
For
Petitioner in W.P.Nos.: M/s.Lakshmi Sriram5385, 5386 and 21504 to 21508 of 2010
For
Petitioner in W.P.No.: Mr.P.V.Ravi Kumar 5955 of 2010
For
Petitioner in W.P.Nos.: M/s.Aparna Nandakumar 8717 and 8718 of 2010
For
Petitioner in W.P.Nos.: Mr.S.Prabhakaran 9175, 9176, 9462 and 9463 of 2010
For
Petitioner in W.P.Nos.: M/s.Hema Muralikrishnan 6790 and 6791 of 2010
For
Petitioner in W.P.Nos.: Mr.K.Soundararajan 10027 of 2010, 20124 of 2011
and 7 and 22 to 24 of 2012
For
Petitioner in W.P.Nos.: Mr.S.Ramanathan 4329 to 4331 of 2009, 11715, 11724,
11726, 13442, 13468 and 14993 of 2010; 28350 and 28351 of 2011 and 842 and 843
of 2012
For
Petitioner in W.P.Nos.: Mr.R.Senniappan 902, 1202 of 2009, 14732, 23808 and
23809 of 2010; 17437, 17438, 19160, 22925 and 25802 of 2011, 3231, 3232, 4914,
4915, 31967, 34543 and 34544 of 2012; 1833 to 1835, 1932, 1933, 6302 and 15678
of 2013
For
Petitioner in W.P.No.: Mr.B.Raveendran 16651 of 2010
For
Petitioner in W.P.No.: Mr.P.R.Kumar 17066 of 2010
For
Petitioner in W.P.Nos. Mr.L.Muralikrishnan 22580 and 22581 of 2010
For
Petitioner in W.P.No.: Mr.S.P.Radhakrishnan 47 of 2011 and Mr.A.Chandrasekaran
For
Petitioner in W.P.No.: Mr.T.Pramodkumar Chopda
25945 , 27966
For
Petitioner in W.P.Nos.: Mr.P.Srinivas1140 to 1142 of 2011
For
Petitioner in W.P.No.: Mr.A.Thiagarajan 3567 of 2011
For
Petitioner in W.P.Nos.: Mr.Bakthasiromani
14049 , 14833 , 18132 ,
18133
For
Petitioner in W.P.Nos.: Mr.A.Ravichandran 20718 to 20180 of 2011, 7873 and
30621 of 2012, and 12584 of 2013
For
Petitioner in W.P.Nos.: Mr.S.P.Asokan 25376 to 25380 of 2011; 2733, 2734, 3736, 10555 to 10557, 10564,
10565, 12119 to 12123, 12549, 12550, 15804, 17118, 19891, 27968, 27969, 28897
to 28900, 31817 and 31818 of 2012 and 3737, 3738, 5387 to 5390, 16452 and 16453
of 2013
For
Petitioner in W.P.Nos.: Mr.P.V.Sudakar 29716 and 29717 of 2011
For
Petitioner in W.P.Nos.: Mr.M.Venkadeshan2 and 3 of 2012
For
Petitioner in W.P.Nos.: Mr.R.Mahadevan 10912 to 10914 of 2012
For
Petitioner in W.P.No.:
Mr.V.Sundareeswaran 14535 of 2012 for M/s.K.Venkatasubramanian
For
Petitioner in W.P.No.: Mr.D.Vijayakumar 20806 of 2012
For
Petitioner in W.P.No.: M/s.Maha Associates 23822 of 2012
For
Petitioner in W.P.No.: Mr.S.N.Kirubanandam 24060 of 2012
For
Petitioner in W.P.No.: Mr.S.Sivanandam 26806 of 2012
For
Petitioner in W.P.Nos.: Mr.M.Desingu 33626 to 33630 of 2012
For
Petitioner in W.P.Nos.: M/s.Sarvabhauman 5568 and 5569 of 2013Associates
For
Petitioner in W.P.Nos.: Mr.A.P.Srinivas 14807 and 14808 of 2013
For
Respondents: Mr.A.L.Somayaji, Advocate General assisted by
Mr.V.Haribabu,AGP(Taxes) Mr.Cibi Vishnu,AGP(Taxes) Mr.Manohara Sundaram,
Govt.Advocate (Taxes) Mr.Kanmani Annamalai, Govt.Advocate (Taxes) Mr.J.Adithya
Reddy, Govt.Advocate (Taxes) and Mr.A.R.Jayaprathap, Govt. Advocate (Taxes)
O R D E R
Coram: R.BANUMATHI,
J. and T.S.SIVAGNANAM, J.
Challenge
in these writ petitions is the vires of Section 19(11) of Tamil Nadu Value Added
Tax Act, 2006 (for short “TN VAT Act”) which prescribes modalities and time
frame as regards availment or enjoyment
of the Input Tax Credit as being inconsistent with Section 3 and the general scheme of TN VAT Act as being
arbitrary and irrational infringing the rights of the petitioners under Article
14 and 19(1)(g) of the Constitution of India.
2.
In the other set of writ petitions, petitioners seek for Writ of Certiorarified
Mandamus to quash the orders/show cause notices issued by the concerned
Assessing Authority denying the Input Tax Credit taken in the revised returns
invoking Section 19(11) of TN VAT Act.
3.
Petitioners are carrying on business in various goods and are registered
dealers under the provisions of TN VAT Act.
Petitioners are periodically filing returns as per the provisions of TN
VAT Act and the Rules thereon. Petitioners filed return and the same was not
accepted by the Authorities on one ground or the other. The petitioners who are registered dealers
filed revised return rectifying the mistakes in the return already filed
claiming Input Tax Credit. The same was denied invoking the provisions of
Section 19(11), which provides that if the registered dealers fail to claim the
Input Tax Credit in respect of any transaction of taxable purchase in any
month, he shall make the claim before the end of the financial year or before
ninety days from the date of purchase, whichever is later.
4.
According to petitioners there is no rule “prescribed regarding the manner” for
the tax reduced under Section 3(3) and “manner” will not include time limit,
but indicates mode of doing and Section 19(11) cannot whittle down the
substantive right. Petitioners contend
that Sections 20, 21, 22 and 25 of TN VAT Act, which deal with “assessment of
tax”, “filing of returns”, “procedure to be followed in assessment" do not
provide for any time limit. While so,
the time limit for securing Input Tax Credit under Section 19(11) of TN VAT Act
is irrational and arbitrary. Section
19(10)(a) of TN VAT Act gives legal right to Input Tax Credit on receipt of tax
invoice and Section 19(10)(a) and Rule 10(2) does not give time limit; whereas
Section 19(11) of TN VAT Act prescribes time limit which is arbitrary and
irrational offending Article 14 of the Constitution of India and has no nexus
to any object of law. While the relevant provisions for assessment does not
prescribe the time limit for assessment, Section 19(11) fixes time limit in an
arbitrary manner. Contending that Section
19(11) is unworkable and is inconsistent with the general scheme of the Act,
petitioners have challenged the vires of Section 19(11) of TN VAT Act.
5.
Respondents resisted the writ petitions contending that there is nothing
unreasonable or arbitrary in prescribing the time limit for claiming Input Tax
Credit in respect of any transaction of taxable purchase. Since intention of the Legislature is to
avoid misuse and tax evasion, the time limit prescribed under Section 19(11) of
TN VAT Act for claiming Input Tax Credit cannot be termed as unreasonable
restrictions. If indefinite period is
allowed, it is likely to be misused apart from the fact that after the lapse of
long time, the related transactions cannot be verified.
6.
We have heard Mr.C.Natarajan, learned Senior counsel, Mrs.R.Hemalatha,
Mr.S.P.Asokan, Mr.Pramodkumar Chopda, Mr.V.Sundareswaran, Krishna Srinivas and
Mr.P.Rajkumar, learned counsels appearing for the petitioners and the other
learned counsels who adopted the arguments of the learned Senior Counsel.
7.
Submissions:-
The learned Senior Counsel
Mr.C.Natarajan interalia contended as follows:-
That sub-sections (2) and (3) of Section 3 of the VAT Act together
constitute the charging section regarding the scheme of tax levy on the sale of
goods specified in Part B or Part C of the First Schedule to the Act. The tax payable under Section 3(2) shall be
reduced in the manner prescribed to the extent of tax paid on purchase of goods
is premptory and sub-section (3) of Section 3 in a way is a proviso to Section
3(2) of the TN VAT Act. It is submitted
that there is no rule “prescribed” regarding the “manner” for the tax reduced
under Section 3(3) and “manner” will not include time limit, but indicates mode
of doing. In support of such contention,
reliance was placed on the decision of the Hon'ble Supreme Court in Sales Tax
Officer vs. K.I.Abraham ([1967] 20 STC 367).
It is further submitted that Section 19(11) is a procedural provision
and it has to make the Charging Section effective and not to whittle down or
render ineffective the tax reduced for the sales under Section 3(2) to the
extent of tax paid on purchases.
Reliance was placed on the decision of the Hon'ble Supreme Court in
Murarilal Mahavir Prasad vs. B. R. Vad ([1976] 37 STC 77) and Govind Saran
Ganga Saran vs. Commissioner of Sales Tax & Ors., [(1985) 60 STC 1 (SC)].
8.
The provisions of the TN VAT Act contemplate yearly assessment. “Year” is
defined by Section 2(42). Section 3(1)
speaks of “turnover for a year”. Annual
assessments and reassessments are provided by the provisions such as Sections
20,22,25,27 and 29. Taking us through
the above provisions, the learned Senior Counsel submitted that the assessing
authority is bound by the provisions of Section 3, including sub-sections (2)
and (3) to determine the “tax payable” by the assessee and the right to “tax
reduction” under Section 3(3) is indefeasible on proof of tax having been paid
by a dealer on his purchase. In support
of his contention that input credit is a substantive right and is indefeasible,
reference was made to the decision of the Hon'ble Supreme Court in Commissioner
of Central Excise vs. Home Ashok Leyland Limited [2007 (210) E.L.T. 178 (SC)].
9.
Without prejudice to the above submission, it was submitted that Section 19(11)
deals with only one situation where the dealer fails to claim the credit
inspite of having the tax invoice of the selling dealer, even when tax paid to
the vendor and corresponding input credit stood ascertained at the time of
filing the return. Reference was made to
“Blacks Law Dictionary and Advanced Law Lexicon” to state that failure and
default are synonymous expressions.
Further, Section 19(11) does not apply in situations where there is no
failure to seek credit, because the additional tax liability was incurred by
the vendor, either due to tax rate or price is assessed or reassessed or
revised under Sections 22(4), 27(1)(b), 29 or due to revision of assessment
under Section 53 etc. Equally, it does
not apply, where liability of vendor is enhanced or modified in the process of
appeal such as Section 51 or Section 59.
Section 19(11) cannot be read to provide a limitation as no law of
limitation can start running before accrual of right, as limitation operates to
enforce existing right and not where, there is no right.
10.
It is further submitted that Section 19(11) is directory and not
mandatory. The question whether “shall”
is mandatory or directory depends on the language, intention of legislature and
scheme and design and whether consequences spelt. Reliance was placed on the decision of the
Hon'ble Supreme Court in State of U.P.
11.
It is submitted that Section 19(11) cannot be invoked, where the compliance
with the same is impossible of accomplishment such a situation where the claim
itself crystallised well after the period.
It is further submitted that the impugned provision cannot be read in
isolation, but harmoniously construed with every other provision and the provision leads to its repugnancy to
various provisions of the Act including the charging provision. It is the further submission that the revenue
by interpreting the provision as inflexible, render it arbitrary and irrational
requiring the same to be invalidated as infringing Article 14 of the Constitution. In this regard, reference was made to the
decision of the Hon'ble Supreme Court in Union of India vs. A.Sanyasi Rao
([1996] 219 ITR 330 (SC)). Reference
was also made to sales pertaining to Inter-State transactions to demonstrate
that great prejudice has been caused to the dealers.
12.
The learned Advocate General appearing for the respondents submitted that
Section 3(2) is a complete charging Section and it provides for all the
components that constitute a valid charging Section and there is no need to
read the provision with any other provision to arrive at the nature of levy
under the Act. It was contended that
Section 3(3) pre-supposes charge and liability to pay tax, as the provision
begins with the word “that tax payable under sub-section (2).....” thereby
implying that liability to pay tax has already arisen by virtue of Section
3(2). The learned Advocate General
placed reliance on the decision of the Bombay High Court in M/s.Mahalaxmi
Cotton Ginning Pressing and Oil Industries vs. the State of Maharastra and
Ors., [(2012) 51 VST 1 (Bom) = MANU/MH/0620/2012] and submitted that it is
squarely applicable to the cases on hand.
Reliance was also placed on the decision of the Division Bench of the
Kerala High Court in Mohammed Haji Manachithodi Agencies vs. State of Kerala
[2012 (3) KLT (SN) 17] and State of Rajasthan vs. Ghasilal, [AIR 1965 SC
1454]. It is urged that Section 3(3)
grants a concession which can only be used to compute tax liability and it
merely provides a factor to be considered at the time of computation of
liability that has already arisen under Section 3(2). That the right under Section 3(3) is a
concession and it is strictly to be governed by the manner prescribed under the
statute which is Section 19 and the claim for Input Tax Credit is neither a
fundamental right nor a common law right.
It was submitted that the usage of the word “in the manner prescribed”
in Section 3(3) has to be read to mean the prescription in Section 19 including
the time limit in Section 19(11) and the Input Tax Credit claim is neither
absolute nor indefeasible.
13.
The learned Advocate General made meticulous submission that the right to claim
Input Tax Credit being a concession is available only in situation contemplated
under the statute and if the right is not available in a given situation, it
only means that the legislature did not intend to grant the right to claim
Input Tax Credit in such situations. It
is further submitted that all situations as claimed by the petitioners are not covered
by Section 19(11), are situation where the tax liability of the vendor
increases due to events like price variation, revision of assessment,
reassessment etc., and in such situation whether increase in tax liability is
transferred by the vendor to the purchaser is entirely a matter of contractual
arrangement between the parties. Section
19 is mandatory and the word shall used in the statute intended the provision
to be mandatory. According to
respondents, the provision for consequences for failure in the form of lapse of
credit or reversal of credit in other provisions such as Section 18(3), 19(19)
etc., are not relevant inasmuch as under all those provisions the right to
claim Input Tax Credit has already accrued to the assessee and the same is to
be adjusted or refunded, unlike Section 19(11) which is a pre-condition for
claiming credit.
14.
Upon consideration of the submissions and materials placed on record, the
following questions arise for consideration in these writ petitions:-
(1)Whether Section 19(11) of TN VAT Act
is violative of Article 265 and 360A of the Constitution of India and is liable
to be struck down?
(2)Whether Section 19(11) is to be
struck down on the ground that Section 19(11) is inconsistent with the Charging
Section sub-section (2) of Section 3 and whether Section 19(11) is inconsistent
with the scheme of the Act like Sections 21, 22, 27 and 29 of TN VAT Act?
(3)Whether Section 19(11) is only
directory and not mandatory?
15.
Introduction Sales Tax Regime to Value
Added Tax (VAT):-
Value Added Tax is modern and
progressive tax system now adopted in over 130 countries around the world. In India
16.
Introduction of VAT was difficult in India
"In the existing sales tax
structure, there are problems of double taxation of commodities and
multiplicity of taxes, resulting in a cascading tax burden. For instance, in
the exiting structure, before a commodity is produced, inputs are first taxed,
and then after the commodity is produced with input-tax load, output is taxed
again. This causes an unfair double taxation with cascading effects. In the
VAT, a set-off is given for input tax as well as tax paid on previous
purchases. In the prevailing sales tax structure, there is in several States
also a multiplicity of taxes, such as turnover tax, surcharge on sales tax,
additional surcharge, etc. With
introduction of VAT, these other taxes will be abolished. In addition, Central
sales tax is also going to be phased out. As a result, overall tax burden will
be rationalised, and prices in general will also fall. Moreover, VAT will
replace the existing system of inspection by a system of built-in
self-assessment by the dealers and auditing. The tax structure will become
simple and more transparent. That will improve tax compliance and also augment
revenue growth. Thus, to repeat, with the introduction of VAT, benefits will be
as follows:
a set-off will be given for input tax
as well as tax paid on previous purchases other taxes, such as turnover tax,
surcharge, additional surcharge, et., will be abolished.
overall tax burden will be
rationalised.
prices will be self-assessment by
dealers transparency will increase
there will be higher revenue
growth"
17.
In order to examine the controversy raised in these writ petitions and to test
the validity of the impugned provision, a bird's eye view of the design of the
VAT Act, its concept, coverage, the compulsory requirement to be complied with
and other relevant details has to be looked into. The essence of VAT is in providing set off
for the tax paid earlier and this is given effect through the concept of Input
Tax Credit/rebate. VAT is based on value
addition to goods and related VAT liability of the dealer is calculated by
deducting Input Tax Credit from tax collected on sales during the payment
period. The Input Tax Credit was available on both manufacturer and the trader
for purchase of inputs/supplies meant for both sale within the State and sale
in the course of inter-State Trade.
Consequently, it reduced the immediate tax liability. In cases where, tax credit exceeds the tax
payable on sales in a month, the excess credit will be carried over. The entire design of VAT with Input Tax
Credit is crucially based on documentation of tax invoice, cash memo or
bill. There is a statutory obligation
for every registered dealer having turnover of sales above the amounts
specified to issue a tax invoice serially numbered containing the prescribed
particulars. Failure to comply with the
mandatory requirements attracts penalty.
The basic simplification of VAT is that VAT liability will be self
assessed by the dealer themselves in terms of submissions on returns upon
setting of the credit limit. This has
done away with the requirement of compulsory assessment as in the sales tax
regime. The correctness of self
assessment is subject to check through the departmental audit. Therefore, the net effect of the VAT system
is to rationalise the tax burden and bring down in general the price level and
to bring in simplicity and transparency in the tax structure thereby improving
the tax compliance and eventually to ensure revenue growth. The above in broad
terms is the concept of VAT.
18.
There is distinction between the scheme of tax on sale of goods both under the
VAT regime and under the Sales Tax Act existing prior to that. Under the Sales
Tax Act except a few items, all other goods were taxable at the point of first
sale in the State. Therefore tax was levied and collected only from the first
seller. Contrary to this, the scheme under the VAT regime is that the tax
collected by the first seller is given as Input Tax Credit to the second
seller, and the tax paid by the second seller is given as Input Tax Credit to
the third seller and ultimately the entire tax is borne by the consumer. In
other words, the tax paid on the value addition by a series of dealers is
ultimately passed on to the consumer and dealers get reimbursement of the tax
paid by them.
19.
All the States have implemented VAT and made provisions for Input Tax Credit as
per their needs. Under the erstwhile Sales Tax regime, there was multiplicity
of taxes like turnover tax, surcharge on sales tax, additional surcharge, etc.,
but with introduction of VAT, these other taxes have been abolished. As a
result, over all tax burden will be rationalised and prices in general will
also fall.
20.
Questions No.1 and 2:-
Whether Section 19(11) is inconsistent
with the Charging provision - Section 3(2) and the cheme of the Act?
Tamil Nadu Value Added Tax Act, 2006
was enacted introducing VAT in the State of Tamil Nadu
21.
Section 19 deals with “Input Tax Credit” and the conditions/requirements to be
complied with for claiming Input Tax Credit.
Section 20 deals with “assessment of tax”. Section 21 deals with “filing of returns in
the prescribed form”. Section 22 deals
with ”deemed assessment and procedure to be followed by the Assessing Authority”. Section 27 deals with “assessment of escaped
turnover and wrong availment of Input Tax Credit”. Section 53 deals with “special powers of
Joint Commissioner", who may on his own motion call for and examine any
assessment or order, if such assessment or order or proceeding recorded
prejudicial to the interest of the revenue.
22.
Section 3 of TN VAT Act deals with “levy of tax on sales of goods”. The manner and extent to which a registered
dealer who has paid tax as per the charging provision Section 3(2) would be
entitled to credit has been spelt out in sub-section (3) of Section 3. Section
3 reads as under:-
“3. Levy of taxes on sales of goods:
(1) (a) Every dealer, other than a
casual trader or agent of a non-resident dealer, whose total turnover for a
year is not less than rupees five lakhs and every casual trader or agent of a
nonresident dealer, whatever be his total turnover, for a year, shall pay tax
under this Act.
(b) Notwithstanding anything contained
in clause (a), every dealer, other than a casual trader or agent of a
non-resident dealer, whose total turnover in respect of purchase and sale
within the State, for a year, is not less than rupees ten lakhs, shall pay tax
under this Act.
(2) Subject to the provisions of
sub-section (1), in the case of goods specified in Part - B or Part - C of the
First Schedule, the tax under this Act shall be payable by a dealer on every
sale made by him within the State at the rate specified therein.
[Provided that all spare parts,
components and accessories of such goods shall also be taxed at the same rate
as that of the goods if such spare parts, components and accessories are not
specifically enumerated in the First Schedule and made liable to tax under that
Schedule.]
(3) The tax payable under sub-section
(2) by a registered dealer shall be reduced, in the manner prescribed, to the
extent of tax paid on his purchase of goods specified in Part - B or Part - C
of the First Schedule, inside the State, to the registered dealer, who sold the
goods to him.
..............”
23.
The essence of VAT is in providing set off for the tax paid earlier and this is
given effect through the concept of Input Tax Credit. Input Tax Credit is given
only to ameliorate the cascading effect of tax burden. By virtue of the Section 3(3), the tax
payable by the registered dealer shall be reduced in the manner prescribed, to
the extent of tax paid on his purchase of the goods specified in Part B or Part
C, inside the State to the registered dealer, who sold the goods to him. Input
Tax Credit is creature of Statute. Case of respondents is that petitioners have
no absolute right to claim Input Tax Credit, but only a concession and when
Input Tax Credit is only a concession, it is open to the Government to impose
conditions for availing Input Tax Credit.
24.
The controversy raised in these cases are whether Section 3(2) and Section 3(3)
are both charging provisions. On behalf
of the State, it is submitted by the learned Advocate General that Section 3(1)
and 3(2) are alone charging sections and sub-section (3) of Section 3 is not a
charging section, but only contemplates set-off of the tax to the extent
indicated and in the manner prescribed and Section 19 deals with the mechanism
for availing Input Tax Credit.
25.
Section 19 of TN VAT Act stipulates conditions for claiming Input Tax
Credit. Section 19 reads as under:-
“Section 19. Input tax credit.-
(1)There shall be input tax credit of
the amount of tax paid or payable under this Act, by the registered dealer to
the seller on his purchases of taxable goods specified in the First Schedule :
Provided that the registered dealer, who
claims input tax credit, shall establish that the tax due on such purchases has
been paid by him in the manner prescribed.
(2)Input tax credit shall be allowed
for the purchase of goods made within the State from a registered dealer and
which are for the purpose of”
(i)re-sale by him within the State; or
(ii)use as input in manufacturing or
processing of goods in the State; or
(iii)use as containers, labels and
other materials for packing of goods in the State; or
(iv)use as capital goods in the manufacture
of taxable goods.
(v)sale in the course of inter-State
trade or commerce falling under sub-section (1) of section 8 of the Central
Sales Tax Act, 1956.
(vi)Agency transactions by the
principal within the State in the manner as may be prescribed
(3) (a) Every registered dealer, in
respect of purchases of capital goods (for use in the manufacture of taxable
goods), shall be allowed input tax credit in the manner prescribed.
(b) Deduction of such input tax credit
shall be allowed only after the commencement of commercial production and over
a period of three years in the manner as may be prescribed. After the expiry of three years, the
unavailed input tax credit shall lapse to Government.
(c) Input tax credit shall be allowed
for the tax paid under Section 12 of the Act, subject to clauses (a) and (b) of
this sub-section.
(4) to (9) ........
(10) (a) The registered dealer shall
not claim input tax credit until the dealer receives an original Tax Invoice
duly filled, signed and issued by a registered dealer from whom the goods are
purchased, containing such particulars, as may be prescribed, of the sale
evidencing the amount of input tax.
(b) If the original tax invoice is
lost, input tax credit shall be allowed only on the basis of duplicate or
carbon copy of such tax invoice obtained from the selling dealer subject to
such conditions as may be prescribed.
(11)In case any registered dealer fails
to claim input tax credit in respect of any transaction of taxable purchase in
any month, he shall make the claim before the end of the financial year or
before ninety days from the date of purchase, whichever is later.
(12) To (15) ............
(16) The input tax credit availed by
any registered dealer shall be only provisional and the assessing authority is
empowered to revoke the same if it appears to the assessing authority to be
incorrect, incomplete or otherwise not in order.
(17) If the input tax credit determined
by the assessing authority for a year exceeds tax liability for that year, the
excess may be adjusted against any outstanding tax due from the dealer.
(18) The excess input tax credit, if
any, after adjustment under sub-section (17), shall be carried forward to the
next year or refunded, in the manner, as may be prescribed.
(19) Where any registered dealer has
availed input tax credit and has goods remaining unsold at the time of stoppage
or closure of business, the amount of tax availed shall be reversed on the date
of stoppage or closure of such business and recovered.
(20) Notwithstanding anything contained
in this section, where any registered dealer has sold goods at a price lesser
than the price of the goods purchased by him, the amount of the input tax
credit over and above the output tax of those goods shall be reversed."
The
entire design of VAT is Input Tax Credit which is crucially based on
documentation of Tax Invoice. The tax
sufferance proved by original tax
invoice, production of original invoice, filing of Returns as per Rule 7 of
Tamil Nadu Value Added Tax Rules, maintenance of true, correct and complete
accounts, claiming Input Tax Credit within the time stipulated are the essence
of the claim for availing Input Tax Credit.
26.
Sub-section (1) of Section 19 of TN VAT Act, 2006 provides for availment of
Input Tax Credit in any month accrued on purchases made against the output tax
due on sale by a registered dealer.
Proviso to sub-section (1) of Section 19 stipulates that the registered
dealer, who claims Input Tax Credit, shall establish that the tax due on such purchases
has been paid by him in the manner prescribed.
Sub-section (2) of Section 19 enumerates the transactions for which
Input Tax Credit shall be allowed.
Section 19(3)(a) and (4) provide for allowing Input Tax Credit. As per Section 19(3)(a) and (4), Input Tax
Credit “shall be allowed in the manner prescribed”. Section 19 contains details
of sales in respect of which Input Tax Credit is to be allowed and sales in
respect of which Input Tax Credit is not to be allowed. Since Input Tax Credit “shall be allowed only
in the manner prescribed”, the registered dealer cannot claim Input Tax Credit
independent of Section 19 of TN VAT Act.
27.
As per Section 19(11) of TN VAT Act, “.... in case any registered dealer fails
to claim Input Tax Credit in respect of any transaction of taxable purchase in
any month, he shall make the claim before the end of the financial year or
before ninety days from the date of purchase, whichever is later”. Sub-section (1) of Section 19 contemplates
allowing Input Tax Credit of the amount of tax paid or payable to the extent of
the amount of Input Tax Credit accrued on purchases. Section 19(11) prescribes the modalities and
time frame as regards availment or enjoyment of the said concession. By Section
19(11) Legislature wanted to set up a time-frame for availment of Input Tax
Credit accrued on purchases before the end of the financial year or ninety days
from the date of purchase whichever is later.
28.
Section 3(1)(a) deals with persons who are liable to pay tax under TN VAT Act
i.e. every resident dealer whose turnover is above Rs.5 lakhs shall pay tax
under the Act. As per Section 3(1)(b),
every dealer who purchases goods within the State and effects sale of those
goods within the State shall pay tax under the Act, if his turnover is more
than Rs.10 lakhs. Sub-section (2) of
Section 3 is the Charging Section. As
per sub-section (2) of Section 3, - ... subject to the provisions of
sub-section (1), in case of goods specified in Part-B or Part-C of the First
Schedule, the tax under TN VAT Act shall be payable by a dealer on every sale
made by him within the State at the rate specified therein”. Sub-section (3) of Section 3 provides for “availing
Input Tax Credit by a registered dealer to the extent of tax paid on his purchase
of goods specified in Part-B or Part-C of the First Schedule, inside the State
to the registered dealer, who sold the goods to him”. The charging provision in
the Statute is sub-section (2) of Section 3.
29.
Learned Senior Counsel for petitioners contended that sub-sections (2) and (3)
of Section 3 are the Charging Section and sub-section (3) of Section 3, which
provides for availing Input Tax Credit is an integral part of sub-section (2)
of Section 3. Learned Senior Counsel
submitted that while tax payable under sub-section (2) of Section 3 by a dealer
on every sale made by him is mandatory, the dealer as of right is entitled to
claim Input Tax Credit and therefore, the Input Tax Credit provided under
sub-section (3) of Section 3 is not a concession, but is an indefeasible
right. Learned Senior Counsel further
contended that the substantive right of claiming Input Tax Credit under
sub-section (3) of Section 3 of the Act cannot be curtailed by imposing restrictions
like Section 19(11) of TN VAT Act.
30.
On a careful and closer reading of the provision, the position appears
otherwise. Though in sub-section (3) the expression used is “shall” as regards
the reduction in the tax payable to the extent of tax paid on purchase of goods
inside the State such reduction is not
automatic, but is in the manner prescribed under the Act. If such is the case, the only plausible
interpretation that could be given is that in the event a registered dealer
seeks for reduction of the tax payable by taking umbrage under sub-section (3)
of Section 3 such claim shall be decided in the manner prescribed under the
statute. The manner and method is spelt
out in Section 19. The proviso to sub-section
(1) of Section 19, imposes a condition on the registered dealer who claims
input tax to establish that the tax due on purchases has been paid by him in
the manner prescribed.
31.
Sub-section (3) of Section 3 provides for reduction of tax payable by a
registered dealer in the manner prescribed to the extent of tax paid on his
purchase of goods specified in Part-B or Part-C of the First Schedule, inside
the State, to the registered dealer, who sold the goods to him. This claim for Input Tax Credit is not
available to a registered dealer in respect of all and any amount of tax paid
or payable under the Act. That is,
reduction of tax is provided for only in respect of the tax paid by a dealer on
his purchase of goods made inside the State of Tamilnadu Tamilnadu Tamil
Nadu
32.
Like wise as per Section 19(5)(c), no Input Tax Credit shall 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 Section 8(2)
of Central Sales Tax Act. The reason
being in respect of such sales effected outside the State of Tamilnadu ,
no tax being paid to the State of Tamil
Nadu
33.
Similarly under sub-section (7) of Section 19, no input tax can be availed for goods purchased for business, but
utilized for providing facility to proprietor, partner or Director, no ITC for
purchase of all automobiles, no ITC for purchase of air conditioning
units. Similarly, no input tax credit
shall be allowed in respect of any goods purchased by a registered dealer for
sale, but given away as free sample or gift or goods consumed for personal
use. In terms of sub-section (9) of
Section 19, no input tax credit is available in cases where goods are not sold
because of theft or destruction or damage. In terms of sub-section (10) of
Section 19, no registered dealer shall be entitled to claim ITC, unless he
receives an original tax invoice. Sub-section (13) of Section 19 gives power to
the assessing authority to deny ITC when it is found that fraud has been
committed.
34.
Thus from out of all taxable transactions stipulated under sub-section (2) of
Section 3, certain transactions are carved out to give benefit of Input Tax
Credit. Thus, having examined the manner
and entitlement of ITC as per Section 19 of the Act, it can hardly be said that
the right to claim ITC is a vested right or
an indefeasible right, but it is a benefit conferred under the Act in
certain contingencies and subject to conditions, to be extended in the manner
prescribed. The Input Tax Credit given
under sub-section (3) of Section 3 is really a benefit given in respect of
certain taxable transactions for which tax paid under sub-section (2) of
Section 3 to the extent of tax paid on purchase of goods inside the State. Therefore, it cannot be contended that
sub-section (3) of Section 3 is an integral part of sub-section (2) of Section
3 conferring absolute and indefeasible right on the registered dealer. Input Tax Credit provided under sub-section
(3) of Section 3 is really a benefit or indulgence. While so, it is open to the State
Legislature to provide for conditions and restrictions while extending the
concession. Primary obligation of the
State is to tax. The concession by way
of Input Tax Credit are to be construed very strictly.
35.
To contend that Input Tax Credit is only a concession granted under the scheme
of TN VAT Act, the learned Advocate General placed reliance upon (1992) 3 SCC
624 [Godrej & Boyce Mfg. Co. Pvt. Ltd. v. Commissioner of Sales Tax and
others]. In the said decision, the
Hon'ble Supreme Court dealt with Rule 41 of Bombay Sales Tax Rules which
provides for setting off the purchase tax paid by the appellant on the raw
material purchased by him within the State of Bombay. No set-off is given in respect of the tax
paid by the appellant on the purchases of the raw material made by him outside
the State of Maharashtra
“6. ..... A manufacturing dealer like
the appellant pays purchase tax when he purchases raw material and he is again
obliged to pay the sales tax when he sells the goods manufactured by him out of
the said raw material. Tax on both the transactions has the inevitable effect
of increasing the price to the consumers besides adversely affecting the trade.
It is for this reason that the aforesaid Rules enable the manufacturing dealer
to claim set-off of the tax paid by him on the purchase of raw materials from
out of the tax payable by him on the sale of goods manufactured from out of the
said raw material. ......”
.........
“9. ......... In law (apart from Rules
41 and 41-A) the appellant has no legal right to claim set-off of the purchase
tax paid by him on his purchases within the State from out of the sales tax
payable by him on the sale of the goods manufactured by him. It is only by
virtue of the said Rules - which, as stated above, are conceived mainly in the
interest of public - that he is entitled to such set-off. It is really a
concession and an indulgence. More particularly, where the manufactured goods
are not sold within the State of Maharashtra
but are despatched to out-State branches and agents and sold there, no sales
tax can be or is levied by the State of Maharashtra Maharashtra
36.
On this issue, useful reference may be made to the recent decision of the
Division Bench of Bombay High Court in M/s.Mahalaxmi Cotton Ginning Pressing
and Oil Industries vs. the State of Maharastra
37.
In Mohammed Haji Manachithodi Agencies vs. State of Kerala [2012 (3) KLT (SN)
17], the Division Bench of the Kerala High Court has held that the set-off is
in the nature of a concession and no dealer has a right to claim input tax
credit independent of the provision of Section 11 of the Kerala VAT Act.
38.
Provision for availing concession is to be strictly construed and followed:-
“Input tax credit”, which is in the
nature of concession or indulgence, could be availed only in the manner
prescribed under Section 19. Law is well settled that the person, who claims
exemption or concessional rate, must obey and fulfil the mandatory requirements
exactly. Unless there is strict compliance with the provisions of the statute,
the registered dealer is not entitled to claim “Input tax credit'. Apart from Section 19 of TN VAT Act, there is
no independent right to claim “Input tax credit”. When Section 19(11) stipulates
time frame for availment of “Input tax credit”, the registered dealer must
strictly follow the mandatory requirements of the provision.
39.
The availment of Input Tax Credit is creature of Statute. The concession of Input Tax Credit is granted
by the State Government so that the beneficiaries of the concession are not
required to pay the tax or duty which they are otherwise liable to pay under TN
VAT Act. While so extending the
concession, it is open to the
Legislature to impose conditions.
Section 19(11) is one such condition imposed making it mandatory for the
registered dealer to claim Input Tax Credit before the end of the financial
year or before ninety days from the date of purchase, whichever is later. The entitlement to claim Input Tax Credit is
created by TN VAT Act and the terms on which Input Tax Credit can be claimed
must be strictly observed.
40.
The expression "in the manner prescribed" has been used in several
places in Section 19 i.e. Section 19(2)(vi), 19(3)(b), 19(4), 19(10)(a) and
19(10)(b), 19(8) and in Section 3(3).
That apart in several places in TN VAT Act, the expression "in the
manner prescribed"/"in the manner as may be prescribed" has been
used in Sections 2(36) & (38), 3(3),
5(1), 6A(2), 8(2), 14(1), 14(2), 18(2), 20, 21, 22(2), 22(4), 22(6)(a), 31, 32,
33(1), 33(3), 39, 39(8), 48A(1), 50, 51(4), 52(4), 54(4), 58(6), 59(5),
59(6)(b), 60(7)(b), 62(3), 64, 66, 67(3)(5), 67(10), 68, 69(b), 71(3)(d), 87A,
88(6)(a). The usage of the expression “in
the manner prescribed” occurring in Section 3(3) shall be referable only to the
manner prescribed in Section 19. The
expression "in the manner prescribed" occurring in Section 19 and
Section 3(3) makes it clear that Input Tax Credit could be availed in the
manner prescribed. The modalities and
the time frame in Section 19(11) as regards availment or enjoyment of Input Tax
Credit is a pre-condition and not merely procedural. As far as Section 19(11)
of TN VAT Act is concerned, the Legislature clearly intended to prescribe a
time frame for availment of Input Tax Credit and the contravention of Section
19(11) means forfeiture of Input Tax Credit.
Section 19(11) is a pre-condition for availing Input Tax Credit.
41.
It is a settled position in law that a person claiming benefit of exemption
must show that he satisfies the eligibility criteria and for that purpose the
provision must be strictly construed. If
exemption is available on complying with certain conditions, the conditions
have to be mandatorily complied with. In
(2011) 1 SCC 236 [Commissioner of Central Excise v. Hari Chand Gopal], the
Hon'ble Supreme Court held as under:-
“29. The law is well settled that a
person who claims exemption or concession has to establish that he is entitled
to that exemption or concession. A provision providing for an exemption,
concession or exception, as the case may be, has to be construed strictly with
certain exceptions depending upon the settings on which the provision has been
placed in the statute and the object and purpose to be achieved. If exemption
is available on complying with certain conditions, the conditions have to be
complied with. The mandatory requirements of those conditions must be obeyed or
fulfilled exactly, though at times, some latitude can be shown, if there is a
failure to comply with some requirements which are directory in nature, the
non-compliance of which would not affect the essence or substance of the notification
granting exemption.”
The
same principle was reiterated in (2009) 12 SCC 735 [Commissioner of Customs
(Preventive), Amristar v. Malwa Industries Ltd.].
42.
In (2005) 2 SCC 129 [India Agencies (Regd.), Bangalore v. Additional
Commissioner of Commercial Taxes, Bangalore], the Hon'ble Supreme Court
emphasised that “in case of Inter-State sales, the provision for furnishing
original Form-C to claim concessional rate of tax under Section 8(1) of Central
Sales Tax Act, 1956 is mandatory and that dealer has to strictly follow the
procedure”. Referring to the decisions
in (1965) 3 SCR 626 : AIR 1966 SC 12 [Kedarnath Jute Mfg. v. C.T.O.] and (1997)
10 SCC 486 [Delhi Automobiles (P) Ltd. v. C.S.T.], it was held that to claim
concessional rate of tax, provisions have to be strictly construed and that unless
there is strict compliance with the provisions of the Statute, the registered
dealer is not entitled to the concessional rate of tax.
43.
Section 19(11) TN VAT Act was enacted because Legislature consciously wanted to
set up a time frame for availment of Input Tax Credit before the end of the
financial year or ninety days from the date of purchase, whichever is later.
Section 19(11) being part of Section 19, to avail Input Tax Credit, the
conditions thereon are to be strictly complied with.
44.
Re.contention : Section 19(11) is only procedural and it cannot whittle down
substantive right:-
Learned Senior Counsel for petitioners
contended that Section 3 is the Charging Section and Section 3(3) provides for
Input Tax Credit and Section 19 is the machinery for effectuating the Input Tax
Credit and the substantive right under Section 3(3) for availing Input Tax
Credit cannot be whittled down by Section 19(11). The learned Senior Counsel submitted that
Section 19(11) is in the arena of claiming Input Tax Credit and is only a
procedural aspect and such procedural aspect cannot be construed as the
provision disabling the Authority from extending Input Tax Credit. The learned Senior Counsel further submitted
that but for Section 19(11), there is no impediment for the Assessing Officer
from giving Input Tax Credit. Section
19(11) being procedural cannot be a stumbling block for claiming the
substantive right.
45.
Contending that Section 19(11) cannot curtail the right of assessee in claiming
Input Tax Credit, the learned Senior Counsel placed reliance upon 2001 (134)
E.L.T. 647 (Mad.) [Commissioner of Central Excise, Madras v. Home Ashok Leyland
Limited]. Rule 57A of Central Excise
Rules deals with right of manufacturer, with regard to the extent of his right
to claim credit of the duty paid on inputs.
Rule 57E recognises right of manufacturer to obtain additional Modvat
credit in respect of the inputs on which further duty had been paid for any
reason subsequent to the date of the receipt of the inputs by the
manufacturer. Rule 57G sets out the
procedure to be observed by the manufacturer while taking credit of the duty
paid on the inputs under Rule 57A. In
the above said decision, the Division Bench of this Court held that Rule 57E
and 57G being clarificatory and procedural and proviso to Rule 57G cannot be
construed as to limit the right of manufacturer to take credit for the duty
paid on the inputs. The above decision
of the Division Bench of this Court was confirmed by the Hon'ble Supreme Court reported
in 2007 (210) E.L.T. 178 (SC) [Commissioner of Central Excise, Madras
46.
Section 19(11) being part of Section 19 which is the mechanism for working out
Input Tax Credit, cannot be said to be merely procedural. As pointed out earlier, as per Rule 7 of
Tamil Nadu Value Added Tax Rules, return for each month in Form-I to be filed
on or before 20th of the succeeding month to the Assessing Authority. In Form-I, the dealer is to furnish the
correct and complete details of (i) Input Tax Credit; (ii) Tax payable; (iii)
Capital goods; (iv) Ouput items and other relevant details indicated in
Form-I. If there is any omission or
error therein, other than as a result of inspection or audit or receipt of any
other information or evidence by the Assessing Authority, Rule 7(9) enables the
registered dealer to file a revised return rectifying the omission or error
within the period of six months from the last day of the relevant period to
which the return relates. Only in case
of any of failure or omission to claim Input Tax Credit, in Section 19(11), a
time frame has been fixed to claim Input Tax Credit before the end of the
financial year or ninety days from the date of purchase, whichever is
later.
47.
Re.contention : Section 19(11) is a machinery provision to be construed
liberally:-
Onbehalf of petitioners, it was
contended that Section 19 is a machinery provision and it has to be construed
more liberally and must be reasonably applied.
To support such contention, reliance was placed on the decision of the
Hon'ble Supreme Court in Murarilal Mahavir Prasad vs. B. R. Vad ([1976] 37 STC
77).
48.
We are unable to accept the said contention, since the scheme of Section 19 is
not in the nature of a machinery provision, rather it is a substantive
provision stipulating the contingencies and the types of transaction done by a
registered dealer which would qualify for availing input tax credit.
49.
The machinery provision under the Act for assessment and reassessment are
Section 22 to 29 read with Rule 8, whereas Section 19 is a substantive
provision under which upon a registered dealer making a claim for input tax
credit after establishing that tax due on purchases has been paid by him in the
manner prescribed, such claim for tax credit should fall within the scope of
the various categories to qualify for the tax credit. A machinery provision provides the manner in
which the assessment or reassessment has to be made. Section 19 on the contrary qualifies the
entitlement of ITC and does not deal with the machinery of assessment. By way of illustration, If a registered
dealer has purchased goods and sold in the course of inter-state trade or
commerce falling under Section 8(2) of the CST Act, 1956, he shall not be
entitled to input tax credit. Therefore,
such provision cannot be termed as a machinery provision, rather it clearly
demarcates which are the transactions, which done by a registered dealer would
entitled to a tax credit. Sub-section
(11) contained in Section 19 is in the nature of a reprieve to a “defaulting”
dealer who has failed to claim input tax credit in respect of any transaction
of taxable purchase in any month. If a dealer avails such benefit and makes a
claim for input tax credit within the end of the financial year or before 90
days from the date of purchase whichever is later then such claim has to fall
within one of the categories mentioned in Section 19 to qualify for credit. Therefore, even in such cases of belated
claim within the time permitted under sub-section (11) of Section 19 the claim
is not automatic and should satisfy the other stipulation as contained in
Section 19. This is one more reason for
us to hold that Section 19 is a substantive provision and not a machinery
provision.
50.
Re.contention : Section 19(11) is not consistent with the other provisions of
the Act:- Ms.Hemalatha, learned counsel for petitioners contended that when the
Assessing Officer passes an order under Section 22(6)(a) or under Section 25(1)
or under Section 27, Section 19(11)
would operate as an embargo to the registered dealer in claiming Input Tax
Credit which would prejudicial to the registered dealer. Learned counsel further submitted that in
respect of Inter-State sale, the assessee is entitled to 3% levy (now reduced
to 2%) on production of “C” Form.
Learned counsel further submitted that at the time of assessment if no
“C” Form is produced, high rate of tax has to be paid and Input Tax Credit
claim will be rejected and if “C” Form is received later, because of the
embargo under Section 19(11), the assessee cannot claim Input Tax Credit and
such Input Tax Credit will be
rejected. Learned counsel submitted that
Section 19(11) operates as an embargo in claiming Input Tax Credit and Section
19(11) is incompatible with the scheme of the Act.
51.
Mr.S.P.Asokan, learned counsel for petitioners submitted that Rule 7(9) permits
rectification of errors in the returns and filing of revised returns within the
period of six months from the last date of relevant period to which the return
relates and Section 19(11) provides other limitation for claiming Input Tax
Credit. While so, there cannot be two
different limitation periods for claiming Input Tax Credit.
52.
There is no force in the contention that Section 19(11) would operate as an
embargo to the registered dealer in claiming Input Tax Credit causing prejudice
to the registered dealer. The condition stipulated in Section 19(11)
effectuates the scheme of the Act and more in the nature of beneficial to the
registered dealer. Rule 7 of Tamil Nadu
Value Added Tax Rules, 2007 contemplates that “.... every registered dealer
liable to pay tax under the Act shall file return for each month in Form-I on
or before 20th of the succeeding month to the Assessing Authority”. In terms of sub-rule (1)(b) of Rule 7 every
registered dealer who is liable to pay tax under Section 3(5) shall file return
in Form J on or before 20th of succeeding month and such return shall be
accompanied by proof of payment of tax.
In Form-I - Value Added Tax Monthly Return, the
registered dealer is to
furnish (i) Correct and complete details of Input Tax Credit; (ii) Tax payable;
(iii) Capital goods and (iv) Output items.
Along with Form-I, the registered dealer is also to enclose four
Annexures giving correct and complete details indicated thereon. In Form-I, the registered dealer has to give
a declaration that the “information furnished in Form-I is true, correct and
complete”. As per Rule 7(9), if a dealer
having filed return finds any omission or error therein, other than as a result
of inspection or audit or receipt of any other information or evidence by the
Assessing Authority, he shall file a revised return rectifying the omission or error
within the period of six months from the last date of relevant period to which
the return relates.
53.
Section 19(11) of TN VAT Act provides that “if any registered dealer fails to
claim Input Tax Credit in respect of any transaction of taxable purchase in any
month, he shall make the claim before the end of the financial year or before
ninety days whichever is later”. In our
considered view, Section 19(11) actually relaxes the rigour of Rule 7 under
which the registered dealer is required to furnish correct and complete details
of Input Tax Credit on or before 20th of succeeding month. In addition to filing of revised return under
Rule 7(9), Section 19(11) enables the dealer to make the Input Tax Credit before
the end of the financial year or before ninety days whichever is later. Section 19(11) not only effectuates the
provision of the Act, but is also more in the nature of the beneficial to
registered dealer.
54.
We have held that the benefit of credit under the Act is in the nature of a concession
given which could be availed only in the manner and in the circumstances
mentioned in Section 19. Therefore, the Legislature has given one more benefit
which also is in the nature of a concession in respect of registered dealer who
failed to claim tax credit in any month and they have been given time to make
the claim till the end of the financial year or before 90 days from the date of
purchase, whichever is later. Therefore, the word shall used in Section
19(11) of the VAT Act is held to be mandatory and not directory.
55.
Every dealer under the Act shall file return in the prescribed form within the
prescribed period in the prescribed manner along with proof of payment of
tax. Section 22 deals with procedure to
be followed by the Assessing Authority while making the assessment. In terms of Section 22(4), when the return
filed is incomplete or incorrect, after making enquiry, the Assessing Authority
shall assess the dealer to the best of its judgment. When non-filing of return
within the stipulated period was beyond the control of the dealer, Section
22(6)(a) enables the Authority to make a fresh assessment on the basis of the
return submitted. If any dealer is
liable to pay tax under the Act fails to submit return within the prescribed period,
as per Section 25(1), the Assessing Authority may provisionally determine the
tax payable by the dealer to the best of its judgment. Section 27 deals with assessment of escaped
turnover and wrong availment of Input Tax Credit. Section 29 deals with 'assessment in cases of
price variation'. Section 62 deals with
amendment of order of assessment, where as a result of an order passed in
appeal, revision or review, any change becomes necessary the Assessing Authority
shall be authorized to amend the order of assessment and on such amendment any
amount over paid by the registered dealer shall be refunded.
56.
It is the contention of petitioners that Section 19(11) is not consistent with
the provisions under Sections 22, 24, 27, 28 and 29 of TN VAT Act. It is submitted that when any re-assessment
is made under any of those provisions and revised return is filed, Section
19(11) would operate as an embargo for claiming Input Tax Credit and Section
19(11) would be a stumbling block for claiming Input Tax Credit.
57.
An analysis of various provisions of TN VAT Act and Rules thereon, we are of
the view that when assessment or revision of assessment is made under Sections
22, 24, 27, 28 or 29 of the Act, Section 19(11) does not operate as an embargo
for claiming Input Tax Credit.
58.
Rule 8 of the VAT Rules deals with 'procedure for assessment'. Rule 8(6) states that after assessment or
revision of assessment under Sections 22, 24, 27, 28 or 29 of the Act, the
assessing authority shall serve on the dealer a demand notice in Form “O”,
after adjusting the eligible input tax credit.
Rule 10 gives the formula to be adopted for calculating the Input Tax
Credit. If the tax due on assessment or
revision of assessment, after adjustment of eligible Input Tax Credit, is lower
than the tax already paid, the assessing authority shall serve upon the dealer
a notice in Form P, informing the dealer of the adjustment of excess tax
towards the arrears or the refund of the amount, as the case may be. In terms of Rule 8(6), after assessment or
revision of assessment under Section 22, 24, 27, 28 or 29 of the Act, the
Assessing Authority is to follow the procedure laid down in Rule 8(6) by
serving appropriate notice. Therefore, the contention raised by the petitioners
that in the event of the assessment or re-assessment under Section 22, 24,
27,28 or 29, Section 19(11) acts as an embargo is liable to be rejected. Section 19(11) is neither inconsistent nor
opposed to the other provisions of the Act nor derogatory to the scheme of the
VAT Act.
59.
On behalf of the petitioners, it was submitted that when re-assessment is made
either under Sections 22, 24, 27, 28 or 29 of the Act, there may arise genuine
hardships in claiming Input tax credit and in such cases Section 19(11) would
be a stumbling block in claiming Input tax credit. For the sake of argument,
assuming that there may be any genuine hardships for the dealers, it is for the
Legislature to intervene and make suitable amendment and not for this Court to
do so.
60.
In India Agencies case [(2005) 2 SCC 129]
the Hon'ble Supreme Court held as follows:-
“26. We are of the opinion that a
liberal construction was not justified having regard to the scheme of the Act
and the Rules in this regard and if there was any hardship, it was for the
legislature to take appropriate action to make suitable provisions in that
regard. It is also settled rule of
interpretation that where the statute is penal in character, it must be
strictly construed and followed.
27. We also realise that the section
and the rules as they stand may conceivably cause hardship to an honest
dealer. He may have lost the
declaration forms by pure accident and yet he will be penalised for something
for which he is not responsible but it is for the legislature or for the
rule-making authority to intervene to soften the rigour of the provisions and
it is not for this Court to do so where the provisions are clear, categoric and
unambiguous.”
It
is for the Legislature to take action to make suitable amendment. It is not for this Court to do so when the
provisions are clear and unambiguous.
61.
Constitutional Validity of fiscal legislation:-
When there is a challenge to the
constitutional validity of the provisions of a Statute, Court exercising power
of judicial review must be conscious of the limitation of judicial
intervention, particularly, in matters relating to the legitimacy of the
economic or fiscal legislation. While enacting fiscal legislation, the
Legislature is entitled to a great deal of latitude. The Court would interfere
only where a clear infraction of a constitutional provision is established. The
burden is on the person, who attacks the constitutional validity of a statute, to establish clear transgression of
constitutional principle.
62.
When vires of a Statute is challenged, Courts must make every effort to uphold
the constitutional validity of a statute. In Government of Andhra Pradesh v.
P.Lakshmi Devi, (2008) 4 SCC 720, the
Hon'ble Supreme Court has observed as under:
"The Court must, therefore, make
every effort to uphold the constitutional validity of a statute, even if that
requires giving the statutory provision a strained meaning, or narrower or
wider meaning, than what appears on the face of it. It is only when all efforts
to do so fail should the court declare a statute to be unconstitutional."
63.
Legislative entries in the Seventh Schedule to the Constitution have to be read
in a broad and comprehensive sense to include all subsidiary and ancillary
matters. An entry, which authorises the imposition of a tax, such as Entry 54
of List II, also authorises an enactment, which prevents the tax evasion or
taking excess credit. Regulating the
claim of Input Tax Credit is within the powers of legislative competence. The Legislature consciously enacted Section
19(11) of TN VAT Act with avowed object of incorporating the time-frame for
availing the Input Tax credit. Prescribing such time frame for availing input
tax credit is well within the legislative competence of the State.
64.
The Hon'ble Constitution Bench of the Supreme Court in R.K.Garg vs. Union of
India [(1981) 4 SCC 675], held that there is always a presumption in favour of
the constitutionality of a statute and the burden is upon him who attacks it to
show that there has been a clear transgression of the constitutional
principles. Laws relating to economic
activities should be viewed with greater attitude than laws touching civil
rights such as freedom of speech, religion etc. The legislature should be
allowed some play in the joints and there is no straitjacket formula
particularly in case of legislation dealing with economic matters and having
regard to the nature of the problem required to be dealt with, greater play in
the joins has to be allowed to the legislature. The Court should feel more inclined to give
judicial deference to legislative judgment in the field of economic regulation
than in other areas, where fundamental human rights are involved. That the
Court should remember legislation is directed to practical problems, that the
economic mechanism is highly sensitive and complex, there may be crudities and
in equities in complicated experimental, economic legislation, but on that
account alone it cannot be struck down as invalid. The same principle that in the matter of
taxation, the Court permits great latitude to the legislature was reiterated in
(1997) 5 SCC 536 [Mafatlal Industries Limited v. Union of India].
65.
Question No.3:-
Whether
Section 19(11) is mandatory or directory:-
Learned
Senior Counsel for petitioners submitted that undue premium has been put up on
Section 19(11) and contended that Section 19(11) cannot be mandatory and it
could only be directory. Contending that
use of the word “shall” in a Statute does not necessarily be taken as mandatory,
learned Senior Counsel placed reliance upon AIR 1965 SC 1688 [The Cochin State
Power and Light Corporation Ltd. v. The State of Kerala ];
AIR 1983 SC 303 [Dalchand v. Municipal Corporation, Bhopal
66. Placing reliance upon (2002) 6 SCC
33 [Topline Shoes Ltd. v. Corporation Bank], the learned Senior Counsel
contended that the time stipulated in Section 19(11) could only be
directory. Reiterating the submissions
of learned Senior Counsel, Ms.Hemalatha and Mr.S.P.Asokan, learned counsel for
petitioners placed reliance upon AIR 1962 SC 113 [Bhikraj Jaipuria v. Union of
India] and (2005) 139 STC 74 [State of Jharkhand and others v. Ambay Cements
and another].
67.
Referring to the principles as to “Statutory Construction” and observing that
the word “shall” in Statute though generally taken in mandatory sense does not
necessarily mean that in every case it shall have that effect, in AIR 1957 SC
912 [Manbodhan Lal Srivasgava v. State of U.P.], the Hon'ble Supreme Court held
as under:-
“11. .... Hence, the use of the word “shall:
in a statute, though generally taken in a mandatory sense, does not necessarily
mean that in every case it shall have that effect, that is to say, that unless
the words of the statute are punctiliously followed, the proceeding or the
outcome of the proceeding, would be invalid.
On the other hand, it is not always correct to say that where the word “may”
has been used, the statute is only permissive or directory in the sense that
non-compliance with those provisions will not render the proceeding
invalid. In that connection, the
following quotation from Crawford on “Statutory Construction” - Art. 261 at
p.516 is pertinent:
“The question as to whether a Statute
is mandatory or directory depends upon the intent of the Legislature and not
upon the language in which the intent is closed and the meaning and intention
of the Legislature must govern, and theses are to be ascertained, not only from
the phraseology of the provision, but also by considering its nature, its
design and the consequence which would follow from construing it the one way or
the other. .......”
68.
We may usefully refer to the following passage in “Craies on Statute Law”, 5th
Edition, p.242 which reads as under”:-
“No universal rule can be laid down as
to whether mandatory enactments shall be considered directory only or
obligatory with an implied nullification for disobedience. It is the duty of courts of justice to try to
get at the real intention of the Legislature by carefully attending to the
whole scope of the statute to be construed.”
69.
After extracting the quote from “Maxwell
on The Interpretation of Statutes”, 10th Edition at page 381 and observing that
it is for the Court to ascertain the real intention of the Legislature by
carefully examining the scope of Statute, in AIR 1961 SC 751 [State of U.P. and
others v. Babu Ram Upadhya], the Hon'ble Supreme Court held as under:-
“29. The relevant rules of
interpretation may be briefly stated thus: When a statute uses the word “shall”,
prima facie, it is mandatory, but the Court may ascertain the real intention of
the legislature by carefully attending to the whole scope of the statute. For ascertaining the real intention of the
Legislature the Court may consider, inter alia, the nature and the design of
the statute, and the consequences which would follow from construing it the one
way or the other, the impact of other provisions whereby the necessity of
complying with the provisions in question is avoided, the circumstance, namely,
that the statute provides for a contingency of the non-compliance with the
provisions, the fact that the non-compliance with the provisions is or is not
visited by some penalty, the serious or trivial consequences that flow
therefrom, and, above all, whether the object of the legislation will be
defeated or furthered.”
70.
In AIR 2005 SC 2441 [Kailash Nanhku and others], the Hon'ble Supreme Court
explained that notwithstanding the amendment of Order VIII, Rule 1 and the
proviso thereto by the amendment Act 22 of 2006, those provisions were not
mandatory but directory and they did not take away or curtail the power of the
Court to take a written statement on record though filed beyond the 90 days
period.
71.
Filing of written statement under Order VIII, Rule 1 is a provision contained
in the Code of Civil Procedure and belongs to domain of procedural law. Since it is a part of procedural law,
although Order VIII, Rule 1 C.P.C. stipulates a time within which the written
statement has to be presented, the Hon'ble Supreme Court held that the word
“shall” used were not mandatory but directory.
The nature, object and purpose of Section 19(11) of TN VAT Act which is
a pre-condition for claiming Input Tax Credit is completely different from the
provision of Order VIII, Rule 1 C.P.C. and therefore, the above decision is of
no assistance to the petitioners in the present cases. Like wise, in all other decisions, the
Hon'ble Supreme Court has taken a view that it is directory only in the light
of those enactments which were under consideration.
72.
Applying the principles of interpretation, the test to ascertain whether the
word “shall” used in Section 19(11) has to be examined upon the TNVAT Act and
we should not go by the phraseology of the provision, but should consider the
nature, its design and consequence which would follow from it. Section 19(11) specifically uses the word
"shall" as regards compliance with the time-frame for claiming Input
Tax Credit accumulated on purchases either before or end of the financial year
or before ninety days after the purchase whichever is later. In our considered view in order to verify the
entries and to prevent any tax avoidance or evasion, time frame is stipulated
in Section 19(11) of TN VAT Act to claim Input Tax Credit. The use of the word "shall" is
ordinarily indicative of the mandatory nature of the provision.
73.
Learned counsel for petitioners then contended that as per Section 18(3) of the
Act, where a dealer has not adjusted the Input Tax Credit or has not made his
claim for refund within the period of 180 days, “such credit shall lapse to
Government”. Learned counsel for petitioners contended that no such language of
"lapse to Government" employed in Section 19(11) would clearly show
that Section 19(11) is not mandatory and only directory.
74.
The intention of Legislature is to restrict concession of Input Tax Credit on
purchases within the particular time frame.
If Input Tax Credit on purchases against output taxes are not claimed
before the end of the financial year or ninety days from the date of purchase
whichever is later, the registered dealer is not entitled to claim Input Tax
Credit. The intention of the Legislature
is to restrict the benefit of "Input Tax Credit" within a particular
time-frame. Consequence of
non-compliance is very much available in Section 19(11) dealing with
non-entitlement of "Input Tax Credit". Therefore, it cannot be contended that
Section 19(11) has not prescribed any consequence for non-compliance of time
frame as per Section 19(11).
75.
As pointed out earlier, Section 19(11) of TN VAT Act employs “shall” and
prescribes time limit for availment of Input Tax Credit on purchases before the
end of the financial year relating to such purchases or ninety days from the
date of purchase whichever is later. That the Legislature used the expression
"shall" is indicative of the mandatory nature of Section 19(11).
76.
If the language of the enactment is clear and unambiguous, it would not be
legitimate for the Courts to add any words thereto and evolve therefrom some
sense which may be said to carry out the supposed intentions of the
Legislature. The intention of the Legislature is to be gathered only from the
words used by it and no such liberties can be taken by the Courts for
effectuating a supposed intention of the Legislature. [Vide AIR 1959 SC 459
(Sri Ram Ram Narain Medhi v. State of Bombay
77.
In (1987) 1 SCC 424 [Reserve Bank of India
78.
On behalf of the petitioners, it was submitted that the impugned provision does
not take into account the commercial realities as in the cases of Modvat or
Cenvat Credit Rules with the in-built flexibility and therefore, Section 19(11)
is to be held as directory and not mandatory. As discussed earlier, the
Legislature consciously prescribed a time frame for availment of “Input tax
credit” accrued before the end of the financial year or 90 days from the date
of purchase, whichever is later. Section 19 is a pre-condition for availment of
“input tax credit”. When Section 19(11)
is a pre-condition for availing Input Tax Credit, it is to be strictly complied
with and the petitioners cannot contend that there ought to have been flexibility
in the time frame for availing “Input tax credit”.
79.
Learned Advocate General submitted that the time frame for availment of Input
Tax Credit is reasonable and the same has been enacted with a view to verify
the details furnished by the registered dealers before the end of the financial
year and Section 19(11) is equal and similar to all tax payers and there is no
discrimination.
80.
Scheme of TN VAT Act is based on self assessment. As pointed out earlier, as per Rule 7, every
registered dealer is liable to pay tax under the Act, shall file return for
each month in Form-I on or before 20th of the succeeding month. It is mandatory on the part of certain
categories of dealers to file returns in electronic Form. As pointed out earlier, in Form-I, the
registered dealer has to furnish true, correct and complete particulars
regarding (i) Input Tax Credit; (ii) Tax payable; (iii) Capital goods; (iv) Output items. Form-I interalia contain the following
details viz., (i) Amount of Input Tax Credit excess available; (ii) details
regarding Less; (iii) Input Tax Credit, if any, carried forward to next
month. Along with Form-I, the registered
dealer have to submit four Annexures with the details indicated thereon.
81.
Sub-section (17) of Section 19 contemplates that excess may be adjusted against
any outstanding tax due from the dealer.
Sub-section (18) of Section 19 stipulates that excess Input Tax Credit
if any, after adjustment under sub-section (17), shall be carried forward to
the next year or refunded, in the manner as may be prescribed. When the scheme of the Act provides for
adjustment of excess Input Tax Credit and carried forward to the next year or
refunded, necessarily the details furnished by the registered dealer have to be
verified. Matching process has to be
carried out by verifying various entries. When the scheme of the Act stipulates
the excess Input Tax Credit of a year being adjusted for the outstanding tax
liability or excess Input Tax Credit being carried forward or refunded for each
financial year, necessarily the Assessing Authority has to complete the
accounts. It is in consonance with the
scheme of the Act.
82.
The Legislature consciously enacted Section 19(11) of TN VAT Act with avowed
object of incorporating the time frame for availing Input Tax Credit before the
end of financial year or ninety days from the date of purchase whichever is
later. The provision is for safeguarding
the interest of the revenue and to prevent the cascading effect of tax burden
on the ultimate consumer. Therefore, we
are of the view that Section 19(11) is mandatory and its contravention will
result in forfeiture of the concession of availments of Input Tax Credit.
83.
Value Added Tax structure has the ultimate goal of augmenting the revenue by
making the procedure simple and more transparent. Legislature in its wisdom mandated time
frame for availment of Input Tax Credit accrued on purchases before the end of
the financial year or ninety days from the date of purchase whichever is later. Section 19(11), being mandatory, the
time-frame stipulated for Input Tax Credit is to be strictly construed. Section
19(11) of TN VAT Act cannot be struck down as being either unreasonable or
discriminatory. We do not find any merit
in the challenge to the provision of Section 19(11) of TN VAT Act.
84.
The other bunch of writ petitions challenging the assessment order/show cause
notices denying the credit taken in the revised returns involving Section
19(11) of TN VAT Act are not maintainable.
The writ petitions challenging the constitutionality of Section 19(11)
having failed the writ petitions challenging assessment orders/show cause
notices have no legs to stand and therefore, they should necessarily fail.
85.
In cases where final orders of assessment have been challenged, the assessees
shall be entitled to prefer statutory appeal against such order and if such
appeals are presented, within a period of 60 days from the date of receipt of a
copy of this order, the same shall be entertained by the appellate authority
subject to the assessee full-filing other mandatory statutory conditions except
rejecting those appeals on the ground of limitation. In cases where the petitioners have
challenged show cause notices, they are at liberty to submit their
explanation. If such explanation is
submitted within a period of 30 days from the date of receipt of a copy of this
order, the assessing authority shall consider the case in accordance with law.
86.
In the result, all the writ petitions are dismissed holding that Section 19(11)
is a valid piece of legislation, cannot be struck down as being either
unreasonable or discriminatory and violative of Article 265 and 360A of the
Constitution of India. The interim stay
granted in all writ petitions stand vacated and the miscellaneous petitions are
closed. There is no order as to costs.