Tamil Nadu Value Added Tax Act, 2006: s. 19(5)(c) – Input tax credit, set-off against tax liability on all intra-state and interstate sales, allowed only if Form C as prescribed is filed – Validity of – On facts, claim of input tax credit by assessee – Issuance of notice by Revenue denying input tax credit availed against the transactions for which Form C were not filled, and reversing credit on inter-State sales – Writ petition by assessee challenging the constitutional vires of s. 19(5)(c) and r. 10(9)(a) – Held: s. 19(5)(c) is constitutionally valid – Provision was aimed at achieving a specific and justified purpose to protect the Revenue against clandestine transaction resulting in invasion of tax and could not be treated as discriminatory – Sale by a dealer who is registered in the State of Tamil Nadu which is effected outside the State of Tamil Nadu will qualify for ITC only when the said sale is made to a registered dealer – Insofar sales to unregistered dealers, that too situated outside the State of Tamil Nadu, the State would not have any mechanism to find out the genuineness of these sales – In essence, the State is putting the condition that ITC would be admissible when Form ‘C’ is given, which can be given only in those cases where sale is to a registered dealer – Prescribing such a condition in order to ensure that there is no evasion, has a rationale purpose and objective – Tamil Nadu Value Added Tax Rules, 2007 – r. 10(9)(a).
Disposing of the appeals, the Court
HELD: 1.1 In ALD Automotive Pvt. Ltd. & Anr. v. The Commercial Tax Officer & Ors. it was held that Input tax creditITC is a form of concession which is provided by the Act; it cannot be claimed as a matter of right but only in terms of the provisions of the statute; therefore, the conditions mentioned in Section 19(5)(c) of the Tamil Nadu Value Added Tax Act, 2006 had to be fulfilled by the dealer; and sub-section (20) of Section 19 was constitutionally valid. In the process, that there were valid and cogent reasons for inserting that provision and the main purpose was to protect the Revenue against clandestine transaction resulting in invasion of tax. The reasoning given while upholding sub-section (20) of Section 19 shall equally apply while examining the validity of Section 19(5)(c) thereof. The High Court noted that in respect of unregistered dealer in other States, the State of Tamil Nadu has no mechanism to prevent invasion of tax and loss of revenue cost by trade with such unregistered dealers in the State of Tamil Nadu. Therefore, the provision was aimed at achieving a specific and justified purpose and could not be treated as discriminatory. [Para 41, 42][996-C-F]
ALD Automotive Pvt. Ltd. & Anr. v. The Commercial Tax Officer & Ors. SLP (Civil) Nos. 36112-36113 of 2013 – relied on.
1.2 Section 19 of TNVAT Act deals with ITC. It incorporates provision for grant of ITC under certain circumstances and, at the same time, also lays down the conditions in which such ITC would be admissible. It is in this context sub-section (5) of Section
19 is to be analysed. Sub-section (5) stipulates certain contingencies where such ITC would not be admissible. Clause
(c) of this sub-section which provides that ITC would not be allowed on the purchase of goods sold as such or used in the manufacture of other goods and sold in the course of inter-State trade or commerce falling under sub-section (2) of Section 8 of the Central Sales Tax Act. Sale by a dealer who is registered in the State of Tamil Nadu which is effected outside the State of Tamil Nadu will qualify for ITC only when the said sale is made to a registered dealer. If it is to an unregistered dealer, it would not be admissible. This classification is based on intelligible differentia having a proper rationale. Insofar sales to unregistered dealers are concerned, that too situated outside the State of Tamil Nadu, the State would not have any mechanism to find out the genuineness of these sales. In essence, the State is putting the condition that ITC would be admissible when Form ‘C’ is given, which can be given only in those cases where sale is to a registered dealer. Prescribing such a condition in order to ensure that there is no evasion, has a rationale purpose and objective. In the context of the nature of the ITC scheme, which is a concession and not a right, leads to the conclusion that it was open to the Legislature to make such a provision. [Para 43] [996-G-H; 997-A-C]
1.3 Wherever the State Government buys, sells, supplies or distribute goods, it shall be deemed to be the dealer for the purposes of TNVAT Act. At the same time, TNVAT Act does not require registration by the State Government inasmuch as Section
38 which deals with registration of dealers explicitly provides, under sub-section (8) thereof, that this provision shall not apply to any State Government or Central Government. A conjoint reading of the said two provisions would show that when a sale is made to the State of Karnataka, it is made to a dealer but that dealer is under no obligation to get itself registered under the TNVAT Act. Because of this exemption, no State Government does that and since it is not a registered dealer, it would not be in a position to issue any Form C. But for that, the genuineness of sales made to a State Government cannot be doubted. This situation puts those dealers who are making sales to the State Government in disadvantageous position, even when it is clear that there is no possibility of tax evasion as there cannot be any such apprehension in case of sales to the State Government. The benefit of ITC is given whenever sale is made to a dealer outside State of Tamil Nadu and the said dealer is a registered dealer. The provisions of Section 19(5)(c) are to be read down by construing that those dealers who are making sales exclusively to the other State Governments (i.e. outside the State of Tamil Nadu), the said States would be deemed as registered dealers for the purposes of availing benefits of ITC. Otherwise, in such a situation, it would be difficult to hold that test of reasonable classification is met in this limited context. [Para 47, 48] [997-G-H; 998-A-E]
1.5 The judgment of the High Court is upheld with one rider, that in those cases where a dealer makes sales exclusively to the other State Government(s), benefit of ITC would be allowed without insisting on the furnishing of Form ‘C’. However, in order to avail this benefit, a certificate from said the State Government to whom the supplies are made would be obtained by the dealer claiming ITC and submitted to the VAT authorities. [Para 49] [998-E-F]
State of Madras v. N. K. Nataraja Mudaliar 1968 SCR
(3) 829; State of Tamil Nadu and Another v. Sitalakshi Mills Ltd. and Others (1974) 4 SCC 408 : [1974] 3 SCR 1; Gwalior Rayon Silk Manufacturing (Wvg.) Co., Ltd. v. Assistant Commissioner of Sales Tax and others (1974) 4 SCC 98 : [1974] 2 SCR 879; Messrs Govind Saran Ganga Saran v. Commissioner of Sales Tax and Others 1985 (Supp) SCC 205 : [1985] SCR 985; Bolani Ores Ltd. v. State of Orissa (1974) 2 SCC 777 : [1975]
2 SCR 138; Mahindra and Mahindra Ltd. v. Union of India and Another (1979) 2 SCC 529 : [1979] 2 SCR 1038; D. S. Nakara and Others v. Union of India (1983)
1 SCC 305 : [1983] 2 SCR 165; Union of India and Others v. N.S. Rathnam and Sons (2015) 10 SCC 681 : [2015] 8 SCR 751; Jayam and Company v. Assistant Commissioner and Another (2016) 15 SCC 125 : [2016]
6 SCR 787 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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