Court declares DVAT Act provision on VAT before sale unconstitutional, rejects amendment on input tax, leaves evaporation loss issue open.

The Court held that Explanation 2 to Section 2(1)(zd) of the DVAT Act, allowing VAT on a 'deemed' sale price before the actual sale, is unconstitutional. Consequently, the amendment in Form DVAT-16 omitting input tax claim columns for petroleum dealers was deemed unsustainable. The issue of evaporation loss was not pursued by the Petitioners. The Court left this issue for assessing authorities to decide case-by-case. The writ petitions were disposed of without costs.

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Issues Involved:
1. Constitutional validity of Explanation 2 inserted by the Delhi Value Added Tax (Fourth Amendment) Act, 2012 to Section 2(1)(zd) of the DVAT Act, 2004.
2. Amendment made in the return form DVAT-16.
3. Issue of evaporation loss (not pressed by the Petitioners).

Issue-wise Detailed Analysis:

1. Constitutional Validity of Explanation 2 Inserted by the Delhi Value Added Tax (Fourth Amendment) Act, 2012 to Section 2(1)(zd) of the DVAT Act, 2004:

The Petitioners challenged the constitutional validity of Explanation 2 to Section 2(1)(zd) of the DVAT Act, arguing that it permits VAT to be levied on the price charged for a sale which is yet to take place. They contended that the tax should be levied on the sale price actually received or receivable by the dealer for the sale, as per Section 3 of the DVAT Act. The Petitioners argued that it is beyond the legislative competence of the NCTD under Entry 54 of List II of the 7th Schedule of the Constitution of India to levy tax with reference to a price not reflective of the actual sale price but that of a subsequent sale which is yet to take place.

The Respondents countered that the price paid by the ultimate consumer for petrol and diesel is fixed by the oil companies, and VAT is charged on the actual value, not a notional value. They argued that the commission paid to dealers does not affect the sale price, and the sale of petrol and diesel is essentially a single point sale with one sale price.

The Court found that there are two distinct transactions of sale: one from the oil companies to the dealer and another from the dealer to the ultimate consumer. The taxable event under the DVAT Act is the sale that has taken place, and the tax liability is on the dealer who effects the sale. The Court held that Explanation 2 seeks to levy VAT on a 'deemed' sale price, different from the actual price at which petrol and diesel are sold by the oil companies to the dealers, which is not sustainable in law.

The Court relied on the Supreme Court's decision in State of Rajasthan v. Rajasthan Chemists Association, which held that the tax on sale must be related to the actual sale and not a subsequent sale that has not yet taken place. The Court concluded that Explanation 2 to Section 2(1)(zd) of the DVAT Act is ultra vires the Constitution, as it permits the levy of VAT on the sale price of a transaction yet to take place.

2. Amendment Made in the Return Form DVAT-16:

The Petitioners also challenged the amendment in the return form DVAT-16, which omitted the column for claiming input tax by petroleum dealers. They argued that this amendment is contrary to the statutory provisions, the concept of VAT, and the scheme of the DVAT Act, as it deprives dealers of claiming any input tax credit.

The Court held that the omission in Form DVAT-16 of the relevant column to enable a dealer to claim input credit is unsustainable in law, as it is a consequence of the ultra vires Explanation 2 to Section 2(1)(zd) of the DVAT Act.

3. Issue of Evaporation Loss (Not Pressed by the Petitioners):

The Petitioners initially raised the issue of natural evaporation loss of petrol and diesel, but they did not press this issue during the hearing. The Court noted that the assessing authorities would examine claims for evaporation losses on a case-by-case basis without reference to any circular under challenge. The Court did not express any opinion on this issue, leaving it open for determination by the assessing authorities.

Conclusion:

The Court struck down Explanation 2 to Section 2(1)(zd) of the DVAT Act as being ultra vires the Constitution. Consequently, the omission in Form DVAT-16 of the relevant column to enable a dealer to claim input credit was also declared unsustainable in law. The Court did not express any opinion on the issue of evaporation losses, leaving it for determination by the assessing authorities on a case-by-case basis. The writ petitions were disposed of with no order as to costs.

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