2016 (9) TMI 408 - SC - VAT and Sales Tax

Supreme Court: VAT Act amendment valid but not retrospective. Input Tax Credit based on invoice price.

Jayam & Co. Versus Assistant Commissioner & Anr.

Jayam & Co. Versus Assistant Commissioner & Anr. - [2016] 96 VST 1 (SC), 2016 AIR 4443, 2016 (6) SCR 787, 2016 (15) SCC 125, 2016 (8) SCALE 70, 2018 (19) ... Issues Involved:1. Whether sub-section (20) of Section 19 of the Tamil Nadu Value Added Tax Act, 2006 (VAT Act) could be given retrospective effect.2. The constitutional validity of sub-section (20) of Section 19 of the VAT Act.3. Proper interpretation of sub-section (20) of Section 19 of the VAT Act.Detailed Analysis:1. Retrospective Effect of Sub-section (20) of Section 19 of the VAT Act:The Supreme Court examined whether sub-section (20) of Section 19 of the VAT Act could be given retrospective effect. The amendment, introduced by Amendment Act 22 of 2010, was given retrospective effect from January 01, 2007. The Court noted that while the Legislature has the power to make fiscal legislation retrospectively, such retrospective operation must not be unduly oppressive or confiscatory. The Court found that sub-section (20) of Section 19 was a new provision that altered the manner of calculating Input Tax Credit (ITC). It was detrimental to the dealers and imposed a new liability. The Court held that such a provision could not have retrospective effect, especially when vested rights had accrued in favor of the dealers for the period between January 01, 2007, and August 19, 2010. Therefore, the retrospective effect of the amendment was struck down.2. Constitutional Validity of Sub-section (20) of Section 19 of the VAT Act:The dealers challenged the constitutional validity of sub-section (20) of Section 19, arguing that it was confiscatory, unreasonable, arbitrary, and violative of Articles 14 and 19(1)(g) of the Constitution. The High Court had rejected these contentions. The Supreme Court concurred with the High Court's reasoning, noting that ITC is a concession provided by the Legislature, not a right. The Legislature has the power to stipulate the conditions under which this concession is granted. Sub-section (20) was introduced to protect the revenue against clandestine transactions and tax evasion. The Court found that the provision was reasonable and served a valid purpose, thus upholding its constitutional validity.3. Proper Interpretation of Sub-section (20) of Section 19 of the VAT Act:The dealers argued that the price for calculating ITC should be the net purchase price after discounts, not the price mentioned in the tax invoice. The Revenue contended that the purchase price should be the price mentioned in the original tax invoice. The High Court had accepted the Revenue's contention. The Supreme Court agreed with the High Court, stating that under the VAT Act's scheme, the price as per the tax invoice is relevant for claiming ITC. The Court emphasized that ITC is a concession subject to strict compliance with statutory conditions, including the requirement to produce the original tax invoice. The Court found no merit in the dealers' argument that the net purchase price should be considered.Conclusion:The Supreme Court upheld the constitutional validity of sub-section (20) of Section 19 of the VAT Act but struck down its retrospective application from January 01, 2007. The Court also affirmed the interpretation that the purchase price for ITC purposes is the price mentioned in the tax invoice, not the net price after discounts. The appeals were partially allowed to the extent of setting aside the retrospective effect of the amendment.