Composition scheme under VAT law upheld, with constitutional challenge rejected and reassessment permitted for ineligible returns.

Retrospective amendment to section 6 of the Tamil Nadu VAT Act was upheld: the Court held that the composition scheme is an optional mode of tax payment, and the exclusion of dealers making inter-State, import, or foreign purchases rests on a real classification with a rational nexus to preventing revenue loss and trade diversion, so the constitutional challenge under Articles 14, 19(1)(g), 301, 303 and 304(a) failed. The Court also refused to read down the provision to preserve composition benefits for inter-State/import purchases or SEZ co-developers, holding that an unambiguous fiscal text cannot be rewritten. It further held that incorrect or ineligible section 6 returns remain amenable to reassessment and revision under the Act.

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Issues: (i) Whether the retrospective amendment to section 6 of the Tamil Nadu Value Added Tax Act, 2006, excluding dealers purchasing goods from outside the State or importing goods from outside the country from the composition scheme, was unconstitutional under Articles 14, 19(1)(g), 301, 303 and 304(a) of the Constitution of India; (ii) whether the amendment could be read down to preserve the composition benefit for inter-State/import purchases and for SEZ co-developers; and (iii) whether reassessment/revision could be invoked in relation to returns filed under section 6.

Issue (i): Whether the retrospective amendment to section 6 of the Tamil Nadu Value Added Tax Act, 2006, excluding dealers purchasing goods from outside the State or importing goods from outside the country from the composition scheme, was unconstitutional under Articles 14, 19(1)(g), 301, 303 and 304(a) of the Constitution of India.

Analysis: The composition scheme under section 6 was held to be only an optional alternate mode of payment of tax and not a charging provision. The classification between works contractors who procure goods locally and those who procure goods from outside the State or import goods from outside the country was found to be a real and substantial distinction, with a rational nexus to the object of preventing revenue loss, curbing trade diversion and creating a level playing field. The Court held that taxing statutes enjoy a wider latitude in classification, that the amendment did not impose a higher tax on imported goods as such, and that it did not directly or immediately impede the free flow of trade or commerce. The challenge based on Articles 14, 19(1)(g), 301, 303 and 304(a) therefore failed.

Conclusion: The amendment was upheld as constitutionally valid and the challenge was rejected.

Issue (ii): Whether the amendment could be read down to preserve the composition benefit for inter-State/import purchases and for SEZ co-developers.

Analysis: The Court held that reading down could not be used to rewrite an unambiguous fiscal provision or to confer a benefit contrary to the legislative text. Since the amendment itself was upheld, the request to split returns between section 5 and section 6 was rejected. As regards SEZ co-developers, entitlement depended on the authorisation and factual satisfaction of the statutory conditions, which were left to be examined in the appropriate forum. The provision was not read down to carve out a general exemption for SEZ co-developers.

Conclusion: The request to read down the provision was rejected.

Issue (iii): Whether reassessment or revision could be invoked in relation to returns filed under section 6.

Analysis: The Court held that section 6 returns do not place the dealer beyond the reach of the reassessment provisions where the return is incorrect, incomplete or ineligible under the scheme. The expressions used in the Act and the scheme of sections 22, 25, 27 and 28 showed that escaped turnover and incorrect returns could be dealt with according to law, and that a mistaken resort to section 6 did not bar the assessing authority from acting under the reassessment provisions.

Conclusion: Reassessment and revision were held to be permissible in appropriate cases.

Final Conclusion: The composition scheme was sustained, the constitutional challenge failed, the plea for reading down was declined, and the writ petitions were disposed of with limited directions and relegation to the statutory remedy where factual disputes remained.

Ratio Decidendi: In fiscal legislation, a classification is valid if it is founded on an intelligible differentia with a rational nexus to the legislative object, and an optional tax concession may be conditioned so long as the condition does not amount to hostile discrimination or a direct impediment to trade.

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