TaxTMI 
TaxTMI 
2010 (12) TMI 1097
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....the grievance and grudge that forced the peti tioners to approach this court. Background facts We may notice the relevant facts and allegations from Writ Petition No. 5080 of 2006. M/s. Vishnu Cement Limited, a manufacturer of cement, is a registered dealer under the VAT Act. Limestone, coal, iron ore and gypsum are their main raw materials. In quantitative terms, coal constitutes 13 per cent of the raw material and on clinker production 19 per cent. Under the provisions of the VAT Act, the tax paid on intra-State purchase of raw materials is given credit against the output tax payable on cement. The rate of VAT on coal is four per cent and 12.5 per cent on cement on which I.T.C. is allowed in respect of purchases of coal and other raw mate rials. The rate of sales tax under the Andhra Pradesh General Sales Tax Act, 1957 ("the APGST Act") on cement was four per cent (with form G). But the rate of VAT is higher at 12.5 per cent. Due to I.T.C. allowance the company could withstand and absorb the increase in the tax rate. Under section 13(1) of the VAT Act, I.T.C. was allowed to VAT dealers except in respect of the goods specified in Schedule VI. No I.T.C. is allowed even ....
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....he APGST Act, which is similar to section 13(4) of the VAT Act, was upheld by this court in Chatla Narasaiah Ramaiah v. State of A.P. [2006] 146 STC 407; [2005] 41 APSTJ 45. When the Legislature specifically conferred retrospective rule-making power, it is of no consequence even if the tax is passed on to the customer as the primary liability to pay VAT is on the dealer. But for the I.T.C. allowed earlier, the petitioner would have paid the entire output tax due. The assessment was taken up, and after issuing the notice and considering the explanation, the impugned demand was raised. Issues for consideration The senior counsel, S. Ravi, and M/s. A.K. Jaiswal, S. Dwarakanath, Bhaskar Reddy Vemireddy, M.V.J. Kumar, Shaik Jeelani Basha, B. Srinivas, Tejprakash Toshniwal and Ms. Anjali Agarwal for the petitioners and Mr. A.V. Krishna Koundinya, Special Counsel for the Commercial Taxes Department, made their submissions. They also referred to precedents. A reference will be made to these submissions and relevant precedents at an appropriate place. From the submissions, the following issues arise which are taken up for consideration one after the other. (I) Constitutional val....
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....he tax once escaped caused permanent loss to the State. Thirdly, with as many as 16 to 20 rate categories introduced to fulfil a variety of objectives, the sales tax became complicated. Fourthly, many tax rate categories and multi-point levy lead to unsatisfactory tax compliance. Lastly, sales taxes which accounted for 60 per cent of the State revenue over the years remained stagnated. Initiatives for tax reforms began between 1980s and 1990s. Tax Review Committee (TRC) 1991 of Government of India recommended reform of direct taxes (income-tax) and indirect taxes (excise and customs). The State level tax reforms, however, took off only in late 1990s necessitated by increasing budget pressures and demands for social welfare. An Empow ered Committee of State Finance Ministers under the Chairmanship of Dr. Asim Das Gupta (Empowered Committee) was formed to study the tax reforms. On being assured by the Central Government to compensate the State for any loss over a period of three years, a consensus was reached by the States to migrate from sales tax to VAT with the sole object of simplification and rationalization of the taxes on "sale or purchase of goods". This move to replace sa....
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....les tax revenue using 2004-05 as the base and the actual revenue collected. The projected revenues will be estimated by applying the average of the best three years' growth rates during the last five years. *Tax incentives given to new industries by different States could be continued so long as it does not break the VAT chain. Many States propose to convert tax holidays into deferment of the tax. *All dealers with annual turnover above Rs. 5,00,000 are required to register for the VAT. However, the States may levy a simple turnover tax not exceeding two per cent on those dealers with turnover up to Rs. 5 million. Such dealers, paying the turnover tax, do not have to keep detailed accounts of their transactions. But these small dealers will not be a part of the VAT chain, and no credit will be available for the taxes paid on purchases from these dealers. They may therefore voluntarily register as regular VAT dealers. VAT is levied and collected at every point of sale although it works out to be tax on the last sale, but collected in instalments at every point. As the tax paid by the dealer at the point of purchase is given "set-off" or credit, ordinarily the same shall ....
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.... than a casual dealer, as defined in section 2(7) of the VAT Act, shall be liable to be registered as a VAT dealer if his estimated taxable turnover is more than Rs. 40 lakhs. Every dealer whose turnover exceeds Rs. 5 lakhs, but is not registered as a VAT dealer, shall be registered as a turnover tax dealer (ToT). The charging section 4 of the VAT Act obliges a VAT dealer to pay tax on every sale of goods at the rates specified in the Schedules. The liability under section 4 of the VAT Act is subject to section 13, and the rates specified in the Schedules. VAT payable shall be calculated in accordance with the formula prescribed ("prescribed" means prescribed by VAT Rules made under the Act (section 2(24)) (section 12). Wherever it is permissible a VAT dealer will get I.T.C. in respect of purchases of taxable goods if such goods are used in his business. The Act also contains an effective appeal/revision system (sections 31 to 36). While expressing their choice as to essential features of VAT, the Legislature left it to the Government (delegated agency or authority) to make Rules to cover many other aspects. In exercise of such power under section 78 of the VAT Act, the Governor of....
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....im as set-off. The relevant dual provisions, namely, sections 9 and 13 of VAT Act read as under: "9. Input tax credit for dealers for goods in Schedule VI.-Every dealer, who is liable to pay tax on the sale of goods specified in Schedule VI, shall be eligible for input tax credit subject to the conditions in section 13 of the Act and in the manner prescribed. . . . 13. Credit for input tax.-(1) Subject to the conditions if any, prescribed, an input tax credit shall be allowed to the VAT dealer for the tax charged in respect of all purchases of taxable goods, made by that dealer during the tax period, if such goods are for use in the busi ness of the VAT dealer. No input tax credit shall be allowed in respect of the tax paid on the purchase of goods specified in Schedule VI. (2)(a) A dealer registered as a VAT dealer on the date of commencement of the Act, shall be entitled to claim for the sales tax paid under Andhra Pradesh General Sales Tax Act, 1957 on the stocks held in the State on the date of commencement of the Act subject to the conditions and in the manner as may be prescribed: Provided that such goods should have been purchased from April 1, 2004 to March 3....
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.... not be eligible for input tax credit against or relatable to sale of un-serviceable goods or scrap, surplus, old, obsolete or discarded material or waste products whether by auction or other wise. (11) Any VAT dealer who purchases any taxable goods from a dealer covered under sub-section (10) above, shall be eligible for input tax credit, on production of documentary evidence that tax has been charged." (emphasis1 supplied) The conspectus of above two provisions is as follows: A VAT dealer can avail of I.T.C. in respect of all purchases of taxable goods only if such goods are used in his business. But no such credit will be allowed in respect of goods, specified in the Sixth Schedule subject to special rates of tax. The benefit under section 9 of the VAT Act, and section 13(1) of the VAT Act is, however, subject to the conditions as may be prescribed by the VAT Rules. A VAT dealer cannot claim any I.T.C. in respect of certain deemed sales. Furthermore, as per section 13(10) and (11) read with Explanations III and IV to section 2(10) of the VAT Act, the Central Government, State Government and Government undertakings are not eligible for I.T.C. against sale of un....
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....uels used for automobiles or used for captive power generation or used in power plants; (c) air conditioning units other than used in plant and labora tory, restaurants or eating establishments, unless the dealer is in the business of dealing in these goods; (d) any goods purchased and used for personal consumption; (e) any goods purchased and provided free of charge as gifts otherwise than by way of business practice; (f) any goods purchased and accounted for in the business but utilized for the purpose of providing facilities to employees including any residential accommodation; (g) crude oil used for conversion or refining into petroleum products; (h) Natural gas, naptha and coal unless the dealer is in the business of dealing in these goods; (i) any input used in construction or maintenance of any buildings including factory or office buildings, unless the dealer is in the business of executing works contracts and has not opted for composition; (j) earth moving equipment such as bulldozers, JCB's, and porcelain, etc., and parts and accessories thereof unless the dealer is in the business of dealing in these goods; (k) generators and parts and accessor....
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....which are exempt from tax or if they are included in the Sixth Schedule in respect of which I.T.C. cannot be claimed by reason of section 13(1) of the VAT Act. They would, therefore, urge that section 13(1) read with section 13(4) of the VAT Act cannot be construed as conferring power on the Government to deny I.T.C. on all the goods. According to them I.T.C. can be denied only in respect of those goods which are exempt from tax or attracts special rates of tax provided under the Sixth Schedule. Per contra, the Special Counsel for Commercial Taxes submits that the court has to give a plain meaning to section 13(1) and section 13(4) of the VAT Act. Doing so, it does not warrant any interpre tation as suggested by the petitioners. According to him, all the items in rule 20(2) of the VAT Rules, except the item electrical energy, attracts VAT. While asserting that rule 20(2) of the VAT Rules refers to goods and items he would urge that section 13(4) of the VAT Act cannot be read narrowly. If the petitioners' plea is accepted, he would contend, it amounts to supply ing casus omissus which ought to be avoided. The power to tax is neither incidental nor implied power. It is to be confe....
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....e of West Bengal v. Kesoram Industries Ltd. [2004] 266 ITR 721 (SC); [2004] 10 SCC 201 (para 106), citing the same, the apex court summed up the following settled principles of interpretation (i) in interpreting a taxing statute, equitable considerations are entirely out of place. Taxing statutes cannot be interpreted on any presumption or assumption. A taxing statute has to be interpreted in the light of what is clearly expressed; it cannot imply anything which is not expressed; it can not import provisions in the statute so as to supply any deficiency; (ii) Before taxing any person it must be shown that he falls within the ambit of the charging section by clear words used in the section; and (iii) If the words are ambiguous and open to two interpretations, the benefit of inter pretation is given to the subject. There is nothing unjust in the taxpayer escaping if the letter of the law fails to catch him on account of the Legislature's failure to express itself clearly. Applying the above settled rules, the submission of the counsel cannot be accepted. A reading of sections 13(1), 13(4) and 2(19) of the VAT Act would show that the tax payable under the VAT Act is considered as i....
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....edule (exempted from tax) or Second Schedule (zero rated transactions) or Sixth Schedule (special rate tax category), does not make any difference. All the goods which are subject-matter of sale or purchase attract tax and VAT under sections 4(1) and 4(3) of the VAT Act and, therefore, necessarily no such distinction can be made while interpreting section 13(4) of the VAT Act. It is altogether different matter if the rule-making authority to begin with, decided to prescribe such goods which may incidentally find place in First Schedule or Second Schedule or Sixth Schedule. The same may not preclude the Government from prescribing other goods on which there is no output tax. If the submission of the petitioners is accepted, one would be forced to read section 13(4) of the VAT Act somewhat as follows: "A VAT dealer shall not be entitled for input tax credit or sales tax credit in respect of the purchases of such taxable goods as may be prescribed on which no output tax is payable or on which special rates of tax are levied under the Sixth Schedule." The underlined phrase cannot be inferred by imputing an inter pretation as suggested. We are afraid, it is impermissible. It is axiom....
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....ing to the intent of them that made it'. 'The will of the Legislature is the supreme law of the land and demands perfect obedience' see Maxwell on Interpretation of Statutes, 11th Edition pages 1, 2 and 251. 'Judicial power is never exercised', said Marshall, C.J. of the United States, 'for the purpose of giving effect to the will of the judges; always for the purpose of giving effect to the will of the Legislature; or in other words, to the will of the law'. If the Legislature wilfully omits to incorporate something of an analogous law in a subsequent statute, or even if there is a casus omissus in a statute, the language of which is otherwise plain and unambiguous, the court is not competent to supply the omission by engrafting on it or introducing in it, under the guise of interpretation, by analogy or implication, something what it thinks to be a general principle of justice and equity. To do so 'would be entrenching upon the preserves of Legislature', Prem Nath L. Ganesh v. Prem Nath L. Ram Nath AIR 1963 Punj 62 at 65, Per Tek Chand J. the primary func tion of a court of law being jus dicere and not jus dare. (emphasis1 supplied) In Illachi Devi (Dead) by LRS. v. Jai....
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....etation, the courts cannot re-write a statute. A purposive inter pretation may permit a reading of the provision consistent with the purpose and object of the Act but the courts cannot legislate and enact the provision either creating or taking away substantial rights by stretching or straining a piece of legislation. (emphasis1 supplied) As rightly contended by the Government the goods included in the negative list do not support any contention that the power conferred is to prescribe the purchases of only non-taxable goods. The items/goods which are found in rule 20(2)(a) to (q) are included either in Fourth or Fifth or Sixth Schedules. First Schedule and Second Schedule are either exempted goods or zero rated goods whereas the Third Schedule attracts one per cent. VAT. If we exclude Schedules First to Third, the Schedules Fourth, Fifth and Sixth form the core VAT structure. The goods included in the negative list are thus spread over in all the three Schedules which deal with goods/transactions attracting VAT of four per cent, 12.5 per cent (now 14.5 per cent) or higher rates. We, accordingly, hold that section 13(4) read with section 78(1) of the VAT Act confers widest power on....
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....iples of delegated legislation. (1) The power to impose a tax is essentially a legislative function. Under article 265 of the Constitution no tax can be levied or collected save by authority of law, and here "law" means law enacted by the competent Legislature and not made by the executive authority. Therefore, the Legislature cannot delegate the essential legisla tive function of imposition of tax to executive authority; (2) Subject to the above limitation, a power can be conferred on the Government to exempt a particular commodity from the levy of tax. Similarly, the power may also be delegated to bring certain commodities under the levy of tax; (3) The power to fix the rate of tax is a legislative function, but if the legislative policy has been laid down and necessary guidelines have been provided, the said power can be delegated to the executive; (4) It is open to the Leg islature or executive to select different rates of tax for different commodities; (5) Commodities belonging to the same category should not, however, be subjected to different and discriminatory rates of tax in absence of any rational basis or justifiable grounds; (6) Needs of the taxing body is not a test....
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.... excessive delegation. Two questions spring up, namely, is there any guidance provided under section 13(4) and/or is there any excess delegation of the legislative power. In Pandit Banarsi Das Bhanot v. State of Madhya Pradesh [1958] 9 STC 388 (SC); AIR 1958 SC 909, the Constitution Bench of the Supreme Court was concerned with the validity of the provisions of the Central Provinces and Berar Sales Tax Act, 1947. It was urged that the notification issued by the Government under section 6(2), empowering amendment of the Schedule, suffers from unconstitutional delegation of legislative authority. The Bench unanimously held that executive authority can be authorised to modify either existing or future laws but it cannot modify essential features. It was observed that what constitutes essential features has to be decided depending on the nature of the delegated legislation. "It is not unconsti tutional for the Legislature to leave it to the executive to determine details relating to the working of taxation laws, such as the selection of persons on whom the tax is to be laid, the rates at which it is to be charged in respect of different classes of goods and the like." R....
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....e did not give any guidance, and has conferred unguided power. In every case of delegated legislation, especially in respect of a taxing statute, mere absence of explicit guiding principles at one place cannot compel inference of Constitutionally impermissible excess delegation. It is well-settled that when the Legislature retains prior control to modify or annul the Rules, they are not vulnerable to the defect of excessive dele gation. In Birla Cotton AIR 1968 SC 1232, the Supreme Court considered this aspect and laid down the law as under: What form the guidance should take is again a matter which can not be stated in general terms. It will depend upon the circumstances of each statute under consideration; in some cases guidance in broad general terms may be enough; in other cases more detailed guidance may be necessary. As we are concerned in the present case with the field of taxation, let us look at the nature of guidance necessary in this field. The guidance may take the form of providing maximum rates of tax up to which a local body may be given the discretion to make its choice, or it may take the form of providing for consultation with the people of the local area an....
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....e, the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute. If congress has explicitly left a gap for the agency to fill, there is an express delegation of authority to the agency to elucidate a specific provision of the statute by regulation. Such legislative regulations are given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the statute. Sometimes the legislative delegation to an agency on a particular question is implicit rather than explicit. In such a case, a court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency . . . We have long recognised that considerable weight should be accorded to an executive Department's construction of a statutory scheme it is entrusted to administer, and the principle of deference to administrative interpretations has been consistently followe....
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....f any better alternative, there is no escape from it. The Legislatures have neither the time, nor the required detailed information nor even the mobility to deal in detail with the innumerable problems arising time and again. In certain matters they can only lay down the policy and guidelines in as clear a manner as possible." In Hira Lal Rattan Lal v. Sales Tax Officer [1973] 31 STC 178; [1973] 1 SCC 216; AIR 1973 SC 1034, the question was posed and answered thus (at pages 189 and 190 in 31 STC): "It is true that the Legislature cannot delegate its legislative func tions to any other body. But subject to that qualification, it is permissible for the Legislature to delegate the power to select the persons on whom the tax is to be levied or the goods or the trans actions on which the tax is to be levied. In the Act, under section 3 the Legislature has sought to impose multi-point tax on all sales and purchases. After having done that it has given power to the executive, a high authority and which is presumed to command the majority support in the Legislature, to select for special treatment dealings in certain class of goods. In the very nature of things, it is impossible for ....
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....time to time and, hence, in the very nature of things, the working out of the mode of computation of the 'capital employed' for the purpose of determining the quantum of the relief must necessarily be left to the Central Board of Revenue which would be best in a position to consider what should be the quantum of the relief necessary to be given by way of tax incentive in order to promote setting up of new industrial undertakings and hotels and for that purpose, what amount of the 'capital employed' should form the basis for computation of such relief." (emphasis 1supplied) In J.K. Industries Ltd. v. Union of India [2008] 297 ITR 176 (SC); [2007] 13 SCC 673, the question before the apex court was whether Accounting Standard 22 (AS 22) insofar as it relates to differed taxation is ultra vires the provisions of the Companies Act, 1956. Section 642(1) of the Companies Act conferred power on the Central Government to make rules. It was inter alia urged that the impugned AS 22 suffers from the vice of excessive delegation and that it is incongruous/inconsistent with the provisions of the Companies Act. In that context the Supreme Court reiterated the extent and scope of the power of t....
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....her single point or multi-point and the grant or denial of relief in the computation of income, etc.; and (iv) while determining the working details of tax laws, it is always open to the delegated authority to consider market conditions, state of the economy prevailing at that time, economic consequences, administrative convenience and the impact of levy on the society and State exchequer. Whether section 13(4) of the VAT Act is devoid of broad legislative guidelines? We are afraid; the answer must be in the negative. It is not uncommon that the Legislature while conferring power to make rules indi cates the subjects illustratively for the purpose of making rules specifically and for making rules, "to carry out the purpose of the Act". Enacting history of the VAT Act would show that the State intended to minimize evasion of tax; to prevent cascading effect of multi-point taxation; to introduce dual rates of tax (except for bullion and other specified items) and by doing so to increase the revenue recoveries from VAT. We have also seen from the enacting history that the Legislature never intended to provide the benefit of I.T.C. to all the dealers in respect of purchases of input....
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....ection 13(4) of the VAT Act does not suffer from excessive delegation. This point is decided accordingly against the petitioners. Constitutional validity of rule 20(2)(h) of VAT Rules We will consider this under two broad headings, namely, (i) Vires of rule 20(2)(h) of the VAT Rules; and (ii) Infringement of article 14 of the Constitution. (i) Vires of rule 20(2)(h) Delegation is a constituent element of legislative power. But, a zealous delegate cannot overstep the power donated nor ignore statutory essentials in making rules as it would offend plenary legislation. The legislative power to delegate to fill is wide, "subject to limitation, namely, it cannot be the delegate in control of the power" "delegation is valid only when it is competing political interests, but not on the basis of the judges' personal policy preferences. In contrast, an agency to which congress has delegated policymaking responsibilities may, within the limits of that delegation, properly rely upon the incumbent administration's views of wise policy to inform its judgments. While agencies are not directly accountable to the people, the chief executive is, and it is entirely appropriate for this poli....
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....[1985] 1 SCC 641; AIR 1986 SC 515, it was held that subordinate legislation does not carry the same degree of immu nity which is enjoyed by a statute and that it can be questioned on any of the grounds on which plenary legislation may be questioned. In addition it may also be questioned on the ground that it does not conform to the statute under which it is made as well as on the ground that it is manifestly arbi trary and unreasonable. It is also settled that the expression, "for carrying out the purpose of the Act" is not construed as to bring something in the statute which has been excluded by the Act itself (see Kunj Behari Lal Butail v. State of H. P. [2000] 3 SCC 40; AIR 2000 SC 1069, Kerala Samsthana Chethu Thozhilali Union v. State of Kerala [2006] 4 SCC 327; AIR 2006 SC 3480 and Global Energy Limited v. Central Electricity Regulatory Commission [2009] 15 SCC 570; AIR 2009 SC 3194). To be able to succeed on the ground, it should be demonstrated that ubordinate legislation lacks statutory essentials, in that it is not in accord ance with the plenary legislation or it included something which was excluded by the Act itself. Vague allegation of general hardship cannot rende....
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....prescribe by themselves and levy on the kerosene, any charges, rates, duties and taxes in purported exercise of power under the Control Order. In other words, the charges, rates, duties and taxes must be pre-existing or orig inating from a lawful source other than the provisions of the Kerosene Order and can only be quantified by the State Government or District Collector so as to be prescribed for being added to the declared max imum selling price. The term "charges" must be read ejusdem generis taking colour from the succeeding terms-rates, duties and taxes." The term "prescribed" should be given a broad and extended meaning to include any item as the Government may deem fit and proper in the negative list. If it is construed as permitting the Government to prescribe only such goods on which there is no output tax or special rate of VAT it would render section 13(4) of the VAT Act itself unconstitutional. Any interpretation which has the effect of making a statutory provision uncon stitutional must be avoided. The court must always uphold the constitu tionality of a provision of an Act, if necessary by construing in such a manner that it is intra vires (K. P. Varghese v. Incom....
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....ny discernible principle emerging from the impugned act and if so, does it satisfy the test of reasona bleness. Where a mode is prescribed for doing an act and there is no impediment in following that procedure, performance of the act otherwise and in a manner which does not disclose any discernible principle which is reasonable, may itself attract the vice of arbitrari ness. Every State action must be informed by reason and it follows that an act uninformed by reason, is arbitrary. Rule of law contem plates governance by laws and not by humour, whims or caprices of the men to whom the governance is entrusted for the time being. It is trite that 'be you ever so high, the laws are above you'. This is what men in power must remember, always." Kumari Shrilekha Vidyarthi [1991] 1 SCC 212; AIR 1991 SC 537 refers to the following observations from the decision of the Constitution Bench in S.G. Jaisinghani v. Union of India [1967] 65 ITR 34 (SC); AIR 1967 SC 1427 wherein it was held that every decision taken without any principle would violate the equal protection clause (pages 48 and 49 in 65 ITR): "In this context it is important to emphasize that the absence of arbitrary p....
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....aid will have to be given back in the form of I.T.C. to the purchasing dealers. This results in huge loss of revenue and hence proposal was muted for inclusion of these commodities in the negative list. The proposal was approved by the GoM in its meeting held on November 14, 2005. To our mind the involvement of huge revenue was the reason for amending rule 20(2)(h) of the VAT Rules. Is it not sufficient enough to dispel the argument that it is manifestly arbitrary and irrational? In Assistant Commissioner of Urban Land Tax v. Buckingham and Carnatic Co. Ltd. [1969] 2 SCC 55; AIR 1970 SC 169, the Constitution Bench of the Supreme Court considered the constitutional validity of the Madras Urban Land Tax Act, 1966. The appeal arose out of the Full Bench decision of the Madras High Court which, by a majority of 4: 1, struck down section 6 of the said Act. The said section provided that, for the purposes of the Act, the market value of any urban land shall be estimated to the price, which in the opinion of the Assistant Commissioner or Tribunal, such urban land would fetch if sold in the open market. Before the Supreme Court, two questions arose, namely, the competence of the Madras ....
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.... cent except coal (which attracts VAT of four per cent). If they are allowed to claim I.T.C., virtually there would not be any VAT on the purchase of these goods. Resultantly there would be huge loss of revenue to the Government. Fifth Schedule is incorporated in the VAT Act to deal with such of those goods attracting VAT at 12.5 per cent and, if I.T.C. is allowed even in respect of such goods, it would make them zero rates goods. Before we part with this aspect, we may quote the passage from an unreported judgment in MAKS Casting Private Limited v. Government of Andhra Pradesh1 (W.P. No. 12804 of 2009 and batch, dated September 16, 2010) which upheld the validity of rule 67 of the VAT Rules. Dealing with the question of reasonableness, the Division Bench consisting of one of us (Ramesh Ranganathan, J) made the following observations (pages 365 and 366 in 38 VST): "The lack of perfection in a legislative measure does not necessarily imply its unconstitutionality. In such a complex arena, in which no perfect alternatives exist, the court does well not to impose too rigorous a standard of criticism, under the equal protection clause, reviewing fiscal provisions. The law of t....
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....aim I.T.C. But manufacturers like the petitioners cannot claim I.T.C. For the purpose of I.T.C., the Legislature resorted to classification of goods which are eligible for claiming i.t.c, and the goods which are not eligible for I.T.C. Even among them, the goods used by a non-trader in the business of manu facturing are not eligible whereas a trader who is dealing in non-manu facturing business is eligible to claim I.T.C. The petitioners point out that section 13(4) of the VAT Act empowers to prescribe "purchase of such taxable goods" which is not entitled for I.T.C. As the manufacturers as well as dealers have purchased these goods by paying VAT there cannot be dis crimination between the two categories. The point is whether classification of dealers into traders and non-traders for the purpose of rule 20(2)(h) of the VAT Rules offends the equality clause? As of now, as noticed supra, there are seventeen items/goods in clauses (a) to (q) of rule 20(2) of the VAT Rules. Clauses (a), (c), (h), (i), (j) and (k) make the distinction between traders and non-traders. In these clauses, the purchases made by the dealers are eligible for I.T.C. whereas the purchases made by non-t....
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....is left out, no direction can be given to include that category. We are well supported by precedents on this. In Sakhawant Ali v. State of Orissa AIR 1955 SC 166; [1955] 1 SCR 1004, section 16(1)(ix) of the Orissa Municipalities Act disqualified the advocate for the municipality from contesting election to a seat in the municipality. This provision was upheld by the apex court holding: "The simple answer to this contention is that legislation enacted for the achievement of a particular object or purpose need not be all embracing. It is for the Legislature to determine what categories it would embrace within the scope of legislation and merely because certain categories which would stand on the same footing as those which are covered by the legislation are left out would not render leg islation which has been enacted in any manner discriminatory and violative of the fundamental right guaranteed by article 14 of the Constitution." In B.R. Kapur v. State of Tamil Nadu [2001] 7 SCC 231; AIR 2001 SC 3435, a submission was made that sub-section (4) of section 8 of the Representation of Peoples Act, 1951 requires reading down so as to apply the same to a non-legislator and....
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....il Nair v. State of Kerala AIR 1961 SC 552. But in deciding whether a taxation law is discriminatory or not it is neces sary to bear in mind that the State has a wide discretion in selecting the persons or objects it will tax, and that a statute is not open to attack on the ground that it taxes some persons or objects and not others. It is only when within the range of its selection, the law oper ates unequally, and that cannot be justified on the basis of any valid classification, that it would be violative of article 14. The following statement of the law in Willis on 'Constitutional Law', page 587, would correctly represent the position with reference to taxing statutes under our Constitution: 'A State does not have to tax everything in order to tax something. It is allowed to pick and choose districts, objects, persons, methods and even rates for taxation if it does so reasonably . . . The Supreme Court has been practical and has permitted a very wide latitude in classification for taxation'." In Hira Lal [1973] 31 STC 178; [1973] 1 SCC 216; AIR 1973 SC 1034, levy of sales tax on dal splits or processed foodgrains was challenged as discriminatory. The argument was that th....
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....n coal again sell the entire quantity with little or no value addition whereas non-traders sell the products like cement, fertiliz ers, etc., with considerable value addition. As seen from the precedents "the purpose or the use to which goods are put to" can be basis for a valid classification. As we already noticed supra, the object of denying I.T.C. on these goods is to increase the Revenue. Thus the twin tests of classification, namely, nexus test and rationality test are satisfied. We have, therefore, no manner of doubt in rejecting the submission that the impugned rule is discriminatory. As it is a case of under-inclusion we cannot give direction to include the petitioners and the likes in the exempted category. The alternative submission that all the petitioners should be treated as dealers as they also have been engaged in the continued and continuing activity of buying these goods, does not merit any consideration. Section 2(10) of the VAT Act defines "dealer" to mean any person who carries on the business of buying, selling, supplying or distributing goods or carries on any works contract involving supply or use of material. Section 2(6) of the VAT Act defines "business....
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....ion of goods in the manufacture of goods for sale or consumption of goods in any other manner and that once the goods are utilised in the construction of buildings, the goods ceased to exist or cease to be available in that form for such sale or purchase so as to attract the tax and, therefore, the correct meaning to be attributed to the said provision would be that tax will be attracted when such goods are consumed in the manufacture of other goods or are consumed otherwise. After perusing the decision of this court as well as the decision of the Supreme Court, we are not able to countenance the petitioners' plea that they are dealers in the sense in which the term is used in rule 20(2)(h) of the VAT Rules. As is pointed out by the Act itself there is a clear dissim ilarity between traders and non-traders although they are dealers for the purpose of the VAT Act. (c) Whether retrospectivity is unreasonable and arbitrary? VAT Act came into force with effect from April 1, 2005. The Government of Andhra Pradesh promulgated VAT Rules under section 78 vide notifi cation in G.O. Ms. No. 394, dated March 31, 2005. Indeed, as per rule 2(i), rules 1, 2(i) and 3 to 11 are deemed to hav....
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....red, necessarily it follows that the right, which had accrued to a party such as the avail ability of a scheme, is affected and, in particular, it loses sight of the fact that the provision for facility of credit is as good as tax paid till tax is adjusted on future goods on the basis of the several commitments which would have been made by the assessees concerned. Therefore, the Scheme sought to be introduced cannot be made applicable to the goods which had already come into existence in respect of which the earlier Scheme was applied under which the assessees had availed of the credit facility for payment of taxes. It is on the basis of the earlier Scheme necessarily that the taxes have to be adjusted and payment made complete. Any manner or mode of application of the said rule would result in affecting the rights of the assessees. . . . We may look at the matter from another angle. If on the inputs, the assessee had already paid the taxes on the basis that when the goods are utilised in the manufacture of further products as inputs thereto then the tax on these goods gets adjusted which are finished subsequently. Thus a right accrued to the assessee on the date when they paid....
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....eason able inference can be drawn that, while working out their production and marketing costs, the tax credit availed of by them was a factor. All the goods manufactured have been sold and there is no opportunity now for the petitioners to collect the increased cost by reason of non-availability of I.T.C. We have perused the files produced before us. No reasons whatso ever are forthcoming as to why the Government sought to amend the rule retrospectively. In the absence of any such reasons, much less strong rea sons, we have no hesitation to hold that giving retrospectivity to the impugned rule would certainly be inequitable and arbitrary. To that limited extent, we are persuaded to accept the petitioners' plea. Validity of the impugned assessment orders In all the writ petitions, besides impugning section 13(4) of the VAT Act and rule 20(2)(h) of the VAT Rules, the assessment orders for the period from April, 2005 to December, 2005 and subsequent thereto are also challenged. There are effective, efficacious and speedy alternative remedies available under the statute. The petitioners have not availed of these remedies. This is condonable as the provision of the Act and Rules ....