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TaxTMI 
TaxTMI 
TaxTMI 
2016 (9) TMI 462
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....d by M/s. Pratul Automobiles Pvt. Ltd. questioning the assessment order passed for the period April, 2012 to June, 2015. Sri S. Ravi, Learned Senior Counsel appearing on behalf of the petitioner, would submit that the petitioners seek an adjudication only on the question relating to the denial of notional input tax credit on the purchase price of used/second hand vehicles, and the petitioners would avail the statutory remedy of an appeal on all other questions of fact and law. Both Sri S. Ravi, Learned Senior Counsel, and Sri T. Vinod Kumar, Learned Special Standing Counsel, would agree that it would suffice, for the disposal of all the three Writ Petitions, if the facts in W.P. No.20199 of 2016 are noted. The petitioner in W.P. No.20199 of 2016 is a registered VAT dealer carrying on business of trading in TATA brand passenger cars, and in providing spares and services. A pre-assessment show cause notice, in Form VAT 305-A dated 18.01.2016, was received by the petitioner on 18.01.2016 whereby they were called upon to file their written objections within fifteen days. Thereafter, a revised pre-assessment show cause notice was issued in Form VAT 305-A on 07.05.2016 (a copy of which....
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....petitioner; they had furnished certain sample details of the purchases and sales of second hand or pre-owned vehicles; the chasis number indicating the manufacturing details, and subsequent registration, related to new vehicles or first sales, and not to pre-owned or second hand sales; details of the purchases and sales of pre-owned vehicles were not the same though the value, as per the Income Tax Annual Returns, was the same; such value could either be erroneous or fictitious; the disallowance of input tax credit did not amount to double taxation, but was a restriction of the claim of input tax credit only to the eligible limit; it was not a levy of tax; the claims were not supported by any documentary evidence or the original purchase invoices surrendered by the customers when the old vehicle was exchanged for a new vehicle; for the first or subsequent sales the assessee, as a registered dealer, did not issue any sales invoices for such transactions; the ruling of the advance ruling authority was not applicable to the present case; the claim of ITC was not related to supply and replacement of spares of pre-owned vehicles, but was a claim of ITC, upon purchases of pre-owned vehic....
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.... Standing Counsel for Commercial Taxes, would submit that the Rules must be read harmoniously with the provisions of the Telangana VAT Act (hereinafter called the Act); when so read Rule 20(3)(a) would require the assessee to produce documentary evidence of the purchase price of the motor vehicle on which VAT was paid; while production of a tax invoice as proof of the purchase price may not be mandatory, documentary evidence, to the satisfaction of the assessing authority, was required to be produced regarding the purchase price of the vehicle on which VAT was paid; and mere proof of payment of the purchase price, by the VAT dealer to his immediate vendor, would not suffice. Section 13 of the Act relates to credit for input tax and under sub-section (1) thereof, 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 purchase of taxable goods, made by that dealer during the tax period, if such goods are for use in the business of the VAT dealer; and no input tax credit shall be allowed in respect of the tax paid on the purchase of the goods specified in Schedule VI. Section 13(3)(a) stipulates that....
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....including such purchases in the purchase of eligible inputs taxable at each rate. In effect, when a dealer purchases an used vehicle from an individual who has not claimed input tax credit, no tax can be levied or recovered from such a VAT dealer at the time of purchase of the goods by him. Rule 20(3)(a) of the Rules relates specifically to used or second hand vehicles already registered in the State of Telangana under the Motor Vehicles Act, 1988. As the construction to be placed on Rule 20(3)(a) is in issue in these Writ Petitions, it is useful to extract the said rule in its entirety:- "(3)(a) Where any VAT dealer pays tax at the rate of Fourteen and half percent (14.5%) on the sale consideration of a used or a second hand vehicle already registered in the State under the Motor Vehicles Act, 1988, he shall be eligible for notional input tax credit at the rate of Fourteen and half percent (14.5%) on the purchase price actually paid supported by documentary evidence. Such notional input tax credit shall not exceed the output tax payable on the sale of used or second hand vehicle by the VAT dealer." The ingredients of Rule 20(3)(a) are: (1) a VAT dealer should have paid tax at ....
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....e Act, in respect of a used/second hand car purchased by a dealer, as the person who sold such a vehicle to the dealer may not be a dealer himself and would, therefore, not be in a position to issue a tax invoice to the purchasing dealer. The assessing authority has, therefore, erred in insisting that the petitioner should have produced a tax invoice to claim input-tax credit, as it would suffice if the dealer produces documentary evidence in support of the purchase price paid by him. As Section 16(1) places the onus on the dealer, the documentary evidence which he produces must be such as to satisfy the assessing authority of the purchase price actually paid by him. What the dealer of used/second hand cars is eligible to, under Rule 20(3)(a) of the Rules, is for notional input tax credit. The word notional means hypothetical, imaginary or unreal. Though neither the immediate vendor of a dealer of used/second hand vehicles collects, nor does the dealer actually pay, VAT on the purchase price of the used/second hand vehicle, Rule 20(3)(a) makes the dealer eligible to notionally claim input tax credit at 14.5% on the purchase price actually paid by him to his vendor. While the notio....
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....x credit to be claimed at 14.5% on the purchase price paid by E to D. While notional input tax credit at 14.5% i.e., for Rs. 43,500/- can alone be claimed on the purchase price of Rs. 3.00 lakhs paid by the dealer E to his immediate vendor i.e D, it is only if VAT has been paid on the sale of the vehicle earlier (in this illustration VAT of Rs. 87,000/- paid on the sale of a new vehicle by A to B), would dealer E be entitled to claim input-tax credit. If E the dealer in used/second hand cars sells it to F an individual for Rs. 4.00 lakhs, the VAT payable by him would be Rs. 58,000/- (i.e., 14.5% output-tax on Rs. 4.00 lakhs), and after adjustment of notional input tax credit of Rs. 43,500/- (notional as VAT was not levied on the sale of the vehicle by D to E), the net VAT payable by E would only be Rs. 14,500/-. E, the dealer in used/second cars, cannot claim the benefit of input-tax credit, on the VAT paid on the initial sale of the new vehicle i.e., for Rs. 87,000/-, and thereby seek set off of the entire output-tax of Rs. 58,000/- as the notional input-tax credit which he is entitled to is only at 14.5% of the purchase price paid by him to D i.e., on Rs. 3.00 lakhs i.e for Rs. 4....
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....988, on the sale of which VAT has been paid under the Act, and not vehicles initially registered in another State and which has thereafter been registered again within the State of Telangana, for vehicles in the latter category would not have been subjected to VAT under the Telangana Value Added Tax Act, and only tax under the Motor Vehicles Taxation Act would have been paid thereon. The very object of enacting the Value Added Tax Act is to levy tax on the value addition to the goods at each stage, and avoid the cascading effect of multi-stage taxation on the value of the goods. It is for this reason that, while levying tax on the value of the output, the dealer is given input-tax credit only for goods which have been subject to tax under the Act, and not for goods which have not. If that be the object for which the Act was made, can Rule 20(3-a) be construed in a manner as to extend the benefit of input-tax credit even on the sale of second hand/used vehicles which have never been subjected to VAT in the State of Telangana? Would such a construction not result in Rule 20(3-a) travelling even beyond what the Act provides? The Legislature, be it State or Central, has wide powers o....
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....960) 2 SCR 671). Statutes delegating the power to make rules follow a standard pattern. The relevant Section would first contain a provision granting the power to make rules to the delegate in general terms, by using the words "to carry out the provisions of this Act" or "to carry out the purposes of this Act". This is usually followed by another sub -section enumerating the matters/areas in regard to which specific power is delegated by using the words in particular and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters. Such provisions whereby power is conferred to make subordinate legislation in general terms, and the subsequent particularisation of the matters/topics, has to be construed as merely illustrative and not limiting the scope of the general power. Consequently, even if the specific enumerated topics do not empower the Government to make a specific rule, the making of the rule can be justified with reference to the general power conferred on the Government provided the rule does not travel beyond the scope of the Act. But even a general power to make rules for carrying out or giving effect to the....
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....ramed strictly in consonance with the legislative intent as reflected in the rule-making power contained in the Act. (Ashok Lanka v. Rishi Dixit (2005) 5 SCC 598; Kerala Samsthana Chethu Thozhilali Union (2006) 4 SCC 327). A subordinate legislation, apart from being intra vires the Constitution, should also not be ultra vires the parent Act under which it has been made. It must not only be reasonable and in consonance with the legislative policy, but should also give effect to the purport and object of the Act. (Bombay Dyeing & Mfg. Co. Ltd. v. Bombay Environmental Action Group (2006) 3 SCC 434 = 2006 (3) SCALE 1 ; Kerala Samsthana Chethu Thozhilali Union (2006) 4 SCC 327). A statutory rule should not only be in conformity with the provisions of the Act whereunder it is made but must also be in conformity with the provisions of any other Act, as subordinate legislation cannot be violative of any plenary legislation made by Parliament or the State Legislature. As the power of the Government is to make rules for carrying out the purposes of the Act, rules cannot be framed in matters that are not contemplated under the Act. The power to frame rules, and the power to impose terms and c....
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.... rule making power is expressed in the usual general form, then it has to be seen if the rules made are protected by the limits prescribed by the parent Act. (Kunj Behari Lal Butail (2000) 3 SCC 40; Pratap Chandra Mehta (2011) 9 SCC 573). A delegate cannot act contrary to the basic feature of the Act. (B.K. Industries v. Union of India(1993) Supp. 3 SCC 621 ; Kerala Samsthana Chethu Thozhilali Union (2006) 4 SCC 327). The power of the rule making authority must be interpreted keeping in view the provisions of the Act. (Pratap Chandra Mehta (2011) 9 SCC 573; Kunj Behari Lal Butail (2000) 3 SCC 40; Global Energy Ltd (2009) 15 SCC 570). The language of the statute has to be examined before giving a provision an extensive meaning. The Court would be justified in giving the provision a purposive construction to perpetuate the object of the Act, while ensuring that such rules framed are within the field circumscribed by the parent Act. The language of the rule framed, as well as the purpose sought to be achieved, would be the relevant factors to be considered by the Court. (Pratap Chandra Mehta (2011) 9 SCC 573). When any criterion is fixed by a statute or by a policy, an attempt should....
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....ithin the State of Telangana, were again registered within the State, then that would render Rule 20(3)(a) ultravires the provisions of the Act, and a dealer being extended the benefit of input tax credit on vehicles which have not even suffered tax under the VAT Act, as VAT is imposed only on the sale of new vehicles by registered dealers within the State. Rule 20(3)(a) of the Rules must be construed harmoniously with the provision of the VAT Act and the object for which the Act was made, and the words already registered in the State under the Motor Vehicles Act, 1988 must be read down to mean only new vehicles registered within the State, and to exclude vehicles which were earlier registered as a motor vehicle in some other State and subsequently registered again, under the provisions of the Motor Vehicles Act, 1988, within the State of Telangana. While the eligibility to claim input tax credit is no doubt notional, the said benefit is available only on the VAT dealer producing documentary evidence not only regarding the purchase price actually paid by him, but also to establish that the used/second hand vehicle, purchased by him, was subjected to VAT at the time of its initial ....