TaxTMI 
TaxTMI 
2020 (3) TMI 828
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....cturer and seller of heavy and medium commercial vehicles and its spare parts and accessories. The Company is registered, under the provisions of 'JVAT Act' and is, admittedly, liable to pay VAT on its turnover. The Company, in normal course of its business, allowed trade discounts, both in form of free supply of goods as well as providing cash incentives, or reduction in price to its purchasers, which is a target based discount, i.e., such discounts and incentives are allowed only upon achieving a particular target of sale and, accordingly, such incentives and discounts are normally accounted for at the end of the financial year. Similarly, the petitioner Company also received trade discounts and incentives in respect of the raw materials, purchased by it, in the similar manner. 4. Admittedly, prior to bringing in Section 9(5) in the Statute Book, the petitioner Company was not liable to pay any VAT on the trade discounts / incentives, but pursuant to bringing in Section 9(5) in JVAT Act, the petitioner has become liable to pay the tax on the said trade discounts and incentives as well. In the present writ application, the levy of VAT on such trade discounts / incent....
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.... sale shall form part of the sale in relation to which such trade discount or incentive is allowed." (Emphasis is ours). The terms "Sale", "purchase" and "Sale price" are defined under Sections 2(xlvii) and 2(xlviii) of the JVAT Act, relevant portions of which read as follows:- "(xlvii) "Sale" with all its grammatical variations and cognate expressions means any transfer of property in goods for cash or deferred payment or other valuable consideration but does not include a mortgage or hypothecation of or a charge or pledge on goods, and the words "sell", "buy" and "purchase", with all their grammatical variations and cognate expressions, shall be construed accordingly and includes - (a) transfer of property in any goods, otherwise than in pursuance of a contract; (b) transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (c) delivery of goods on hire purchase or any other system of payment by installments; (d) a transfer of the right to use any goods for any purpose, whether or not for specified period, for cash, deferred payment or any other valuable considerati....
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....ome condition thereafter to be fulfilled, the contract is called an agreement to sell. (4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred." Article 366(29A) of the Constitution of India defines "tax on the sale or purchase of goods" as follows:- "(29A) "tax on the sale or purchase of goods" includes- (a) a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration; (b) a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract; (c) a tax on the delivery of goods on hire-purchase or any system of payment by instalments; (d) a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; (e) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration; ....
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.... the Hon'ble Apex Court in the said case has been beautifully explained in a subsequent decision by the Hon'ble Apex Court in State of Rajasthan and Anr. Vs. Rajasthan Chemists Association, reported in (2006) 6 SCC 773, in the following terms:- "14. State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. is another decision which needs to be noted. A Constitution Bench of this Court considered the construction of Entry 48 in List II of the Seventh Schedule of the 1935 Act. "Taxes on the sale of goods" is in pari materia with Entry 54 in List II of Schedule VII of the Constitution. The case arose under the Madras General Sales Tax Act, 1939 as amended by the Madras General Sales Tax (Amendment) Act, 1947. The definition of "sale" in Section 2(h) was enlarged so as to include "a transfer of property in goods involved in execution of the works contract". By creating a legal fiction, it was deemed that in execution of a work, property in the goods involved in the works contract is transferred as goods so as to include value (not the price) of such goods as part of taxable turnover. 15. After referring to the definition of the expression "sale of goods" from the times ....
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....the material used in construction of building was held to be ultra vires." (Emphasis supplied). Placing reliance on Gannon Dunkerley's case (supra), the Hon'ble Apex Court has laid down the law as follows in Rajasthan Chemists Association's case (supra):- "28. The question of tax on sale of goods may be examined in the said background. The subject of tax being sale, measure of tax for the purpose of quantification must retain nexus with "sale" which is the subject of tax. As noticed above, tax on sale of goods, is tax on the vendor in respect of his sales and is substantially a tax on sale price. The vendor or buyer cannot be taxed dehors the subject of tax, that is, sale by the vendor or purchase by the buyer. The four essential ingredients of any transaction of sale of goods include the price of the goods sold, therefore, in any taxing event of sale, which become the subject-matter of tax price component of such sale, is an essential part of the taxing event. Therefore, the question does arise whether a particular taxing event of sale could be subjected to tax at the prescribed rate to be measured with such price which is not the component of the transaction of sa....
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....Court in the following terms:- "39. The problem relating to the power of the States to levy tax on the sale of goods was then referred to the Law Commission by the Government of India. The Law Commission submitted its report in 1974 on a consideration of the scope of the levy of sales tax by the State Governments in respect of works contracts, hire-purchase transactions and also the transfer of controlled commodities by virtue of statutory orders. The Law Commission noted that these transactions resembled sales in substance and suggested three drafting devices for conferring the power of taxing these transactions on the States, viz.: (a) amending the State List, Entry 54, or (b) adding a fresh entry in the State List, or (c) inserting in Article 366 a wide definition of "sale" so as to include works contracts. The Commission preferred the last alternative. 40. Recommendation (c) of the Law Commission to amend Article 366 by expanding the definition of sale to include the transactions negatived by the courts, was accepted by the Government. The Constitution (Forty-sixth Amendment) Bill, 1981 which was subsequently enacte....
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....ng of deemed sale to the transactions, which are not sales either under any of the clauses of Article 366(29 A) of the Constitution of India, or within the meaning of the Sales of Goods Act, for the purpose of levy of sales tax, by treating such transactions by deeming fiction. Learned counsel has submitted that by no stretch of imagination, in absence of the deeming fiction, as brought by sub-Section (5) of Section 9 in the JVAT Act, it can be said that the trade discounts / incentives, given by and received by the petitioner Company, could be treated as sales, inasmuch as, there was no transfer of consideration in so far as the trade discounts / incentives are concerned and, admittedly, prior to bringing Section 9(5) in the JVAT Act, by the amendment in the year 2011, such trade discounts / incentives were not subjected to taxation under the JVAT Act. 12. Per contra, learned counsel for the State has submitted that admittedly, the JVAT Act has come to an end in the year 2017 and it is no more in force after the GST regime. Learned counsel has submitted that the provisions of JVAT Act have automatically come to an end after coming into force of GST regime w.e.f. 01.07.2017, and....
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....nce was brought in order to help the persons making black money and evasion of tax, but the majority view that was taken by the Hon'ble Apex Court is as follows:- "8. Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less a person than Holmes, J., that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or strait-jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to be allowed to the legislature. The court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Doud where Frankfurter, J., said in his inimitable style: "In the utilities, tax and econ....
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....y of its provisions. If any crudities, inequities or possibilities of abuse come to light, the legislature can always step in and enact suitable amendatory legislation. That is the essence of pragmatic approach which must guide and inspire the legislature in dealing with complex economic issues." 14. Learned counsel for the State has further placed reliance upon the decision of the Hon'ble Apex Court in Government of Andhra Pradesh & Ors. Vs. P. Laxmi Devi, reported in (2008) 4 SCC 720, wherein where, the constitutionality of Section 47-A of the Indian Stamp Act, as amended by the A. P. Act 8 Act of 1998, was under challenge, the law has been laid down by the Hon'ble Apex Court as follows:- "39. The court is, therefore, faced with a grave problem. On the one hand, it is well settled since Marbury v. Madison that the Constitution is the fundamental law of the land and must prevail over the ordinary statute in case of conflict, on the other hand the court must not seek an unnecessary confrontation with the legislature, particularly since the legislature consists of representatives democratically elected by the people. 40. The court must always r....
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....ourse, be in different ways e.g. if a State Legislature makes a law which only Parliament can make under List I to the Seventh Schedule, in which case it will violate Article 246(1) of the Constitution, or the law violates some specific provision of the Constitution (other than the directive principles). But before declaring the statute to be unconstitutional, the court must be absolutely sure that there can be no manner of doubt that it violates a provision of the Constitution. If two views are possible, one making the statute constitutional and the other making it unconstitutional, the former view must always be preferred. Also, the court must make every effort to uphold the constitutional validity of a statute, even if that requires giving a strained construction or narrowing down its scope vide Rt. Rev. Msgr. Mark Netto v. State of Kerala SCC para 6 : AIR para 6. Also, it is none of the concern of the court whether the legislation in its opinion is wise or unwise. *** *** *** 67. Hence if two views are possible, one making the provision in the statute constitutional, and the other making it unconstitutional, the former should be preferred vide Kedar Nath Singh v. St....
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....ll be deemed to be a sale by the dealer, who allows such trade discount or incentive and a purchase by the dealer who receives such trade discount or incentive and such sale shall form part of the sale in relation to which such trade discount or incentive is allowed." (Emphasis is ours). 18. It is submitted by learned counsel that though the provision was challenged before the Kerala High Court, but the same was not entertained in M/s Gulf Oil Lubricants India Limited Vs. Commissioner of Commercial Taxes, Thiruvananthpuram & Anr., [(W.P.(C) No. 28594 of 2016 (Y), decided on 25th of November, 2016]. 19. Placing reliance on these decisions, learned counsel has submitted firstly, that nothing new has been brought in, by way of amendment, by bringing sub-Section (5) in Section 9 of the JVAT Act, secondly, in the present case only apprehending danger is challenged, by the writ petitioners, and judicial review is not available only on the ground of quia timet action, and thirdly, in any event in the matters of economic concerns, the Court should not generally interfere, as the laws relating to economic activities should be viewed with greater latitude than laws touching civil right....
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....sting right has been infringed. Where there has been only a threat to infringe the right, an order commanding the Government or other statutory authority not to take the action contemplated would be sufficient. It has been held by this Court that where there has been a threat only and the right has not been actually infringed an application under Article 226 would lie and the courts would give necessary relief by making an order in the nature of injunction. -------------." (Emphasis supplied). 22. Learned counsel for the petitioner has also pointed out that the example given by the learned counsel for the State is fallacious, inasmuch as, the argument that the consideration of the 11th item which has given free as trade discount, on the sale of 10 items, the consideration of the free item shall be the 10 items sold, cannot be accepted for the simple reason that the tax is already realized on the sale of 10 items. The State Government cannot impose tax on those items again. 23. Having heard learned counsels for both the sides and upon going through the record, we find that the submission of learned counsel for the State that in the matters of economic concerns, the Court shoul....
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.... sub-Section (5) in Section 9 of the JVAT Act, and has thus sought to make such transactions taxable, which are in addition to the transactions described under Article 366(29A) of the Constitution of India, which the State Government could not do, and admittedly, prior to bringing of Section 9(5) of the JVAT Act, into the Statute Book, such transactions were never being subjected to tax under the JVAT Act. In fact, Explanation III of Section 2(xlviii) of the JVAT Act, defining 'Sale price', clearly states that sale price shall not include the cash discount, if shown separately, and allowed by the dealer in the ordinary course of trade practice. In spite of the fact that JVAT Act is no more in force, after coming into force of the GST regime, but the fact remains that the transactions, during the JVAT regime, are claimed to be taxed after the amendment made in the year 2011, which were not subjected to any tax, prior to the amendment of the JVAT Act in the year 2011. 25. We are of the considered view that by bringing Section 9(5) in the JVAT Act into the Statute Book, the dealers have been put to a disadvantageous position, which was not there, prior to the amendment made....