TaxTMI 
TaxTMI 
2020 (3) TMI 828
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....l 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 / incentives in any particular assessment order, is not und....
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....unt 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 consideration; (e) supply of goods made by a society, trust, club or association, whether incorporated or not, to its member....
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.... 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; (f) a tax on the supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred ....
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....annon 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 of Roman law and the law in England, this Court (at SCR pp. 396-97) culled out and approved the following principle stated in Benjamin's book Sale of Goods: "Hence it follows that, to constitute a valid sale, there must be a concurrence of the following elements viz. (1) parties co....
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.... 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 sale, which has attracted the sales tax. *** *** *** 41. These cases give a clear picture that Entry 54 in List II of the Seventh Schedule empowers the State Legislature to impose and collect taxes on sale of goods. The measure to which tax rate is to be applied must have a nexus to taxable event of sale and not divorced from it. *** *** *** 44. In the context of th....
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....ed 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 enacted as the Constitution (Forty-sixth Amendment) Act, 1982 set out the background in which the amendment to Article 366(29-A) of the Constitution was amended. Having noted the various decisions of the Supreme Court as well as of the High Courts excluding certain transactions from the scope of sale for the purpose of levy of sales tax, it was said that the position had resulted in scope for avoidance of tax in various ways. In the circumstances, it was cons....
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....ived 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 there is no scope of any challenge to the vires of any provision of said Act, which is no more in force. In other words, it is submitted by learned counsel that there is no scope of challenging the stale Act. It is further submitted by learned counsel for the State that in fact by bringing Section 9(5) of the JVAT Act, nothing new was brought within the purview of sales, which was not earlier the sale within the meaning of Article 366 (29A) of the Constitution of India. It is submitted by learned counsel t....
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....roblems 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 economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the judges have been overruled by events - self-limitation can be seen to be the path to judicial wisdom an....
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....f 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 remember that invalidating a statute is a grave step, and must therefore be taken in very rare and exceptional circumstances. *** *** *** 42. The solution to this problem was provided in the classic essay of Prof. James Bradley Thayer, Professor of Law of Harvard University entitled The Origin and Scope of the American Doctrine of Constitutional Law which was published in Harvard Law Review in 1893. In this article, Professor Thayer wrote that judicial review is strictly judicial and thus quite different from the policy-making functions of the executive and legislative b....
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.... 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. State of Bihar. -------------. 68. The court must, therefore, make every effort to uphold the constitutional validity of a statute, even if that requires giving the statutory provision a strained meaning, or narrower or wider meaning, than what appears on the face of it. It is only when all efforts to do so fail should the court declare a statute to be unconstitutional. *** *** *** 73. All decisions in the economic and social spheres are essentially ad hoc and experimental. Since economic matters are extremely complicated, this inevitably entails special treatment for special situations. The State must therefo....
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.... 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 rights, and the State must be left with wide latitude in devising ways and means of fiscal or regulatory measures. 20. In reply of the submissions of learned counsel for the State, it is submitted by learned counsel for the petitioner that Section 9(5) was brought in JVAT Act by the Ordinance promulgated in the year 2011, and the present writ application was also filed in the year 2011 itself, challenging the said provision. It is submitted that, thereafter, there are several assessment orders of the writ petitioner, in which, the tax have been levied by the authorities, even on the trade discounts and incentives given by the writ petitioner, which are und....
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....f 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 should not generally interfere, as the laws relating to economic activities should be viewed with greater latitude than laws touching civil rights, and the State must be left with wide latitude in devising ways and means of fiscal or regulatory measures, does not apply in the present case, as in this case, the constitutionality of Section 9(5) of the JVAT Act and the legislative competence of State Legislature in bringing sub-Section (5) in Section 9 of the JVAT Act, is challenged, on the ground that the same is beyond the legislative competence of the State, as in garb of Entry-54 List-II of Seventh Schedule of the Constitution of India, any transaction could not be added in Article 3....
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.... 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 in the year 2011, and this putting the dealers into a disadvantageous position was not within the legislative competence of the State Legislature. No doubt, had this amendment in the JVAT Act been within the legislative competence of the State Legislature, there was no scope of any interference therein by this Court. But this is a clear case where the State Legislature was not having the legislative competence to give the expression "sale of goods" an extended meaning and to enlarge its legislative field to cover those transactions for taxing, which did not properly conform to the elements of sale of goods within the Sales of goods Act, or under Article 366(29A) of the Constitution ....