M/S. TVS MOTOR COMPANY LTD v. THE STATE OF TAMIL NADU & Ors.

From the Judgment and Order dated 29.10.2014 of the High Court of Judicature at Madras in Writ Petition Nos. 29017, 29019, 29021, 29023 and 29025 of 2013 A B C D E F G H M/S. TVS MOTOR COMPANY LTD. v. THE STATE OF TAMIL NADU AND OTHERS 965 WITH Civil Appeal Nos. 10566, 10567, 10565, 10568, 10576, 10569 of

2018. Vijay Narayan, AG, Ms. Narmada Sampath, AAG, S. K. Bagaria, V. Giri, Sr. Advs., Aditya Sharma, Kunwar Ajit Singh, Akash Jindal, Manu Bajaj, M/s. Parekh & Co., Anil Kaushik, Abhishek Mishra, Akash Bhardwaj, Ms. Shilpa Singh, Mrs. T. Archana, K. K. Mani, Ms. M. Mishra, K. V. Ramkumar, K. V. Vijayakumar, Advs. for the appearing parties. The Judgment of the Court was delivered by A. K. SIKRI, J. 1. Leave granted.

2. This group of eleven appeals was heard together and is being disposed of by this common judgment as identical issues are involved in all these appeals.

3. At the outset, the issues involved in the present appeals are: whether Section 19(5)(c) of the Tamil Nadu Value Added Tax Act, 2006, Act No. 32/2006 (hereinafter referred to as “TNVAT Act”) and Rule 10(9)(a) of the Tamil Nadu Value Added Tax Rules, 2007 (hereinafter referred to as “Rules”) are ultra vires of Articles 14, 19(1)(g), 256 and 301 of the Constitution of India as also the Central Sales Tax Act (hereinafter referred to as “CST Act”) and whether Notice dated August 16, 2018 of the Revenue is liable to be quashed?

4. The instant appeals have been preferred against the common impugned judgment of the High Court of Judicature at Madras dated October 29, 2014 (hereinafter referred to as “Impugned Judgment I”) in the writ petitions which were filed by the appellants and the impugned judgment dated 17th November, 2017 of the High Court of Judicature at Madras (hereinafter referred to as “Impugned Judgment II”) in W.P. No. 29393 of 2017.

5. The brief facts leading to the cases are as follows:

6. All the appellants herein are the Assessees under the TNVAT Act and are duly registered on the file of their respective Jurisdictional Commercial Officers.

7. On January 17, 2005, a White Paper was released by the Committee of Finance Ministers (hereinafter referred to as “White A B C D E F G H 966 SUPREME COURT REPORTS [2018] 13 S.C.R. Paper”), making it clear that Input Tax Credit (hereinafter “ITC”) would be available to set-off against tax liability on all intra-state and inter- state sales. Paragraph 2.3 of the same states as follows: “Coverage of Set-Off / Input Tax Credit

2.3 This input tax credit will be given for both manufacturers and traders for purchase of inputs/supplies meant for both sale within the State as well as to other States, irrespective of when these will be utilised/sold. This also reduces immediate tax liability. Even for stock transfer/consignment sale of goods out of the State, input tax paid in excess of 4% will be eligible for tax credit.”

8. Thereafter, on December 15, 2006, the TNVAT Act was enacted under List II, Entry 54 of the Constitution of India and notified in the Official Gazette after receiving assent of the Governor (on December 14, 2006), to consolidate and amend the law relating to the levy of tax on the sale or purchase of goods in the State of Tamil Nadu. Section 19(5)(c) of the same read as follows: “No input tax credit shall be allowed on the purchase of goods sold as such or used in the manufacture of other goods and sold in the course of inter-State trade or commerce falling under sub-section (2) of section 8 of the Central Sales Tax Act, 1956. (Central Act 74 of 1956).”

9. Thereafter, on January 01, 2007, the Government of Tamil Nadu, in exercise of its powers under Section 80(1) of the TNVAT Act, notified the Rules vide Notification No. SROA-(ai1)/2007 G.O.M.S.No. 1. Rule 10(9)(a) of the same states as follows: “Input tax credit on inter-state sales shall be allowed only if Form Cprescribed in the Central Sales Tax (Registration and Turnover) Rules, 1957 is filed.”

10. After the Assessment was completed for the appellants for Assessment Year 2007-08, they received Show Cause Notices from the Revenue in and around 2013, proposing to reverse the ITC claimed made by them on the ground that they had not filed the Declaration Form C for the purpose of availing the concessional rate of tax. The appellants paid the differential tax arising out of the Assessment order for 2007-08 as well as the amount relating to proportionate ITC under process. A B C D E F G H M/S. TVS MOTOR COMPANY LTD. v. THE STATE OF TAMIL NADU AND OTHERS [A. K. SIKRI, J.] 967

11. Consequently, on 16th August, 2013, the Revenue issued Impugned Notice in TIN 33450460109/2007-08 proposing to deny the ITC credit availed against the transactions for which Form C were not filled, and reversing credit on inter-State sales without Forms C in terms of the impugned Section 19(1)(c).

12. Aggrieved by the same, the appellants, who were Assessees under the TNVAT Act, preferred writ petitions challenging the constitutional vires of 19(5)(c) of the TNVAT Act and Rule 10(9)(a) of the Rules contending that the same had been enacted in violation of Articles 14, 19(1)(g), 246 and 301 of the Constitution of India. It was urged by the appellants that Respondent No. 1 — State had enacted the Act under Entry 54 of List II of the Constitution of India in terms of consensus amongst States to bring about a nation-wide uniform taxation structure/scheme for VAT and for the promotion of inter-State trade, commerce and industrialization, with its primary object to reduce the cascading effect of tax imposed at successive stages, either at the stage of usage as raw material or at the time of reselling of the article so produced. They further urged that while the White Paper provided for set-off of the ITC even against inter-State sales, Section 19(5)(c) of the Tamil Nadu Act sought to negate the object of promoting inter-State trade and commerce.

13. It was urged by the appellants that Respondent No. 1 — State, having committed and consented before the Empowered Committee of State Finance Ministers, vide the aforementioned White Paper, towards administration of VAT allowing ITC set-off against tax liability on intra-State sales or inter-State sales, sought to deviate on the issue in terms of Section 19(5)(c) of the TNVAT Act, by not entitling a dealer who effected inter-state sales under Section 8(2) of the Central Sales Tax Act to ITC of the tax paid by him on local purchases.

14. The Respondents/Revenue, on the other hand, contended that the Taxation Laws (Amendment) Act, 2007 (Act No. 16/2007) has amended the Central Sales Tax Act with effect from 01.04.2008 and prior to that, in cases of inter-State sales falling under Section 8(2) of the same in cases of declared goods, the rate of tax was to be calculated at twice the rate applicable to the sale or purchase of such goods inside the appropriate State and in case of non-declared goods, the rate of tax applicable was to be calculated at 10% or at the rate applicable to the purchase of goods inside the appropriate State, whichever was higher. A B C D E F G H 968 SUPREME COURT REPORTS [2018] 13 S.C.R.

15. The appellants had also urged that the impugned Section and Rule were ‘colourable legislation’, as they seek to override the supremacy of Entry 92A of List I of the Seventh Schedule of the Constitution of India.

16. The Respondents had refuted this argument by contending that as per the impugned provision, ITC was permissible if the inter- State sales were made under Section 8(1) of the CST Act after duly filing the Form C declaration. The same was not permissible in accordance with Rule 10(9)(a) if the inter-State sales were made under Section 8(2) of the CST Act.

17. It was also the case of the respondents that the impugned provisions were in tune with the recommendations of the Empowered Committee of State Finance Ministers. They further threw light upon the fact that the CST Act provided for multiple rates of tax, being different for sales made to registered dealers and sales made to non-registered dealers.

18. The High Court of Judicature, vide the Impugned Judgment-I dated October 29, 2014, has dismissed the writ petitions thereby upholding the constitutional vires of Section 19(5)(c) of the TNVAT Act and Rule 10(9)(a) of the Rules. At the same time, it has allowed the assessees/ appellants to submit their responses to the Show Cause Notices and/or challenge the orders passed negativing their request for ITC, in accordance with the TNVAT Act and Rules framed thereunder.

19. The Impugned Judgment-II dated November 17, 2017 arose out of Writ Petition No. 29393 of 2017, challenging the constitutional vires of Section 19(5)(c) of the TNVAT Act and Rule 10(9)(a) of the Rules, where the High Court of Judicature at Madras, while relying on its previous decision dated 29.10.2014 in Impugned Judgment-I, observed that the same issue had arisen in the Impugned Judgment-I and the vires of the TNVAT Act and the Rules had been upheld therein and accordingly, dismissed the Writ Petition No. 29393/2017.

20. Correctness of these judgments is the subject matter of instant appeals.

21. Before adverting to the respective submissions which were made by the counsel for the appellants as well as learned Advocate General who appeared on behalf of the respondents, it would be apposite A B C D E F G H M/S. TVS MOTOR COMPANY LTD. v. THE STATE OF TAMIL NADU AND OTHERS [A. K. SIKRI, J.] 969 to scan through the impugned judgment dated October 29, 2014 to understand the rationale and reasoning which is given by the High Court in arriving at its conclusions on the issues raised.

22. The High Court formulated following two questions which arose for consideration “(1) Whether Section 19(5)(c) of TNVAT Act, 2006 and Rule 10(9)(a) of TNVAT Rules, 2007 are ultra vires the provision of CST Act, 1956? (2) Whether the impugned provisions are violation of Articles 14, 19(1)(9) and 301 of the Constitution of India?”

23. Thereafter, it took note of the relevant provisions of the CST Act, TNVAT Act as well as Rules and also Article 301 of the Constitution. We deem it proper to reproduce the relevant portions of these Acts and Rules at this stage itself. “Central Sales Tax Act, 1956 S. 3. When is a sale or purchase of goods said to take place in the course of inter-State trade or commerce.- - A sale or purchase of goods shall be deemed to take place in the course of inter-State trade or commerce if the sale or purchase- (a) occasions the movement of goods from one State to another; or (b) is effected by a transfer of documents of title to the goods during their movement from one State to another. Explanation 1.- Where goods are delivered to a carrier or other bailee for transmission, the movement of the goods shall, for the purposes of clause (b), be deemed to commence at the time of such delivery and terminate at the time when delivery is taken from such carrier or bailee. Explanation 2.- Where the movement of goods commences and terminates in the same State it shall not be deemed to be a movement of goods from one State to another by reason merely of the fact that in the course of such movement the goods pass through the territory of any other State. A B C D E F G H 970 SUPREME COURT REPORTS [2018] 13 S.C.R. A B C D E F G H xx xx xx S. 6. Liability to tax on inter-State sales.- (1)Subject to the other provisions contained in this Act every dealer shall, with effect from such date as the Central Government may, by notification in the Official Gazette, appoint, not being earlier than thirty days from the date of such notification, be liable to pay tax under this Act on all sales [of goods other than electrical energy) effected by him in the course of inter-State trade or commerce during any year on and from the date so notified. [Provided that a deal shall not be liable to pay tax under this Act on any sale of good which, in accordance with the provisions of sub-section (3) of Section 5 is a sale in the course of export of those goods out of the territory of India] [(1A) A dealer shall be liable to pay tax under this Act on a sale of any goods effected by him in the course of inter-State trade or commerce notwithstanding that no tax would have been leviable (whether on the seller or the purchaser) under the sales tax law of the appropriate State if that sale had taken place inside that State.] (2) Notwithstanding anything contained in sub-section (1) or sub- section (1A), where a sale of any goods in the course of inter- State trade or commerce has either occasioned the movement of such goods from one State to another or has been effected toy a transfer of documents of title to such goods during their movement from one State to another, any subsequent sale during such movement effected by a transfer of documents of title to such goods- (a) to the Government or (b) to a registered dealer other than the Government if the goods are of the description referred to in sub-section (3) of section or shall be exempt from tax under this Act: Provided that no such subsequent sale shall be exempt from tax under this subsection unless the dealer effecting the sale furnishes to the prescribed authority in the prescribed manner and within the prescribed time or within such further time as that authority may, for sufficient cause, permit:— (a) a certificate duly filled and signed by the registered dealer from whom the goods were purchased containing the prescribed M/S. TVS MOTOR COMPANY LTD. v. THE STATE OF TAMIL NADU AND OTHERS [A. K. SIKRI, J.] 971 particulars in a prescribed form obtained from the prescribed authority; and A (b) if the subsequent sale is made to a registered dealer, a declaration referred to in clause (a) sub-section (4) of section 8: Provided further that it shall not be necessary to furnish the declaration referred to in clause (b) of the preceding proviso in respect of a subsequent sale of goods if,— (a) the sale or purchase of such goods is, under the sales tax law of the appropriate State exempt from tax generally or is subject to tax generally at a rate which is lower than three per cent, or such reduced rate as may be notified by the Central Government, by notification in the Official Gazette, under sub-section (1) of section 8 (whether called a tax or fee or by any other name); and………. S. 8. Rates of tax on sales in the course of inter-State trade or commerce— (1) Every dealer, who in the course of inter-State trade or commence, sells to a registered dealer other than the Government goods of the description referred to in sub-section (3), shall be liable to pay tax under this Act, which shall be three per cent, of his turnover or at the rate applicable to the sale or purchase of such goods inside the appropriate State under the Sales Tax law of that State whichever is lower: Provided that the Central Government may, by notification in the Official Gazette, reduce the rate of tax under this sub-section. (2) The tax payable by any dealer on his turnover in so far as the turnover or any part thereof relates to the sale of goods in the course of inter-State trade or service not falling within sub-section (1), shall be at the rate applicable to the sale or purchase of such goods inside the appropriate State under the sales tax law of that State; Explanation.—For the purposes of this sub-section, a dealer shall be deemed to be a dealer liable to pay tax under the sales tax law of the appropriate State, notwithstanding that he, in fact, may not be so liable under that law. S.9. Levy and collection of tax and penalties.— B C D E F G H 972 SUPREME COURT REPORTS [2018] 13 S.C.R. A B C D E F G H (2) Subject to the other provisions of this Act and the rules made thereunder, the authorities for the time being empowered to assess, re-assess, collect and enforce payment of any tax under the general sales tax law of the appropriate State shall, on behalf of the Government of India, assess re-assess, collect and enforce 3 [interest or penalty, payable by a payment of tax, including any dealer under this Act as if the tax or interest or penalty payable by such a dealer under this Act is a tax orinterest or penalty payable under the general sales tax law of the State; and for this purpose they may exercise all or any of the powers they have under the general sales tax law of the State; and the provisions of such law, including provisions relating to returns, provisional assessment, advance payment of tax, registration of the transferee of any business, imposition of the tax liability of a person carrying on business on the transferee of, or successor to, such business, transfer of liability of any firm of Hindu undivided family to pay tax in the event of the dissolution of such firm or partition of such family, recovery of tax from third parties, appeals, reviews, 5 revisions, references,refunds, rebated, penalties,] [charging or payment of interest, compounding of offences and treatment of documents furnished by a dealer as confidential, shall apply accordingly:— Provided that if in any State or part thereof there is no general sales tax law in force, the Central Government may, be rules made in this behalf make necessary provision for all or any of the matter specified in this sub-section. Tamil Nadu Value Added Tax Act, 2006 S. 2 – Definitions: (23) “input” means any goods including capital goods purchased by a dealer in the course of his business; (32) “reversal of tax credit” means reversal of input tax credit already claimed and availed under this Act; M/S. TVS MOTOR COMPANY LTD. v. THE STATE OF TAMIL NADU AND OTHERS [A. K. SIKRI, J.] 973 S. 19. Input tax credit.— (1) There shall be input tax credit of the amount of[tax paid] under this Act, by the registered dealer to the seller on his purchases of taxable goods specified in the First Schedule : (2) Input tax credit shall be allowed for the purchase of goods made within the State from a registered dealer and which are for the purpose of — (i) re-sale by him within the State; or (ii) use as input in manufacturing or processing of goods in the State; or (iii) use as containers, labels and other materials for packing of goods in the State; or (iv) use as capital goods in the manufacture of taxable goods. (v) sale in the course of inter-State trade or commerce falling under sub-sections (1) and (2) of section 8 of the Central Sales Tax Act, 1956 (Central Act 74 of 1956). (vi) Agency transactions by the principal within the State in the manner as may be prescribed. (5) ……. (c) No input tax credit shall be allowed on the purchase of goods sold as such or used in the manufacture of other good and sold in the course of inter-State trade or commerce failing under sub- section (2) of Section 3 of the Central Rules Act, 1956 (Central Act 74 of 1956). Tamil Nadu Value Added Tax Rule, 2007

10. Input tax credit.—(1) The input tax credit that can be deducted from the input tax payable month or year shall be calculated by using the formula (A + B) - (C + D) Where, A = Input tax credit carried forward from the previous month or B = Input tax credit accrued during the month or year C = Input tax credit reversed during the month or year A B C D E F G H 974 SUPREME COURT REPORTS [2018] 13 S.C.R. A D = Input tax credit refunded during the month or year (2) Every registered dealer who claims input tax credit under sub- section (1) of section 19 shall, produce the original tax invoice, in support of his claim of the input tax credit, containing the following details, namely: (a) A consecutive serial number; (b) The date on which the invoice is issued; (c) The name, address and the Taxpayer Identification Number of the seller; (d) The name, address and the Taxpayer Identification Number of the buyer; (e) The description of the goods; (f) The quantity or volume of the goods; (g) The value of the goods; (h) The rate and amount of tax charged; and (i) The total value of the goods. (9)(a) Input tax credit on inter-state sales shall be allowed only if lots ‘C’ prescribed in the Central Sales Tax (Registration and turnover) Rules, 1957 is filed.”

24. After taking note of the aforesaid provisions, the High Court proceeded to discuss question no. (1). It pointed out that the definition of “dealer” under Section 2(b) of the CST Act means the assessee under the said Act and he is solely liable to pay tax under the CST Act whether or not he is allowed by the law or contract to pass on or actually passes on the liability of his customers. The onus of proof that a person sought to be treated as a dealer is one who comes within the said definition is on the assessing authority.

25. The definition of “sale” under Section 2(g) of the CST Act means that a sale inside a State as well as an inter-State sale arising in that State, has situs in that State in case of sale inside a State, it is taxable under the State law (TNVAT Act) and inter-State sale is liable to tax in the same State under the CST Act. Section 3 of the CSTAct speaks about when a sale or purchase of goods said to have taken place B C D E F G H M/S. TVS MOTOR COMPANY LTD. v. THE STATE OF TAMIL NADU AND OTHERS [A. K. SIKRI, J.] 975 in the course of inter-State trade or commerce. Section 6 of the CST Act speaks about liability to tax on inter-State sales and it is a charging Section. Section 8 of the CST Act speaks about rates of tax on sales in the course of inter-State trade or commerce and as per sub-section(1) of Section 8 if sale is effected by a dealer to a registered dealer goods of the description referred to in sub-section(3), it shall be liable to pay tax under this Act which shall be 3% of the turnover or at the rate applicable to the sale or purchase of such goods inside the appropriate State under the Sales Tax law of that State, whichever is lower. Section 8(2) says that if the sale of goods is in the course of inter-State trade or commerce not falling within sub-section(1) the tax payable shall be at the rate applicable to the sale or purchase of such goods inside the appropriate State under the sales tax law of that State and as per explanation to Section 8(2), for the purpose of this sub-section, a dealer shall be deemed to be a dealer liable to pay tax under the sales tax law of the appropriate State, notwithstanding that he, in fact, may not be so liable under that law.

26. The High Court also noticed that the vires of the aforesaid provisions was tested by the Constitution Bench of this Court in State of Madras vs. N.K. Nataraja Mudaliar1. The Constitution Bench upheld the provisions of Section 2(b) of the CST Act and repelled the challenge predicated on Articles 301 and 303(1) of the Constitution of India. This position is reiterated in State of Tamil Nadu and Another vs. Sitalakshi Mills Ltd. and Others2.

27. Discussing the provisions of Section 8(1) and (2) of the CST Act, the High Court pointed out that Section 8(1) gives preferential treatment to sale by a dealer to a registered dealer. Vires of this provision has also been upheld in Gwalior Rayon Silk Manufacturing (Wvg.) Co., Ltd. vs. Assistant Commissioner of Sales Tax and others3.

28. Discussing ratio of the aforesaid judgments, the High Court pointed out that this Court noted the proposition that the aforesaid provision was to check the evasion of tax on inter-State sales and to prevent discrimination between the rates in one State and those in other States, the Parliament thought fit to enact Section 8(2)(b) of the CST Act and