# M/S. TVS MOTOR COMPANY LTD v. THE STATE OF TAMIL NADU AND OTHERS

- **Citation:** [2018] 13 S.C.R. 961
- **Court:** Supreme Court of India
- **Decided:** 2018-10-12
- **Case number:** Civil Appeal Nos. 10560-10564 of 2018
- **Bench:** A. K. Sikri, Ashok Bhushan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-tvs-motor-company-ltd-v-the-state-of-tamil-nadu-and-others-32553
- **Pages:** 38

## Headnote

Tamil Nadu Value Added Tax Act, 2006: s. 19(5)(c) - Input
tax credit, set-off against tax liability on all intra-state and interstate sales, allowed only if Form C as prescribed is filed - Validity
of - On facts, claim of input tax credit by assessee - Issuance of
notice by Revenue denying input tax credit availed against the
transactions for which Form C were not filled, and reversing credit
on inter-State sales - Writ petition by assessee challenging the
constitutional vires of s. 19(5)(c) and r. 10(9)(a) - Held: s. 19(5)(c)
is constitutionally valid - Provision was aimed at achieving a specific
and justified purpose to protect the Revenue against clandestine
transaction resulting in invasion of tax and could not be treated as
discriminatory - Sale by a dealer who is registered in the State of
Tamil Nadu which is effected outside the State of Tamil Nadu will
qualify for ITC only when the said sale is made to a registered dealer
- Insofar sales to unregistered dealers, that too situated outside the
State of Tamil Nadu, the State would not have any mechanism to
find out the genuineness of these sales - In essence, the State is
putting the condition that ITC would be admissible when Form 'C'
is given, which can be given only in those cases where sale is to a
registered dealer - Prescribing such a condition in order to ensure
that there is no evasion, has a rationale purpose and objective -
Tamil Nadu Value Added Tax Rules, 2007 - r. 10(9)(a).
Disposing of the appeals, the Court
HELD: 1.1 In ALD Automotive Pvt. Ltd. & Anr. v. The
Commercial Tax Officer & Ors. it was held that Input tax creditITC is a form of concession which is provided by the Act; it cannot
be claimed as a matter of right but only in terms of the provisions
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of the statute; therefore, the conditions mentioned in Section
19(5)(c) of the Tamil Nadu Value Added Tax Act, 2006 had to be
fulfilled by the dealer; and sub-section (20) of Section 19 was
constitutionally valid. In the process, that there were valid and
cogent reasons for inserting that provision and the main purpose
was to protect the Revenue against clandestine transaction
resulting in invasion of tax. The reasoning given while upholding
sub-section (20) of Section 19 shall equally apply while examining
the validity of Section 19(5)(c) thereof. The High Court noted
that in respect of unregistered dealer in other States, the State of
Tamil Nadu has no mechanism to prevent invasion of tax and
loss of revenue cost by trade with such unregistered dealers in
the State of Tamil Nadu. Therefore, the provision was aimed at
achieving a specific and justified purpose and could not be treated
as discriminatory. [Para 41, 42][996-C-F]
ALD Automotive Pvt. Ltd. & Anr. v. The Commercial Tax
Officer & Ors. SLP (Civil) Nos. 36112-36113 of 2013
- relied on.
1.2 Section 19 of TNVAT Act deals with ITC. It incorporates
provision for grant of ITC under certain circumstances and, at
the same time, also lays down the conditions in which such ITC
would be admissible. It is in this context sub-section (5) of Section
19 is to be analysed. Sub-section (5) stipulates certain
contingencies where such ITC would not be admissible. Clause
(c) of this sub-section which provides that ITC would not 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. Sale by a dealer who is registered in
the State of Tamil Nadu which is effected outside the State of
Tamil Nadu will qualify for ITC only when the said sale is made to
a registered dealer. If it is to an unregistered dealer, it would not
be admissible. This classification is based on intelligible differentia
having a proper rationale. Insofar sales to unregistered dealers
are concerned, that too situated outside the State of Tamil Nadu,
the State would not have any mech

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[2018] 13 S.C.R. 961
961
M/S. TVS MOTOR COMPANY LTD.
v.
THE STATE OF TAMIL NADU AND OTHERS
(Civil Appeal Nos. 10560-10564 of 2018)
OCTOBER 12, 2018
[A. K. SIKRI AND ASHOK BHUSHAN, JJ.]
Tamil Nadu Value Added Tax Act, 2006: s. 19(5)(c) - Input
tax credit, set-off against tax liability on all intra-state and interstate sales, allowed only if Form C as prescribed is filed - Validity
of - On facts, claim of input tax credit by assessee - Issuance of
notice by Revenue denying input tax credit availed against the
transactions for which Form C were not filled, and reversing credit
on inter-State sales - Writ petition by assessee challenging the
constitutional vires of s. 19(5)(c) and r. 10(9)(a) - Held: s. 19(5)(c)
is constitutionally valid - Provision was aimed at achieving a specific
and justified purpose to protect the Revenue against clandestine
transaction resulting in invasion of tax and could not be treated as
discriminatory - Sale by a dealer who is registered in the State of
Tamil Nadu which is effected outside the State of Tamil Nadu will
qualify for ITC only when the said sale is made to a registered dealer
- Insofar sales to unregistered dealers, that too situated outside the
State of Tamil Nadu, the State would not have any mechanism to
find out the genuineness of these sales - In essence, the State is
putting the condition that ITC would be admissible when Form 'C'
is given, which can be given only in those cases where sale is to a
registered dealer - Prescribing such a condition in order to ensure
that there is no evasion, has a rationale purpose and objective -
Tamil Nadu Value Added Tax Rules, 2007 - r. 10(9)(a).
Disposing of the appeals, the Court
HELD: 1.1 In ALD Automotive Pvt. Ltd. & Anr. v. The
Commercial Tax Officer & Ors. it was held that Input tax creditITC is a form of concession which is provided by the Act; it cannot
be claimed as a matter of right but only in terms of the provisions
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of the statute; therefore, the conditions mentioned in Section
19(5)(c) of the Tamil Nadu Value Added Tax Act, 2006 had to be
fulfilled by the dealer; and sub-section (20) of Section 19 was
constitutionally valid. In the process, that there were valid and
cogent reasons for inserting that provision and the main purpose
was to protect the Revenue against clandestine transaction
resulting in invasion of tax. The reasoning given while upholding
sub-section (20) of Section 19 shall equally apply while examining
the validity of Section 19(5)(c) thereof. The High Court noted
that in respect of unregistered dealer in other States, the State of
Tamil Nadu has no mechanism to prevent invasion of tax and
loss of revenue cost by trade with such unregistered dealers in
the State of Tamil Nadu. Therefore, the provision was aimed at
achieving a specific and justified purpose and could not be treated
as discriminatory. [Para 41, 42][996-C-F]
ALD Automotive Pvt. Ltd. & Anr. v. The Commercial Tax
Officer & Ors. SLP (Civil) Nos. 36112-36113 of 2013
- relied on.
1.2 Section 19 of TNVAT Act deals with ITC. It incorporates
provision for grant of ITC under certain circumstances and, at
the same time, also lays down the conditions in which such ITC
would be admissible. It is in this context sub-section (5) of Section
19 is to be analysed. Sub-section (5) stipulates certain
contingencies where such ITC would not be admissible. Clause
(c) of this sub-section which provides that ITC would not 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. Sale by a dealer who is registered in
the State of Tamil Nadu which is effected outside the State of
Tamil Nadu will qualify for ITC only when the said sale is made to
a registered dealer. If it is to an unregistered dealer, it would not
be admissible. This classification is based on intelligible differentia
having a proper rationale. Insofar sales to unregistered dealers
are concerned, that too situated outside the State of Tamil Nadu,
the State would not have any mechanism to find out the
genuineness of these sales. In essence, the State is putting the
condition that ITC would be admissible when Form 'C' is given,
which can be given only in those cases where sale is to a
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registered dealer. Prescribing such a condition in order to ensure
that there is no evasion, has a rationale purpose and objective.
In the context of the nature of the ITC scheme, which is a
concession and not a right, leads to the conclusion that it was
open to the Legislature to make such a provision. [Para 43]
[996-G-H; 997-A-C]
1.3 Wherever the State Government buys, sells, supplies
or distribute goods, it shall be deemed to be the dealer for the
purposes of TNVAT Act. At the same time, TNVAT Act does not
require registration by the State Government inasmuch as Section
38 which deals with registration of dealers explicitly provides,
under sub-section (8) thereof, that this provision shall not apply
to any State Government or Central Government. A conjoint
reading of the said two provisions would show that when a sale is
made to the State of Karnataka, it is made to a dealer but that
dealer is under no obligation to get itself registered under the
TNVAT Act. Because of this exemption, no State Government
does that and since it is not a registered dealer, it would not be in
a position to issue any Form C. But for that, the genuineness of
sales made to a State Government cannot be doubted. This
situation puts those dealers who are making sales to the State
Government in disadvantageous position, even when it is clear
that there is no possibility of tax evasion as there cannot be any
such apprehension in case of sales to the State Government. The
benefit of ITC is given whenever sale is made to a dealer outside
State of Tamil Nadu and the said dealer is a registered dealer.
The provisions of Section 19(5)(c) are to be read down by
construing that those dealers who are making sales exclusively
to the other State Governments (i.e. outside the State of Tamil
Nadu), the said States would be deemed as registered dealers
for the purposes of availing benefits of ITC. Otherwise, in such a
situation, it would be difficult to hold that test of reasonable
classification is met in this limited context. [Para 47, 48]
[997-G-H; 998-A-E]
1.5 The judgment of the High Court is upheld with one
rider, that in those cases where a dealer makes sales exclusively
to the other State Government(s), benefit of ITC would be allowed
without insisting on the furnishing of Form 'C'. However, in order
to avail this benefit, a certificate from said the State Government
M/S. TVS MOTOR COMPANY LTD. v. THE STATE OF
TAMIL NADU AND OTHERS
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to whom the supplies are made would be obtained by the dealer
claiming ITC and submitted to the VAT authorities. [Para 49]
[998-E-F]
State of Madras v. N. K. Nataraja Mudaliar 1968 SCR
(3) 829; State of Tamil Nadu and Another v. Sitalakshi
Mills Ltd. and Others (1974) 4 SCC 408 : [1974] 3
SCR 1; Gwalior Rayon Silk Manufacturing (Wvg.) Co.,
Ltd. v. Assistant Commissioner of Sales Tax and others
(1974) 4 SCC 98 : [1974] 2 SCR 879; Messrs Govind
Saran Ganga Saran v. Commissioner of Sales Tax and
Others 1985 (Supp) SCC 205 : [1985] SCR 985; Bolani
Ores Ltd. v. State of Orissa (1974) 2 SCC 777 : [1975]
2 SCR 138; Mahindra and Mahindra Ltd. v. Union of
India and Another (1979) 2 SCC 529 : [1979] 2 SCR
1038; D. S. Nakara and Others v. Union of India (1983)
1 SCC 305 : [1983] 2 SCR 165; Union of India and
Others v. N.S. Rathnam and Sons (2015) 10 SCC 681 :
[2015] 8 SCR 751; Jayam and Company v. Assistant
Commissioner and Another (2016) 15 SCC 125 : [2016]
6 SCR 787 - referred to.
Case Law Reference
[1968] SCR (3) 829
referred to
Para 26
[1974] 3 SCR 1
referred to
Para 26
[1974] 2 SCR 879
referred to
Para 27
[1985] SCR 985
referred to
Para 31
[1975] 2 SCR 138
referred to
Para 34
[1979] 2 SCR 1038
referred to
Para 34
[1983] 2 SCR 165
referred to
Para 35
[2015] 8 SCR 751
referred to
Para 35
[2016] 6 SCR 787
referred to
Para 36
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1056010564 of 2018
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
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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
M/S. TVS MOTOR COMPANY LTD. v. THE STATE OF
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Paper"), making it clear that Input Tax Credit (hereinafter "ITC") would
be available to set-off against tax liability on all intra-state and interstate 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.
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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.
M/S. TVS MOTOR COMPANY LTD. v. THE STATE OF
TAMIL NADU AND OTHERS [A. K. SIKRI, J.]
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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 interState 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
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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.
M/S. TVS MOTOR COMPANY LTD. v. THE STATE OF
TAMIL NADU AND OTHERS [A. K. SIKRI, J.]
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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 subsection (1A), where a sale of any goods in the course of interState 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
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particulars in a prescribed form obtained from the prescribed
authority; and
(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..........
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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.-
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(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
payment of tax, including any3[interest or penalty, payable by a
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,
revisions, references,refunds, rebated, penalties,]5[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.
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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;
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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 subsection (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
year
B = Input tax credit accrued during the month or year
C = Input tax credit reversed during the month or year
M/S. TVS MOTOR COMPANY LTD. v. THE STATE OF
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D = Input tax credit refunded during the month or year
(2) Every registered dealer who claims input tax credit under subsection (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
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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
1 AIR 1969 SC 147 (CB) = 1968 SCR (3) 829
2 (1974) 33 STC 200 (SC) = 1974 AIR 1505 = (1974) 4 SCC 408
3 (1974) 4 SCC 98
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further held that the object of the law apparently is to deter inter-State
sales to unregistered dealers as such inter-State sales would facilitate
evasion of tax and the fixation of the rate of local sales tax is essentially
a matter for the State legislatures and the Parliament does not have any
control in the matter. It has been further held in the said decision that it
is in public interest to see that in the guise of freedom of trade, they do
not evade the payment of tax and it is an effective safeguard against the
evasion of tax.
29. Based on the aforesaid discussion, the High Court has
answered question No. 1 against the appellants in the following manner:
"It is the specific stand of the official respondents/State
Government in para 14 of the counter affidavit that where sales
are made to registered dealers on filing of Form 'C' declaration
the entire transaction goes into the mainstream and thereby
automatically comes into the net of taxation in the purchasing
State wherever applicable and if sales are made to other than
registered dealers, it is option of the purchasing dealer concerned
to disclose it or not and there is, therefore, possibility of such
transactions being wrapped up and disappearing into oblivion
without even surfacing again for the purpose of levy of tax
otherwise legally due on such transactions. Therefore, the
contention put forward by the respective learned counsel appearing
for the writ petitioners that such provision aggravate the Central
Sales Tax rate or liability under Section 8(2) of CST Act by TNVAT
is unsustainable and therefore, question no. 1 is answered in
negative against the writ petitioners."
30. While entertaining question no. (2), namely, whether the
impugned provisions are violative of Articles 14, 19(1)(g) and 301 of the
Constitution, the High Court pointed out that on this aspect, argument of
the assessees was that the words 'rate applicable' employed in Section
8(2) of the CST Act has to necessarily take into account the effective
rate after considering the deductions made under Section 3(3) of the
TNVAT Act. It was argued that Section 19(5)(c) of the TNVAT Act,
which denied ITC on purchase of goods sold or used in the manufacture
of other goods and falls within Section 8(2) of the CST is per se
discriminatory. The High Court took note of the scheme of TNVAT Act
and found that though Section 3(2) stipulated many taxable transactions,
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only few such transactions are carved out to give benefit of ITC. After
discussing certain judgments of this Court and other High Courts, the
High Court has observed that the legal position was that right to claim
ITC is not a vested right or an indefeasible right. It is a benefit conferred
under the Act in certain contingencies and subject to conditions prescribed
in the statutory scheme. Therefore, it is open to the State Legislature to
provide for conditions and restrictions while extending the concession.
Likewise, it was also necessary for any assessee to claim input credit to
fulfill those conditions. Thus, the provision made in the statute that
unregistered dealers in other States would not be entitled to ITC was
justified. The High Court noted that specific stand of the State
Government was that in respect of such unregistered dealers in other
states, the State of Tamil Nadu had no mechanism to prevent evasion of
tax and loss of revenue caused by trade with such unregistered dealers
in the State of Tamil Nadu. This kind of evasion, in the opinion of the
High Court, was not violative of the constitutional provisions contained
in Articles 14, 19(1)(g) and 301.
31. Mr. Giri, learned senior counsel appearing in some of these
appeals pressed into service the same arguments which were advanced
before the High Court and attempted to find fault with the approach of
the High Court. His submission was that once the tax was paid at an
intermediary stage, the dealers could not be denied benefit of claiming
credit thereof and Section 19(5)(c) of TNVAT Act went contrary to the
visions of CST Act and, therefore, was ultra vires. He referred to the
following judgments of this Court in support and, in particular, following
portions in those judgments.
(i) Messrs Govind Saran Ganga Saran vs. Commissioner of Sales
Tax and Others4:
"6.The components which enter into the concept of a tax are
well known. The first is the character of the imposition known by
its nature which prescribes the taxable event attracting the levy,
the second is a clear indication of the person on whom the levy is
imposed and who is obliged to pay the tax, the third is the rate at
which the tax is imposed, and the fourth is the measure or value
to which the rate will be applied for computing the tax liability. If
those components are not clearly and definitely ascertainable, it is
4 1985 (Supp) SCC 205
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difficult to say that the levy exists in point of law. Any uncertainty
or vagueness in the legislative scheme defining any of those
components of the levy will be fatal to its validity.
(ii) Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd.:
"70. We think that Parliament fixed the rate of tax on inter-State
sales of the description specified in Section 8(2)(b) of the Act at
the rate fixed by the appropriate State Legislature in respect of
intra-State sales with a purpose, namely, to check evasion of tax
on inter-State sales and to prevent discrimination between residents
in one State and those in other States. Parliament thought that
unless the rate fixed by the States from time to time is adopted as
the rate of tax for inter-State sales of the kind specified in the
sub-clause, there will be evasion of tax in inter-State sales as well
as discrimination. We have already pointed out in our judgment in
Civil Appeals No. 2547-2549 of 1969 and 105-106 of 1970 the
objectives which Parliament wanted to achieve by adopting the
rate of tax in the appropriate State for taxing the local sales. And
for attaining these objectives Parliament could not have fixed the
rate otherwise than by incorporating the rate to be fixed from
time to time by the appropriate State Legislature in respect of
local sales. It may be noted that in so far as inter-State sales are
concerned, the Central Sales Tax Act, by Section 9(2) has adopted
the law of the appropriate State as regards the procedure for levy
and collection of the tax as also for imposition of penalties.
71. There can be no doubt that Parliament can repeal the provisions
of Section 8(2)(b) adopting the higher rate of tax fixed by the
appropriate State Legislature in respect of intra-State sales. If
Parliament can repeal the provision, there can be no objection on
the score that Parliament has abdicated its legislative function. It
retains its control over the fixation of the rate intact. In other
words, so long as Parliament can repeal the provisions of Section
8(2)(b) adopting the higher rate of tax fixed by the State
Legislatures, it has not abdicated its legislative function. As already
stated, this point has been expressly decided by the Privy Council
in Cobb & Co. Ltd. v.Kropp."
32. Mr. S.K. Bagaria, learned senior counsel appearing in the
Civil Appeal arising out of SLP(Civil) No. 9326 of 2015, submitted that
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the appellant/dealer in this case was making supplies only to the
Government and, therefore, there was no reason to nurture any
apprehension that there would be evasion of tax. He also submitted that
this dealer had sales in Tamil Nadu and Karnataka wherein it was stated
that the appellant had effected sales to Karnataka State Government
covered under Section 8(2) of the CST Act.