Case: M/S. TVS MOTOR COMPANY LTD Vs. THE STATE OF TAMIL NADU AND OTHERS

5. The brief facts leading to the cases are as follows:All the appellants herein are the Assessees under the TNVAT Act and are duly registered on the file of their respective Jurisdictional Commercial Officers.On January 17, 2005, a White Paper was released by the Committee of Finance Ministers (hereinafter referred to as ?White Paper?), making it clear that Input Tax Credit (hereinafter ?ITC?) would be available tot tax liability onte sales. Paragraph 2.3 of the same states asff / Input Tax CreditThis 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.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 asinput 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 oftrade or commerce falling under(2) of section 8 of the Central Sales Tax Act, 1956. (Central Act 74 of 1956).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.G.O.M.S.No. 1. Rule 10(9)(a) of the same states astax credit onsales shall be allowed only if Form C prescribed in the Central Sales Tax (Registration and Turnover) Rules, 1957 is filed.After the Assessment was completed for the appellants for Assessment Yearthey 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 foras well as the amount relating to proportionate ITC under process.Consequently, on 16 th August, 2013, the Revenue issued Impugned Notice in TINproposing to deny the ITC credit availed against the transactions for which Form C were not filled, and reversing credit onsales without Forms C in terms of the impugned Section 19(1)(c).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 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 to8. The High Court of Judicature, vide the Impugneddated 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.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 Impugnedobserved that the same issue had arisen in the Impugnedand the vires of the TNVAT Act and the Rules had been upheld therein and accordingly, dismissed the Writ Petition No. 29393/2017.Correctness of these judgments is the subject matter of instant appeals.

Reasoning:
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, 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.His second submission was that Section 19(5)(c) and Rule 10(9) (c) were violative of Article 14 of the Constitution as there was no rational nexus with the objective sought to be achieved. He reiterated that when the purpose behind such a provision is only to check evasion, and there was no such apprehension in the case of sales to State Government, benefit of ITC could not be denied wherever dealers were making sales to the Government. He further argued that when benefit of ITC is given even when sales are made outside the State but to a registered dealer, then why it should not be accorded on sales that are made to the Government as well as by treating the sales to outside State Government at par with the sales to the registered dealers.It was sought to be justified on the ground that insofar as the State Government is concerned, though it is treated as a dealer, no registration is required since the State Governments are not obliged to get themselves registered under the TNVAT Act. The only problem was that because of this the State Government is not in a position to give ‘C? form. ITC to the appellant was denied only for not furnishing ‘C? form.Insofar as argument of the appellant predicated on Article 14 is concerned, reply of the learned Advocate General was that a reading of Section 8(1) of the CST Act would show that classification is contained in the Central Act itself which treats sale to a registered dealer outside the State in one category and sale to an unregistered dealer outside the State in a different category. This provision contained in Section 8(1) of the CST Act never underwent any change. Therefore, those sales which were made to unregistered dealers outside the State were constituted a different class and, thus, provisions contained in Section 19(5) (c) to deny ITC on such sales was perfectly justified based on reasonable classification.After considering the respective submissions and going through the case law that is presented before this Court, it would be apt to remark at the outset that most of the contentions of the appellants stand answered by the judgment of this Court in Jayam and Company. That case also pertains to the TNVAT Act. The issue was as to whether(20) of Section 19 of the TNVAT Act, which was brought into this statute by Amendment Act 22 of 2013, could be given retrospective effect.It is very clear from the aforesaid discussion that this Court held that ITC 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 of the statute; therefore, the conditions mentioned in the aforesaid Section had to be fulfilled by the dealer; and subsection (20) of Section 19 was constitutionally valid. It was also noted, 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 in that judgment while upholding(20) of Section 19 shall equally apply while examining the validity of Section 19(5)(c) thereof. The High Court has noted the specific stand taken by the State Government to the fact 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.It is stated at the cost of repetition that 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(5) of Section 19 is to be analysed. Subsection (5) stipulates certain contingencies where such ITC would not be admissible. There is no quarrel about clauses (a) and (b). We are only concerned with clause (c) of thiswhich 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 oftrade or commerce falling undersection (2) of Section 8 of the Central Sales Tax Act. To put it tersely, 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 registered dealer. Prescribing such a condition in order to ensure that there is no evasion, has a rationale purpose and objective. Consideration of this aspect in the context of the very nature of the ITC scheme, which is a concession and not a right, would lead us to the conclusion that it was open to the Legislature to make such a provision.In view of the aforesaid discussion, we do not find any merit in the contentions raised by Mr. Giri. The judgments cited by him would have no application either.One argument of Mr. Bagaria, however, needs little deeper consideration. He has argued that the appellant represented in his case is making sales only to the State of Karnataka. In such a case, there cannot be any apprehension about evasion of tax.Thus, 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(8) thereof, that this provision shall not apply to any State Government or Central Government. A conjoint reading of the aforesaid 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. We may point out here that 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.Having regard to the above, we are of the opinion that 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 asituation, it would be difficult to hold that test of reasonable classification is met in this limited context. It becomes unnecessary to deal with other contentions of Mr. Bagaria.