Court upholds state’s tough VAT rules

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Court upholds state's tough VAT rulesTNN, Jul 20, 2013, 01.10AM IST

CHENNAI: In a ruling that could mean a windfall in tax
revenue<http://timesofindia.indiatimes.com/topic/search?q=tax
revenue>for the Tamil
Nadu government <http://timesofindia.indiatimes.com/topic/search?q=Tamil
Nadu government>, the Madras high
court<http://timesofindia.indiatimes.com/topic/search?q=Madras high
court>has said the government was right in stipulating a time frame
for traders
to claim VAT <http://timesofindia.indiatimes.com/topic/search?q=VAT> refund
and there was nothing wrong in implementing the 2010 legislation
retrospectively from 2007.

The Tamil Nadu VAT Act, 2010 came into effect on August 9, 2010. The
government later brought in an amendment to make it enforceable with
retrospective effect from January 1, 2007. Accordingly, commercial or sales
tax notices to the tune of several hundred crores of rupees were slapped on
manufacturers, dealers, agents and traders. Similarly, by Section 19 of the
Tamil Nadu VAT Act, the government stipulated that traders must avail
themselves of the Input Tax Credit (ITC), which is nothing but
refund/adjustment of the VAT already paid, before the end of the financial
year or within 90 days the date of purchase, whichever is later.

Assailing both the measures, a slew of petitions were filed in the court.

The traders contended that enforcing the Act retrospectively and serving
notices for business transactions since 2007 would render them poorer by
lakhs of rupees, when they had not foreseen or made provision for such an
outgo. As for the time limit to claim refund, they said the original
legislation did not provide for such a stipulation and hence it could not
be introduced afresh.

A division bench comprising Justice R Banumathi and Justice T S Sivagnanam,
concurring with the submissions of advocate general A L Somayaji, upheld
their constitutional validity of the act saying: "VAT structure has the
ultimate goal of augmenting the revenue by making the procedure simple and
more transparent. Legislature in its wisdom mandated a time frame for
availing ITC" As for those facing show-cause notices, the judges said the
challenge has no legs to stand since the constitutionality of the section
itself had been upheld. Hence, all petitions against the notices were
dismissed.

Explaining the rationale behind the retrospective enforcement of VAT
regime, the bench referred to a specific case of a commercial tax evasion
by a consumer durable goods dealer. "A registered dealer reported a
turnover of Rs 28.42 crore under the erstwhile TNGST Act for 2005-06 and
paid a tax of Rs 28,42,905, whereas after the implementation of the VAT
regime for the year 2007-08, the same dealer reported a taxable turnover of
Rs 31.53 crores, but did not pay any VAT."

The judges attributed this tax evasion to the practice of vendors reducing
the sale price under the pretext of discount, resulting in accumulation of
ITC at the hands of purchasers. "Giving discount and then reducing price is
an internal arrangement between the selling dealer and the buying dealer.
State is not concerned about the discount."