By C. B. Thakar | Advocate
G. G. Goyal, Janak Vaghani | Chartered Accountants
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VAT — Constitutional validity — Power to prescribe rule not eligible for input tax credit — Valid — Retrospective effect — Invalid — Sections 2(19), 4(3) 13(4), and 78 of the Andhra Pradesh Value Added Tax Act, (5 of 2005) and Rule 20(2) (h) of the Andhra Pradesh Value Added Tax Rules, 2005.
Facts
The dealers filed writ petition before the AP High Court challenging constitutional validity of section 13(4) of the APVAT Act and Rule 20(2)(h) of the APVAT Rules. The effect of this rule is that all petitioners availing input tax credit in respect of coal, naphtha or natural gas u/s.13(1) of the APVAT Act is denied from retrospective effect.
Held
(1) The replacement of sales tax by VAT is mainly intended to improve revenue collections and to prevent cascading effect on sale price, besides plugging gaps in tax collection. It also becomes clear that though the Legislature permits the dealers to avail input tax credit (ITC) in respect of most items of common consumption, it was never intended that all taxable goods and business should invariables be allowed ITC.
(2) Under the Act, the tax payable by the VAT dealer shall be X-Y, where X is the total of VAT payable in respect all taxable sales made by a dealer and Y is the total ITC, which he is eligible to claim set-off. The ITC is allowed in respect of purchases of taxable goods except tax paid on purchase of goods specified in the sixth Schedule, subject to conditions that may be prescribed by the VAT Rules. S.s (4) of section 13 of the Act bars a VAT dealer claiming ITC in respect of the purchase of taxable goods as may be prescribed by the rule-making authority to that extent position is not denied. The petitioners urged that under the Act, ITC can be denied only in respect of those goods which are exempt from tax or attracts special rate of tax as provided in the sixth Schedule.
(3) The Government can prescribe any or all purchase of taxable goods in respect of which ITC should not be allowed, whether or not those taxable goods are included in the first or sixth Schedule. Section 13(4) r.w.s. 78(1) of the Act confers widest power on the State to prescribe the taxable goods in respect of which ITC cannot be allowed.
(4) The Legislature has retained prior legislative control on the rule-making authority. The VAT Rules, so laid before the legislative assembly for a period of 14 days can be modified or annulled and they shall be enforced only subject to such modification or annulment. Therefore section 13(4) of the VAT Act does not suffer from excessive delegation.
(5) The Rule 20(2)(h) which disqualifies natural gas, naphtha and coal from claiming ITC is valid and does not suffer from any defect of being ultra vires and is also not unreasonable. Since under Rule 20(2) when goods mentioned in negative list are sold subsequently without availing ITC, no tax shall be levied or recoverable from a dealer on sale of such goods. This brings out the rationale in classifying the traders and non-traders. Traders and non-traders do not stand on the same footing when it comes to use of such goods. The purpose or the use to which goods are put to use can be basis for a valid classification. The impugned rule is not discriminatory.
(6) In absence of any reasons, the retrospective effect given to rule is inequitable and arbitrary. Accordingly, it shall apply prospectively from notified date i.e., 31-12-2005.
