SC strikes down retrospective effect of S.19(20) TN VAT Act [Read Judgment]

The Supreme Court, in JAYAM & CO. VS. ASSISTANT COMNMISSIONER & ANR has struck down retrospective effect given to sub-section (20) of Section 19, of the Tamil Nadu Value Added Tax Act, 2006.

Partly allowing the Appeal against Madras High Court judgment which had dismissed the Challenge against sub-section (20) of Section 19, of the Tamil Nadu Value Added Tax Act, 2006, and its retrospective nature, the Apex Court Bench comprising of Justices A.K. Sikri and R.F. Nariman observed that, a provision which is made for the first time to the detriment of the dealers cannot have retrospective effect.

Section 19(20) of the Act states “Notwithstanding anything contained in this section, where any registered dealer has sold goods at a price lesser than the price of the goods purchased by him, the amount of the input tax credit over and above the output tax of those goods shall be reversed.”

The Court observed: “The High Court has primarily gone by the fact that there was no unforeseen or unforeseeable financial burden imposed for the past period. That is not correct. Moreover, as can be seen, sub-section (20) of Section 19 is altogether new provision introduced for determining the input tax in specified situation, i.e., where goods are sold at a lesser price than the purchase price of goods. The manner of calculation of the ITC was entirely different before this amendment. In the example, which has been given by us in the earlier part of the judgment, 'dealer' was entitled to ITC of Rs. 10/- on re-sale, which was paid by the dealer as VAT while purchasing the goods from the vendors. However, in view of Section 19(20) inserted by way of amendment, he would now be entitled to ITC of Rs. 9.50. This is clearly a provision which is made for the first time to the detriment of the dealers. Such a provision, therefore, cannot have retrospective effect, more so, when vested right had accrued in favour of these dealers in respect of purchases and sales made between January 01, 2007 to August 19, 2010”

Upholding the High Court order which had dismissed challenge to Constitutional validity of Section 19(20), the Court observed: “When a concession is given by a statute, the Legislature has power to make the provision stating the form and manner in which such concession is to be allowed. Sub-section (20) seeks to achieve that. There was no right, inherent or otherwise, vested with dealers to claim the benefit of ITC but for Section 19 of the VAT Act. That apart, we find that there were valid and cogent reasons for inserting Section 19(20). Main purport was to protect the Revenue against clandestine transactions resulting in evasion of tax”.

Read the Judgment here.