High Court of Jharkhand

Tata Motors Ltd. v. The State Of Jharkhand

MANU/JH/0144/2020

19.03.2020

Sales Tax/VAT

When State action is not within competence of State Legislature, present Court has to strike down the action of State Legislature, which was beyond its legislative competence

In the present writ application, the challenge is to the vires of Section 9 (5) of the Jharkhand Value Added Tax Act, 2005, ('JVAT Act'), which was subsequently brought, by way of amendment, made in the year 2011. Retrospective effect given to this provision with effect from 1st April, 2010, is also under challenge in the present writ application.

Learned counsel for the Petitioner Company, challenging the legislative competence of the State Legislature, in bringing Section 9(5) in the JVAT Act, has submitted that under Entry 54 of List-II of Seventh Schedule of the Constitution of India, the State Legislature is empowered to make law, for levying taxes on the sale or purchase of goods, other than newspapers, subject to the provisions of Entry 92 A of List I, but the State Legislature is not empowered to make any addition in the list of taxable sales or purchase as given under Article 366(29A) of the Constitution of India, so as to treat any transaction as sale or purchase by a deeming fiction, which actually was not a sale or purchase.

The law is well settled in this regard right from State of Madras Vs. Gannon Dunkerley & Co., (Madras) Ltd., in the year 1959, Bharat Sanchar Nigam Ltd. & Anr. Vs. Union of India & Ors., and State of Rajasthan and Anr. Vs. Rajasthan Chemists Association, in the year 2006, wherein the Hon'ble Apex Court concluded that, in order to levy tax on sale, the transactions must fall within any of the clauses of Article 366 (29A) of the Constitution of India, or within the meaning of the Sales of Goods Act, 1930 for the purpose of levy of sales tax. In absence thereof, the Provincial Legislature cannot, in the purported exercise of its power to levy tax on sales or purchases of goods, tax even such transactions, which are not sales or purchases, by merely enacting that they shall be deemed to be sales or purchases by the dealers.

In the present case, the State Government has exceeded its legislative competence and has in that effort, treated the trade discounts / incentives as taxable transactions, treating them to be sale by a deeming fiction by bringing sub-Section (5) in Section 9 of the JVAT Act, and has thus sought to make such transactions taxable, which are in addition to the transactions described under Article 366(29A) of the Constitution of India, which the State Government could not do, and admittedly, prior to bringing of Section 9(5) of the JVAT Act, into the Statute Book, such transactions were never being subjected to tax under the JVAT Act. In fact, Explanation III of Section 2(xlviii) of the JVAT Act, defining 'Sale price', clearly states that sale price shall not include the cash discount, if shown separately, and allowed by the dealer in the ordinary course of trade practice. In spite of the fact that JVAT Act is no more in force, after coming into force of the GST regime, but the fact remains that the transactions, during the JVAT regime, are claimed to be taxed after the amendment made in the year 2011, which were not subjected to any tax, prior to the amendment of the JVAT Act in the year 2011.

By bringing Section 9(5) in the JVAT Act into the Statute Book, the dealers have been put to a disadvantageous position, which was not there, prior to the amendment made in the year 2011, and this putting the dealers into a disadvantageous position was not within the legislative competence of the State Legislature. No doubt, had this amendment in the JVAT Act been within the legislative competence of the State Legislature, there was no scope of any interference therein by this Court. But this is a clear case where the State Legislature was not having the legislative competence to give the expression "sale of goods" an extended meaning and to enlarge its legislative field to cover those transactions for taxing, which did not properly conform to the elements of sale of goods within the Sales of goods Act, or under Article 366(29A) of the Constitution of India, and were not satisfying the four conditions of sale, as given in State of Madras Vs. Gannon Dunkerley & Co., (Madras) Ltd.

Though it is well settled that, this Court should not interfere into the fiscal legislations, and the laws, relating to economic activities should be viewed with greater latitude than the laws touching civil rights, and even if there are possibilities of abuse, that cannot in itself be a ground for invalidating the legislation. Since the State action is not within the competence of the State Legislature, this Court has no option, but to strike down the action of the State Legislature, which was beyond its legislative competence.

Section 9(5) of the JVAT Act, brought into force by amendment in the JVAT Act in the year 2011, is beyond the legislative competence of the State Legislature, and the same is ultra vires Article 246(1) of the Constitution of India, and cannot be sustained in the eyes of law. Accordingly, sub-Section (5) of Section 9 of the JVAT Act, as it stood with effect from 1.4.2010 to 30.06.2017 in the Statute Book, is hereby, held to be ultra vires. Present writ application succeeds, and is accordingly, allowed.

Tags : Trade discount Provision Legality

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