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2017 Supreme(Del) 3465
IN THE HIGH COURT OF DELHI AT NEW DELHI
S. MURALIDHAR, CHANDER SHEKHAR, JJ.
Solvochem - Petitioner
Versus
Commissioner Of Trade & Taxes, Delhi And Anr. - Respondents
W.P.(C) 4086 of 2013, 11846, 2106, 2383, 4904, 10708 of 2015, 4573, 4574, 4704, 4709, 4710, 4713, 4714, 4788, 6583, 11846 of 2016 of 2016, 6093, 6804, 7388 of 2017 & CM NO. 9620 of 2013, 19649, 26973, 46676 of 2016, 46676 of 2016, 25293 of 2017
Decided On : 26-10-2017
For the Petitioner:Mr. Raj K. Batra, Advocate
For the Respondents:Mr. Anuj Aggarwal, ASC for GNCTD with Ms Doboshree Mukherjee, Advocates.
The expression 'dealer or class of dealers' in Section 9(2)(g) of the DVAT Act should be interpreted as not including a purchasing dealer who has bona fide entered into purchase transactions with validly registered selling dealers who have issued tax invoices in accordance with Section 50 of the Act where there is no mismatch of the transactions in Annexures 2A and 2B.
Headnote:
CONSTITUTIONAL LAW - ARTICLE 14 - EQUAL PROTECTION OF LAWS - TAXATION - VALUE ADDED TAX - INPUT TAX CREDIT - DENIAL OF ITC TO PURCHASING DEALER DUE TO DEFAULT OF SELLING DEALER - VALIDITY OF SECTION 9(2)(G) OF THE DELHI VALUE ADDED TAX ACT, 2004 - WHETHER SECTION 9(2)(G) VIOLATES ARTICLE 14 OF THE CONSTITUTION - WHETHER THE EXPRESSION 'DEALER OR CLASS OF DEALERS' IN SECTION 9(2)(G) CAN BE READ DOWN TO EXCLUDE BONA FIDE PURCHASING DEALERS - INTERPRETATION OF STATUTES - DOCTRINE OF READING DOWN.
Fact of the Case:
The Petitioners, who are purchasing dealers under the Delhi Value Added Tax Act, 2004 ('DVAT Act'), challenged the constitutional validity of Section 9(2)(g) of the DVAT Act, which denied them Input Tax Credit ('ITC') on the ground that the selling dealer had failed to deposit the tax collected from them with the Government or had failed to lawfully adjust it against his output tax liability. The Petitioners contended that Section 9(2)(g) violated Article 14 of the Constitution as it treated both the 'guilty purchasers' and the 'innocent purchasers' at par, and that it was arbitrary, irrational, and unduly harsh. The Department, on the other hand, argued that Section 9(2)(g) was a valid measure to prevent tax evasion and that the purchasing dealer could not be allowed to benefit from the default of the selling dealer.
Finding of the Court:
The Court held that Section 9(2)(g) of the DVAT Act violated Article 14 of the Constitution as it failed to distinguish between bona fide purchasing dealers and those that were not. The Court held that the expression 'dealer or class of dealers' in Section 9(2)(g) should be interpreted as not including a purchasing dealer who has bona fide entered into purchase transactions with validly registered selling dealers who have issued tax invoices in accordance with Section 50 of the Act where there is no mismatch of the transactions in Annexures 2A and 2B. The Court further held that the Department was precluded from invoking Section 9(2)(g) of the DVAT to deny ITC to a purchasing dealer who has bona fide entered into a purchase transaction with a registered selling dealer who has issued a tax invoice reflecting the TIN number.
Issues: 1. Whether Section 9(2)(g) of the DVAT Act violates Article 14 of the Constitution? 2. Whether the expression 'dealer or class of dealers' in Section 9(2)(g) can be read down to exclude bona fide purchasing dealers?
Ratio Decidendi: 1. The Court held that Section 9(2)(g) of the DVAT Act violated Article 14 of the Constitution as it failed to distinguish between bona fide purchasing dealers and those that were not. The Court held that the expression 'dealer or class of dealers' in Section 9(2)(g) should be interpreted as not including a purchasing dealer who has bona fide entered into purchase transactions with validly registered selling dealers who have issued tax invoices in accordance with Section 50 of the Act where there is no mismatch of the transactions in Annexures 2A and 2B. 2. The Court held that the Department was precluded from invoking Section 9(2)(g) of the DVAT to deny ITC to a purchasing dealer who has bona fide entered into a purchase transaction with a registered selling dealer who has issued a tax invoice reflecting the TIN number.
Final Decision: The Court set aside the default assessment orders of tax, interest, and penalty issued under Sections 32 and 33 of the DVAT Act, and the orders of the OHA and Appellate Tribunal insofar as they created and affirmed demands created against the Petitioner purchasing dealers by invoking Section 9(2)(g) of the DVAT Act for the default of the selling dealer.
The present petition has been disposed of by a common judgement passed today in W.P.(C) 6093/2017 and batch. Consequently, the notices for default assessment of tax and interest under Section 32 of the Delhi Value Added Tax Act, 2004 (‘DVAT Act’) and default assessment of penalty under Section 33 of the DVAT Act, dated 16th August 2016, are set aside. A copy of the said judgment is placed below.
JUDGMENT :
Dr. S. Muralidhar
1. hese writ petitions raise a challenge to the constitutional validity of Section 9 (2) (g) of the Delhi Value Added Tax, 2004 (‘VAT Act’ as being violative of Articles 14 and 19 (1) (g) of the Constitution of India.
2. Illustratively, the facts relating to two of the writ petitioners, i.e. Suvasini Charitable Trust (‘SCT’) in W.P. (C) No. 4086/2013 and Arun Jain (HUF) in W.P. (C) Nos. 4573, 4574, 4704, 4709, 4710, 4713, 4714 and 4788/2016, are discussed.
Facts concerning Suvasini Charitable Trust
3. SCT is a charitable trust organization registered under the DVAT Act. It is engaged in the activity of providing food items in the Akshardham Temple complex. It states that it has paid Value Added Tax (‘VAT’) on its purchases. It avails Input Tax Credit (‘ITC’) on the VAT paid on its sales. SCT states that it has made purchases from selling dealers registered under the DVAT Act on the strength of tax invoices which prove the collection of tax by the vendor from the purchasing dealer and is a valid document for availing ITC.
4. SCT states that on 1st June 2012, a fire broke out in the premises of the one of selling dealers-M/s. Vidya Polymers. The report of the Delhi Fire Service and the First Information Report (‘FIR’) lodged with the Station House Officer (‘SHO’), Ashok Vihar Police Station are relied upon by SCT in support of this contention. It is stated that on account of said fire and destruction of records, M/s. Vidya Polymers failed to deposit the VAT collected from its buyers, which included SCT.
5. On 17th August 2012, the Value Added Tax Officer (‘VATO’) issued a default assessment order for the month of May, 2012 invoking Section 9 (2) (g) of the DVAT Act. Apart from raising a tax demand, another default assessment order imposing a penalty under Section 86 (10) of the DVAT Act was also passed by the VATO. SCT states that the above orders were passed without affording it an opportunity of being heard and solely on the basis that the ITC availed by SCT on the purchases did not match with the sale details filed by the vendor.
6. The appeals filed by SCT against the aforementioned default assessment orders were dismissed by the Objection Hearing Authority (‘OHA’) on 25th March 2013. These orders have also been challenged in W.P. (C) No. 4086 of 2013.
Facts concerning Arun Jain (HUF)
7. Arun Jain (HUF) (‘AJ’) deals in the sale and purchase of Foreign Trade Licenses (‘FTLs’) issued under Section 5 of Foreign Trade (Development & Regulation) Act, 1992. It is stated that the FTL is valid for 18 months from the date of issuance. FTLs are transferable and are covered under the definition of ‘goods’ and their sales are exigible to VAT under the DVAT ct.
8. AJ states that during the Assessment Years (‘AY’) 2013-14 and 2014-15, it made intra-state purchases from registered selling dealers and paid VAT on such purchases. AJ made sure that the selling dealer had a valid Tax Identification Number (‘TIN’) at the time of entering into the transaction. Later, AJ claimed ITC of the VAT so paid. 80% of the FTLs are sold to customers who actually utilize them to discharge the burden of import duty. The purchase and sale of FTLs are duly recorded in the books of accounts and payments. It is stated that the payments made against purchases and payment received against sales are only through banking channels and are duly accounted for.
9. Under Section 26 of the DVAT Act read with Rule 28 of the Delhi Value Added Tax Rules, 2005 (DVAT Rules), a registered dealer is required to submit a return for each tax period. Along with the re
