Date of the Judgment: October 12, 2018
Citation: (2018) INSC 967
Judges: A.K. Sikri, J., Ashok Bhushan, J.
Can a registered dealer claim Input Tax Credit (ITC) under the Tamil Nadu Value Added Tax Act, 2006, even if the claim is made after the stipulated time? The Supreme Court of India recently addressed this question, upholding the validity of Section 19(11) of the Tamil Nadu VAT Act, which sets a time limit for claiming ITC. This judgment clarifies the conditions under which dealers can avail of tax credits, impacting businesses across Tamil Nadu. The bench comprised Justices A.K. Sikri and Ashok Bhushan, with the judgment authored by Justice Ashok Bhushan.
Case Background
The case involves multiple appeals against a common judgment by the High Court of Judicature at Madras, which had dismissed writ petitions challenging Section 19(11) of the Tamil Nadu VAT Act, 2006. The primary issue revolved around the time limit for claiming Input Tax Credit (ITC). The lead case, ALD Automotive Pvt. Ltd. vs. The Commercial Tax Officer, involved a company engaged in leasing and fleet management of motor vehicles. The company purchased vehicles from registered dealers in Tamil Nadu, paying the applicable VAT. The original tax invoices were often delayed as they were sent to the Regional Transport Authority for vehicle registration.
Due to these delays, ALD Automotive could not claim ITC in its initial monthly returns. They later filed revised returns, claiming ITC upon receiving the original tax invoices. The tax authorities rejected these claims, citing Section 19(11) of the Tamil Nadu VAT Act, which stipulates that ITC must be claimed within 90 days from the date of purchase or before the end of the financial year, whichever is later. Similar issues were faced by other appellants, including Sri Devi Enterprises, a petrol pump owner, leading to a batch of writ petitions in the Madras High Court.
Timeline
| Date | Event |
|---|---|
| Various Dates (2007-2008) | ALD Automotive purchases motor vehicles from registered dealers in Tamil Nadu. |
| Various Dates (2007-2008) | ALD Automotive receives original tax invoices with delay. |
| April 2007 to February 2008 | ALD Automotive files monthly returns without claiming Input Tax Credit due to lack of original invoices. |
| March 2008 | ALD Automotive files monthly return on 06.10.2008 for the month of March, 2008 with delay. |
| March 2008 to January 2009 | ALD Automotive revises returns in March 2009 for the period due to late receipt of original purchase invoices. |
| 06.10.2008 | ALD Automotive claims Input Tax Credit of Rs. 42,04,628 in its return for March 2008. |
| 21.11.2008 | Commercial Tax Officer rejects ALD Automotive’s Input Tax Credit claim for March 2008. |
| 2009 | ALD Automotive files Writ Petition(C) No.18137 of 2009, which is allowed by the High Court setting aside the rejection of Input Tax Credit and directing the Commercial Tax Officer to pass appropriate orders in accordance with law. |
| 01.06.2009 | Notice issued by the Commercial Tax Officer rejecting ALD Automotive’s revised returns and disallowing Input Tax Credit of Rs. 1,28,36,822. |
| 11.04.2011 | Commercial Tax Officer disallows Sri Devi Enterprises’ Input Tax Credit claim. |
| 17.07.2013 | Madras High Court dismisses writ petitions, upholding the validity of Section 19(11) of the Tamil Nadu VAT Act, 2006. |
Course of Proceedings
The Commercial Tax Officer initially rejected the Input Tax Credit claims of ALD Automotive, leading to a writ petition where the High Court directed the officer to reconsider. However, the officer again rejected the claims, treating them as belated. Aggrieved, ALD Automotive filed another writ petition challenging the constitutional validity of Section 19(11) and seeking to quash the rejection notice. Similarly, Sri Devi Enterprises and numerous other dealers filed writ petitions after their ITC claims were disallowed under Section 19(11). The Madras High Court, in a common judgment, upheld the validity of Section 19(11) and dismissed all the writ petitions. The High Court, however, allowed the appellants to prefer statutory appeals within 60 days.
Legal Framework
The core legal issue revolves around Section 19(11) of the Tamil Nadu Value Added Tax Act, 2006. This section states:
“In case any registered dealer fails to claim input tax credit in respect of any transaction of taxable purchase in any month, he shall make the claim before the end of the financial year or before ninety days from the date of purchase, whichever is later.”
Other relevant provisions include:
- Section 2(24) of the Tamil Nadu VAT Act, 2006 defines “input tax” as “the tax paid or payable under this Act by a registered dealer to another registered dealer on the purchase of goods including capital goods in the course of his business.”
- Section 3(3) of the Tamil Nadu VAT Act, 2006, which is the charging section, allows for the reduction of tax payable by a registered dealer to the extent of tax paid on purchases of specified goods. It states: “The tax payable under sub-section (2) by a registered dealer shall be reduced, in the manner prescribed, to the extent of tax paid on his purchase of goods specified in Part – B or Part – C of the First Schedule, inside the State, to the registered dealer, who sold the goods to him.”
- Section 19 of the Tamil Nadu VAT Act, 2006, which deals with Input Tax Credit, specifies the conditions and circumstances under which ITC can be claimed or disallowed.
These provisions operate within the framework of the Constitution of India, particularly Articles 14 (equality before the law) and 19(1)(g) (right to practice any profession, or to carry on any occupation, trade or business).
Arguments
The appellants argued that Section 19(11) of the Tamil Nadu VAT Act, 2006, unreasonably restricts the substantive right to claim Input Tax Credit (ITC) under Section 3(3). They contended that:
- The 90-day limit is arbitrary and violates Articles 14 and 19(1)(g) of the Constitution of India.
- Section 19(11) is inconsistent with Section 3(3), which grants the right to ITC without any such limitation.
- Section 19(11) is merely a procedural provision and should be considered directory, not mandatory.
- The benefit of ITC under Section 3(3) is a statutory right and cannot be curtailed by Section 19(11).
The State of Tamil Nadu, represented by the Advocate General, argued that:
- Section 19(11) contains essential conditions for claiming ITC, and non-compliance justifies denial of the credit.
- Section 19(11) is part of the same statutory scheme as Section 3(3) and does not suffer from any constitutional infirmity.
- The judgment in Jayam and Company vs. Assistant Commissioner and another, 2016 (15) SCC 125, which upheld the validity of Section 19(20) of the Tamil Nadu VAT Act, 2006, is directly applicable. It laid down that conditions for availing concessions must be strictly complied with.
The innovativeness of the argument by the appellants lies in their attempt to portray Section 19(11) as a mere procedural hurdle that should not negate the substantive right to ITC under Section 3(3). They argued for a harmonious construction of the two sections to ensure that the benefit of ITC is not unduly restricted.
| Appellants’ Submissions | State’s Submissions |
|---|---|
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|
Issues Framed by the Supreme Court
The Supreme Court framed the following issues for consideration:
- Whether Section 19(11) violates Articles 14 and 19(1)(g) of the Constitution of India?
- Whether Section 19(11) is inconsistent with Section 3(3) of the Tamil Nadu VAT Act, 2006?
- Whether Section 19(11) is a directory provision, non-compliance of which cannot be a ground for denial of input tax credit to the appellants?
- Whether denial of input tax credit to the appellants is contrary to the scheme of the VAT Act, 2006?
- Whether Assessing Authorities could have extended the period for claiming Input Tax Credit beyond the period as provided in Section 19(11) of Tamil Nadu VAT Act, 2006?
Treatment of the Issue by the Court
| Issue | Court’s Decision |
|---|---|
| Whether Section 19(11) violates Articles 14 and 19(1)(g) of the Constitution of India? | The Court held that Section 19(11) does not violate Articles 14 and 19(1)(g). It is a reasonable restriction on the right to claim ITC. |
| Whether Section 19(11) is inconsistent with Section 3(3) of the Tamil Nadu VAT Act, 2006? | The Court held that Section 19(11) is not inconsistent with Section 3(3). Section 19(11) provides the manner for claiming ITC. |
| Whether Section 19(11) is a directory provision, non-compliance of which cannot be a ground for denial of input tax credit to the appellants? | The Court held that Section 19(11) is a mandatory provision and not directory. Non-compliance can lead to denial of ITC. |
| Whether denial of input tax credit to the appellants is contrary to the scheme of the VAT Act, 2006? | The Court held that denial of ITC is not contrary to the scheme of the VAT Act, 2006, as the scheme allows for ITC only when conditions are fulfilled. |
| Whether Assessing Authorities could have extended the period for claiming Input Tax Credit beyond the period as provided in Section 19(11) of Tamil Nadu VAT Act, 2006? | The Court held that Assessing Authorities do not have the power to extend the period for claiming ITC beyond what is provided in Section 19(11). |
Authorities
The Supreme Court considered the following authorities:
| Authority | Legal Point | How Considered |
|---|---|---|
| R.K. Garg versus Union of India, (1981) 4 SCC 675, Supreme Court of India | Principles of statutory interpretation of fiscal legislation. | The Court relied on this case to emphasize that laws relating to economic activities should be viewed with greater latitude. |
| Kailash Chandra and another versus Mukundi lal and others, 2002 (2) SCC 678, Supreme Court of India | Interpretation of a provision in the statute with other related provisions. | The Court used this case to highlight that a provision should not be read in isolation but with other related provisions. |
| Sales Tax officer, Ponkunnam and another versus K.I. Abraham, AIR (1967) SC 1823, Supreme Court of India | Interpretation of the phrase “in the prescribed manner” in the context of tax law. | The Court distinguished this case, noting that it dealt with the absence of a time element in the phrase “in the prescribed manner,” whereas Section 19(11) explicitly provides a time limit. |
| Commissioner of Central Excise, Madras versus Home Ashok Leyland Ltd., 2007 (4) SCC 51, Supreme Court of India | Nature of procedural amendments in tax law. | The Court distinguished this case, noting that it dealt with a clarificatory amendment and not a condition for availing credit. |
| Godrej and Boyce Mfg. Co. Pvt. Ltd. and Others versus Commissioner of Sales Tax and Others, (1992) 3 SCC 624, Supreme Court of India | Nature of concessions and benefits under tax law. | The Court relied on this case to emphasize that a concession or benefit can only be received as per the scheme of the statute. |
| India Agencies (Regd.), Bangalore versus Additional Commissioner of Commercial Taxes, Bangalore, (2005) 2 SCC 129, Supreme Court of India | Mandatory nature of procedural requirements for availing tax benefits. | The Court relied on this case to highlight that procedural requirements for availing tax benefits are mandatory. |
| State of Karnataka versus M.K. Agro Tech.(P) Ltd., (2017) 16 SCC 210, Supreme Court of India | Interpretation of taxing statutes and the domain of the legislature. | The Court relied on this case to emphasize that taxing statutes are to be interpreted literally, and it is in the domain of the legislature to decide how much tax credit is to be given. |
| Jayam and Company versus Assistant Commissioner and Another, (2016) 15 SCC 125, Supreme Court of India | Conditions for availing Input Tax Credit under the Tamil Nadu VAT Act, 2006. | The Court relied heavily on this case, which upheld the validity of Section 19(20) of the Tamil Nadu VAT Act, 2006, and emphasized that conditions for availing concessions must be strictly complied with. |
| Dal Chand versus Municipal Corporation, Bhopal and another, 1984 (2) SCC 486, Supreme Court of India | Distinction between mandatory and directory provisions. | The Court distinguished this case, noting that the facts and the statutory scheme in that case were different. |
| Surinder Singh versus Central Government and Others, 1986 (4) SCC 667, Supreme Court of India | Power of authorities to extend time under specific statutes. | The Court distinguished this case, noting that it was based on the specific residuary powers of the Central Government, which are not present in the Tamil Nadu VAT Act, 2006. |
Judgment
| Submission by Parties | Court’s Treatment |
|---|---|
| Section 19(11) violates Articles 14 and 19(1)(g) of the Constitution. | Rejected. The Court held that Section 19(11) is a reasonable restriction on the right to claim ITC and does not violate constitutional provisions. |
| Section 19(11) is inconsistent with Section 3(3) of the Tamil Nadu VAT Act, 2006. | Rejected. The Court clarified that Section 19(11) provides the manner for claiming ITC under Section 3(3) and is not inconsistent with it. |
| Section 19(11) is a directory provision and not mandatory. | Rejected. The Court held that the use of “shall” in Section 19(11) makes it a mandatory provision. |
| Denial of ITC is contrary to the scheme of the VAT Act. | Rejected. The Court stated that denial of ITC is not contrary to the scheme, as the scheme allows for ITC only when conditions are fulfilled. |
| Assessing Authorities could have extended the time period for claiming ITC. | Rejected. The Court held that Assessing Authorities do not have the power to extend the time period provided in Section 19(11). |
The Court’s reasoning was based on the following:
- Input Tax Credit is a concession, not a right, and is subject to the conditions laid down in the statute.
- Section 19(11) provides a specific time limit for claiming ITC, which is mandatory and not directory.
- The time limit in Section 19(11) is not arbitrary or unreasonable, and it is consistent with the scheme of the VAT Act.
- Assessing authorities do not have the power to extend the time period prescribed in Section 19(11).
The Supreme Court dismissed all the appeals, upholding the decision of the Madras High Court. The judgment was unanimous, with no dissenting opinions.
Key Takeaways
- Time Limit is Mandatory: The 90-day time limit for claiming Input Tax Credit under Section 19(11) of the Tamil Nadu VAT Act, 2006, is mandatory. Failure to comply will result in the denial of ITC.
- ITC is a Concession: Input Tax Credit is a concession granted by the statute and not a right. It is subject to the conditions prescribed in the statute.
- No Extension of Time: Assessing authorities do not have the power to extend the time limit prescribed in Section 19(11).
- Importance of Compliance: Businesses must ensure strict compliance with the timelines for claiming ITC to avoid loss of tax credits.
- Consistency with VAT Scheme: The judgment reinforces the principle that concessions under tax laws must be availed as per the scheme of the statute.
Flowchart of Input Tax Credit Claim Process (as per the judgment)
Impact on Businesses
This judgment has significant implications for businesses in Tamil Nadu. It underscores the importance of maintaining meticulous records and ensuring timely filing of returns. Businesses must:
- Track Purchase Dates: Keep accurate records of purchase dates to ensure ITC claims are made within the stipulated time.
- Timely Invoice Receipt: Follow up with suppliers for timely receipt of original tax invoices.
- Monitor Returns: Regularly monitor monthly returns to ensure ITC is claimed within the 90-day limit.
- Review Accounting Systems: Update accounting systems to track ITC claims and deadlines effectively.
- Training: Train staff on the importance of adhering to the time limits for claiming ITC.
The judgment serves as a reminder that tax laws must be strictly complied with, and procedural requirements are as important as substantive rights.
Conclusion
The Supreme Court’s judgment in ALD Automotive Pvt. Ltd. vs. The Commercial Tax Officer has clarified the legal position on the time limit for claiming Input Tax Credit under the Tamil Nadu VAT Act, 2006. The judgment has upheld the validity of Section 19(11), emphasizing that it is a mandatory provision and not merely a procedural requirement. This ruling reinforces the importance of adhering to statutory timelines and compliance procedures in tax administration. Businesses must adapt their processes to ensure that they do not lose out on legitimate tax credits due to non-compliance.