WP/22332/2007 of M/s.Sri Vishnu Cement Limited, Vs State of Andhra Pradesh, represented by its on 30 December 2010

1) (2005) 41 APSTJ 45

2) (2006) 3 SCC 1 : AIR 2006 SC 1383

3) AIR 1940 PC 124

4) (1981) 4 SCC 578 : AIR 1981 SC 1887 : (1981) 48 STC 466(SC)(SC)

5) (1999) 3 SCC 346 : AIR 1999 SC 1275

6) (2004) 10 SCC 201 (para 106)

7) AIR 1967 SC 1066 : (1967) 19 STC 1

8) (1975) 4 SCC 22 : AIR 1975 SC 1039 : (1975) 35 STC 513

9) (2003) 8 SCC 413 (para 44) : AIR 2003 SC 3397

10) (2004) 11 SCC 497 (para 19) : AIR 2004 SC 5080

11) (2003) 11 SCC 699 : AIR 2003 SC 4156

12) AIR 1961 SC 751

13) (1981) 2 SCC 205 : AIR 1981 SC 711

14) AIR 1958 SC 909 : (1958) 9 STC 388 (SC)

15) (1925) 10 AC 282

16) (1928) 276 US 394; 72 L. Ed. 624

17) AIR 1968 SC 1232

18) (1972) 4 SCC 485 : AIR 1972 SC 1168 : (1972) 29 STC 206

19) (1973) 1 SCC 216 : AIR 1973 SC 1034 : (1973) 31 STC 178

20) (1985) 2 SCC 197 : AIR 1985 SC 421 : (1985) 152 ITR 308 (SC)

21) (2007) 13 SCC 673 : (2008) 297 ITR 176

22) AIR 1959 SC 512

23)467 US 837

24) (1984) 4 SCC 27 : AIR 1984 SC 1543

25) (1985) 1 SCC 641 : AIR 1986 SC 515

26) (2000) 3 SCC 40 : AIR 2000 SC 1069

27) (2006) 4 SCC 327 : AIR 2006 SC 3480

28) (2009) 15 SCC 570 : AIR 2009 SC 3194

29) (2002) 5 SCC 466 : AIR 2002 SC 2405

30) (1981) 4 SCC 173 : AIR 1981 SC 1922 (para 17)

31) (1991) 1 SCC 212 : AIR 1991 SC 537

32) AIR 1967 SC 1427

33) (1969) 2 SCC 55 : AIR 1970 SC 169

34) AIR 1963 SC 1667

35) (1990) 2 SCC 502 : AIR 1990 SC 913

36) (1983) 53 STC 42 (AP)

37) AIR 1955 SC 166 : (1955) 1 SCR 1004,

38) (2001) 7 SCC 231 : AIR 2001 SC 3435

39) AIR 1962 SC 1733 : (1962) 13 STC 529

40) (1999) 8 SCC 69 : AIR 1999 SC 3496 : (1999) 115 STC 42741)(1999) 2 SCC 361: AIR 1999 SC 89242)(2004) 5 SCC 783 : AIR 2004 SC 3618 : (2004) 136 STC 1

THE HON’BLE SRI JUSTICE V.V.S.RAOAND

THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN

WRIT PETITION Nos.3259, 4728, 4880, 4881, 5071, 5080, 5160,5310, 5573, 11833, 13314, 20691, 21315, 21712, 21846, 22145,22768, 22769, 22770, 22773, 22774, 22882, 25283, 26326, 27037 of 2006; WRIT PETITION Nos.6409,8988, 9302, 9305, 9311, 9396, 9524,11075, 13081, 16049, 17320, 17330, 17412, 20694, 20789, 20802,21255, 21665, 22332 24376, 25949 of 2007; WRIT PETITION Nos.475, 1271, 1649, 4401 and 18633 of 2008; WRIT PETITION No.4658 of 2009

and

WRIT PETITION No.5740 of 2010

December 30, 2010

Between:

M/s.Asian Peroxide Limited, Nellore

And

… Petitioner

Government of Andhra Pradesh, represented byIts Principal Secretary, Revenue (CT II) DepartmentHyderabad And others … Respondents THE HON’BLE SRI JUSTICE V.V.S.RAOAND

THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN

WRIT PETITION Nos.3259, 4728, 4880, 4881, 5071, 5080, 5160, 5310, 5573, 11833, 13314, 20691, 21315, 21712, 21846, 22145,22768, 22769, 22770, 22773, 22774, 22882, 25283, 26326, 27037 of2006; WRIT PETITION Nos.6409,8988, 9302, 9305, 9311, 9396, 9524,11075, 13081, 16049, 17320, 17330, 17412, 20694, 20789, 20802, 21255, 21665, 22332 24376, 25949 of 2007; WRIT PETITION Nos.475, 1271, 1649, 4401 and 18633 of 2008;WRIT PETITION No.4658 of 2009andWRIT PETITION No.5740 of 2010

COMMON ORDER: (Per Hon’ble Sri Justice V.V.S.Rao)

Introduction

The challenge in these cases is to Section 13(4) of the AndhraPradesh Value Added Tax Act, 2005 (the VAT Act) and Rule 20(2)(h)of the Andhra Pradesh Value Added Tax Rules, 2005 (VAT Rules). The impugned rule was introduced by an amendment issued underSection 78(1) of the VAT Act by a Government notification videG.O.Ms.No.2201, Revenue (CT-II), dated 29.12.2005. The effect ofthis rule is that all the petitioners, who are VAT dealers and availingInput Tax Credit (i.t.c.) in respect of coal, naphtha or natural gas underSection 13(1) of the VAT Act, have now been denied i.t.c.retrospectively with effect from 01.4.2005. This is the grievance andgrudge that forced the petitioners to approach this Court.

Background facts

We may notice the relevant facts and allegations from writpetition No.5080 of 2006. M/s.Vishnu Cement Limited a manufacturerof cement, is a registered dealer under the VAT Act. Limestone, coal,iron ore and gypsum are their main raw materials. In quantitativeterms, coal constitutes 13% of the raw material and on clinkerproduction 19%. Under the provisions of the VAT Act, the tax paid onintrastate purchase of raw materials is given credit against the outputtax payable on cement. The rate of VAT on coal is 4% and 12.5% oncement on which i.t.c. is allowed in respect of purchases of coal andother raw materials. The rate of sales tax under the Andhra PradeshGeneral Sales Tax Act, 1957 (APGST Act) on cement was 4% (withForm G). But the rate of VAT is higher at 12.5%. Due to i.t.c.allowance the company could withstand and absorb the increase inthe tax rate.

Under Section 13(1) of the VAT Act, i.t.c. was allowed to VATdealers except in respect of the goods specified in Schedule VI. Noi.t.c. is allowed even on certain deemed sales enumerated in Clauses(a) to (h) of Section 13(5) of the VAT Act. Section 13(4) of the VAT Actempowers the Government to prescribe purchases in respect of whichi.t.c. shall not be allowed. In exercise of the powers under Section 78of the VAT Act, VAT Rules were promulgated. Rule 20(2) of the VATRules prescribes, in clauses (a) to (q), various items/goods which are not eligible for i.t.c. Rule 20(2)(h) has been substituted by theimpugned amended Rule. Now, natural gas, naphtha and coal arealso included in the negative list, unless the dealer is in the businessof these goods. Thus the petitioner was not allowed to claim i.t.c. onthe coal used as raw material. After the impugned amendment ofRule20(2)(h) of the VAT Rules, the second respondent, namely, theAssistant Commissioner, issued notice dated 27.1.2006 proposing todisallow i.t.c. already claimed on the tax paid on coal purchases for thetax periods from April, 2005 to December, 2005. Ignoring petitioners’objections, the Assistant Commissioner, by an order dated 28.2.2006,confirmed the VAT proposals.

Defence of the State

The Government of Andhra Pradesh, through an authorisedofficer on special duty, filed a counter affidavit in W.P.No.5740 of2010. The assessing officer also filed counter in majority of the cases. The sum and substance of the counter is as follows. After repeal of theAPGST Act the general indirect taxation system has been enforced bythe VAT Act. The dealers thereunder are given set off on the tax paidon the sale of goods by another VAT dealer or used in the manufactureof goods. Though the output tax was assessed after giving i.t.c., thelegislature conferred power on the Government under Section 13(4) ofthe VAT Act to prescribe certain purchases of goods on which i.t.c. isnot allowed. In exercise of such power, the Government identifiedgoods under Rule 20(2) of the VAT Rules. The petitioner wasclaiming set off while paying output tax on manufactured cement, butthe Government amended Rule 20(2)(h) of the VAT Rules with effectfrom 01.4.2005. The same is sustainable and does not suffer from anyconstitutional vice. The legislature has widest discretion to pick andchoose any commodity for the purpose of taxation. If the power is nowgranted to the Rule making body, the same is sustainable. Section 5-B(1)(b) of the APGST Act, which is similar to Section 13(4) of the VATAct, was upheld by this Court in Chatla Narsaiah Ramaiah v State ofA.P.[[1]]. When the legislature specifically conferred retrospective Rulemaking power, it is of no consequence even if the tax is passed on tothe customer as the primary liability to pay VAT is on the dealer. Butfor the i.t.c. allowed earlier, the petitioner would have paid the entireoutput tax due. The assessment was taken up, and after issuing thenotice and considering the explanation, the impugned demand wasraised.

Issues for consideration

The Senior Counsel, Mr.S.Ravi, and M/s.A.K.Jaiswal, S.Dwarakanath, Bhaskar Reddy Vemireddy, M.V.J. Kumar, ShaikJeelani Basha, B.Srinivas, Tejprakash Toshniwal and Ms.AnjaliAgarwal for the petitioners and Mr.A.V. Krishna Koundinya, SpecialCounsel for the Commercial Taxes Department, made theirsubmissions. They also referred to precedents. A reference will bemade to these submissions and relevant precedents at an appropriateplace. From the submissions, the following issues arise which aretaken up for consideration one after the other.

I.Constitutional Validity of Section 13(4) of the VAT Act,

II.Constitutional Validity of Rule 20(2)(h) of the VAT Rules,andand

III.Validity of the impugned assessment orders.

CONSTITUTIONAL VALIDITY OF SECTION 13(4) OF VAT ACT

This issue can be examined under four sub-headings, namely, (i)Enacting History; (ii) Analysis of the VAT Act & the Rules; (iii) Scopeand extent of Section 13(4); and

(iv) Constitutional vires of Section 13(4).

(i) Enacting History

The pre-enacting history of legislation under challenge isrelevant to deal with the interpretative issues that arise before theCourt (BSNL v Union of India[[2]]). Brief history of legislation inAndhra Pradesh referable to the power under Entry 54 of List II ofSchedule VII to the Constitution of India is as follows.

Under the Government of India Act, 1935 (1935 Act) by reasonof Entry 48 in List II of Schedule VII thereto, the State had legislativepower to levy and collect tax on “all materials, commodities andarticles, compendiously referred to as the goods”. All the provincialstates had Sales Tax laws imposing tax on the sale and purchase. Itwas a major source of income. After the inauguration of theConstitution of India, the Legislative entry in the 1935 Act becameEntry 54 in List II of Schedule VII. Many States either continued thelegislation that existed prior to the Constitution, or made newlegislation to consolidate and amend the sales tax law. The MadrasGeneral Sales Tax Act, 1939, and the Hyderabad General Sales TaxAct, 1950, applied to Andhra and Telangana regions respectively. After formation of the State of Andhra Pradesh, these were repealedand replaced by the Andhra Pradesh General Sales Tax Act, 1957(APGST Act). The object of retaining sales tax as a major source ofrevenue, however, remained elusive for many reasons. The levy waseither at the point of first purchase/sale or at the point of lastpurchase/sale or at every point of sale. The tax paid at the point of first sale, or every point of purchase, became part of the purchase pricedetermining the subsequent sale price. This left a cascading effect. Due to unplugged holes in the tax collection mechanism, if once thereis a tax evasion, it had a negative impact on the collection as the taxonce escaped caused permanent loss to the State. Thirdly, with asmany as 16 to 20 rate categories introduced to fulfill a variety ofobjectives, the sales tax became complicated. Fourthly, many tax ratecategories and multi point levy lead to unsatisfactory tax compliance. Lastly, sales taxes which accounted for 60% of the State revenue overthe years remained stagnated.

Initiatives for tax reforms began between 1980s and 1990s. TaxReview Committee (TRC) 1991 of Government of India recommendedreform of direct taxes (income tax) and indirect taxes (excise andcustoms). The State level tax reforms, however, took off only in late1990s necessitated by increasing budget pressures and demands forsocial welfare. An empowered committee of State Finance Ministersunder the Chairmanship of Dr.Asim Das Gupta (empoweredcommittee) was formed to study the tax reforms. On being assured bythe Central Government to compensate the State for any loss over aperiod of three years, a consensus was reached by the States tomigrate from sales tax to VAT with the sole object of simplification andrationalization of the taxes on ‘sale or purchase of goods’. This moveto replace sales tax is a major landmark. Besides extending the taxbase and strengthening the information base for better taxadministration, VAT also attempts rationalizing the consumption tax toensure better tax compliance. As a sequel to the consensus reachedby the empowered committee in regard to implementation of VAT inthe country, A.P. VAT Act, 2003 (A.P. Act No.9 of 2004) was enacted. But it was not brought into force. The time frame set by theempowered committee was to have VAT in place by April, 2005. Therefore to begin with the A.P. VAT Ordinance, 2005 (A.P. OrdinanceNo.1 of 2005) was promulgated by the Governor, which became theA.P. VAT Act that came into force from 01.4.2005.

In “Trends and Issues in Tax Policy and Reform in India” thelearned Authors[[3]]in “India Policy Forum[[4]]” summarized the salientfeatures of the VAT regime thus.

·The tax is levied at two rates (except for bullion, and preciousmetals, which are taxed at 1 percent). Basic necessities (about75 items) are exempted. Most items of common consumption,inputs, and capital goods (about 275 items) are taxed at 4percent, and all other items are taxed at 12.5 percent. Gasolineand diesel fuel (which contribute about 40 percent of the salestax) are kept outside the VAT regime, and a floor rate of 20percent is to be levied on them.

·The tax credit facility covers inputs and purchases as well ascapital goods for both manufacturers and dealers. Credit fortaxes paid on capital goods can be used over three years ofsales.

·

The tax credit mechanism operates fully only for intrastatesales. In interstate transactions, the exporting state is supposedto give an input tax credit for purchases made locally, against thecollection of the central sales tax. The central sales tax credit inthe importing state, or other mechanisms of zero-rating ofinterstate sales, will be introduced in two years, when the centralsales tax in its present form will be phased out. In the meantime,an information system on interstate trade will be built up.

·The central government has agreed to compensate the states for any loss of revenue at rates of 100 percent in the first year, 75percent in the second year, and 50 percent in the third year. Theloss will be calculated by estimating the difference between theprojected sales tax revenue using 2004–05 as the base and theactual revenue collected. The projected revenues will beestimated by applying the average of the best three years’ growthrates during the last five years.

·Tax incentives given to new industries by different states couldbe continued so long as it does not break the VAT chain. Manystates propose to convert tax holidays into deferment of the tax.

·All dealers with annual turnover above Rs.500,000 are requiredto register for the VAT. However, the states may levy a simpleturnover tax not exceeding 2 percent on those dealers withturnover up to Rs.5 million. Such dealers, paying the turnovertax, do not have to keep detailed accounts of their transactions.But these small dealers will not be a part of the VAT chain, andno credit will be available for the taxes paid on purchases fromthese dealers. They may therefore voluntarily register as regularVAT dealers.

VAT is levied and collected at every point of sale although itworks out to be tax on the last sale, but collected in instalments atevery point. As the tax paid by the dealer at the point of purchase isgiven “set off” or credit, ordinarily the same shall not form part of thepurchase price and may have minimum objections. By and large thisis the norm. But the literature on this aspect does not accept the “setoff” or “credit” of tax paid at the earlier stage (i.t.c.) as being universallegislative norm. Most items of common consumption, inputs andcapital goods are allowed the i.t.c.; but on certain items like petrol,diesel, liquor, i.t.c. is not permitted. Similarly select goods andtransactions are kept outside and no i.t.c. can be claimed.

(ii) Analysis of VAT Act and the Rules

We may take up a brief analysis of the VAT Act. ‘There are threestages in imposing of tax’: (i) there is the declaration of liability. It is thepart of the statute which determines what persons in respect of what property are liable to tax (commonly described as 'chargingprovisions’); (ii) there is the assessment which particularizes the exactsum which a person liable has to pay (commonly described as ‘taxablequantity’; and (iii) the methods of recovery if the person does notvoluntarily pay the determined tax (Commissioner of Income Tax v Mahaliram Ramji Das[[5]]quoted with approval in AssociatedCement Company Limited v Commercial Tax Officer, Kota[[6]]).

VAT Act has dictionary clause (Section 2) defining as many as46 terms and expressions used in the Act. These are however notexclusive and rigid in that if the “context otherwise so requires” cantake different meaning and purport. “Tax” (Section 2(34)), whichmeans tax on the sale or purchase of goods payable under the Act andincludes tax on deemed sales. VAT means, ‘value added tax on saleslevied under the provisions of the Act’ (Section 2(42)). Chapter IIIcontains charging provisions. Chapter V, VI and VII deal with taxadministration which includes assessment and collection of tax. Chapter VIII speaks of offences and penalties under the Act. Section78 of the VAT Act empowers the Government to make Rules andSection 79 of the VAT Act enables the Government to alter, add to orcancel any of the six Schedules appended to the Act.

As per Section 2(10) of the VAT Act, “dealer” means any personwho carries on the business of buying, selling, supplying or distributinggoods or delivering goods on hire purchase or in any system ofpayment. Every such dealer other than a casual dealer, as defined inSection 2(7) of the VAT Act, shall be liable to be registered as a VATdealer if his estimated taxable turnover is more than Rs.40.00 lakhs. Every dealer whose turnover exceeds Rs.5.00 lakhs, but is notregistered as a VAT dealer, shall be registered as a Turnover Taxdealer (ToT). The charging Section 4 of the VAT Act obliges a VATdealer to pay tax on every sale of goods at the rates specified in theSchedules. The liability under Section 4 of VAT Act is subject toSection 13, and the rates specified in the Schedules. VAT payableshall be calculated in accordance with the formula prescribed[[7]](Section 12). Wherever it is permissible a VAT dealer will get i.t.c. inrespect of purchases of taxable goods if such goods are used in hisbusiness. The Act also contains an effective appeal/revision system(Sections 31 to 36). While expressing their choice as to essentialfeatures of VAT, the legislature left it to the Government (delegatedagency or authority) to make Rules to cover many other aspects. Inexercise of such power under Section 78 of the VAT Act, the Governorof Andhra Pradesh promulgated the VAT Rules to which a reference ismade infra wherever necessary.

After referring to the enacting history, and the above briefanalysis, it cannot be denied that replacement of sales tax by VAT ismainly intended to improve revenue collections and to preventcascading effect on sale price, besides plugging the gaps in taxcollection. It also becomes clear that though the legislature permits thedealers to avail i.t.c. in respect of most items of common consumption,it was never intended that all taxable goods and businesses shouldinvariably be allowed i.t.c.

(iii) Scope and extent of Section 13(4)

In designing a tax system, to minimize the excess burden ofraising highest revenue, optimal rate of tax on commodities should berelated to the direct demand for the goods. That is one school ofthought. Another way is to adopt the system that will minimize the taxinduced distortions and at the same time, the system remainsadministratively feasible and, politically acceptable. So the policyplanners evolved a tax system with uniform tariffs and broad basedVAT. In India, to start with rationalization of indirect taxes commencedin 1977, by converting specific duties into ad volarem taxes andintroducing i.t.c. to convert the cascading sales tax into manufacturingstage VAT. This was replaced by a major reform in 2000-01 whenCentral VAT (CenVAT) was introduced in the Central Indirect Taxsystem. Then came a stage when all the States adopted the VATsystem by April, 2005 generally with the facility of set off of the tax oninputs. But certain commodities were left out of VAT system, whichnecessarily means that i.t.c. was not allowed on the purchase of thoseitems.

As per Section 2(19) of the VAT Act, “input tax” means tax paid orpayable under the Act by a VAT dealer to another VAT dealer on thepurchase of goods in the course of business. As per Sections 4, 11and 12 of the VAT Act, the VAT payable shall be calculated byapplying the rate of tax specified in the applicable Schedule, and shallbe calculated in accordance with the formula prescribed. Rule 19 ofthe VAT Rules contains the formula. In simpler terms, the tax payableb y the VAT dealer shall be X – Y where X is the total of the VATpayable in respect of all taxable sales made by a VAT dealer and Y isthe total i.t.c. which the VAT dealer is eligible to claim as set off. Therelevant dual provisions, namely, Sections 9 and 13 of VAT Act readas under.

9. Input tax credit for dealers for goods in Schedule VI.-Every dealer, who is liable to pay tax on the sale of goodsspecified in Schedule VI, shall be eligible for input tax creditsubject to the conditions in Section 13 of the Act and in themanner prescribed.Every dealer, who is liable to pay tax on the sale of goodsspecified in Schedule VI, shall be eligible for input tax creditsubject to the conditions in Section 13 of the Act and in themanner prescribed.

13. Credit for input tax.- (1) Subject to the conditions if any,prescribed, an input tax credit shall be allowed to the VAT dealerfor the tax charged in respect of all purchases of taxable goods,made by that dealer during the tax period, if such goods are foruse in the business of the VAT dealer. No input tax credit shallbe allowed in respect of the tax paid on the purchase of goods specified in Schedule VI.

( 2) (a) A dealer registered as a VAT dealer on the date ofcommencement of the Act, shall be entitled to claim for the sales taxpaid under Andhra Pradesh General Sales Tax Act, 1957 on thestocks held in the State on the date of commencement of the Actsubject to the conditions and in the manner as may be prescribed:Provided that such goods should have been purchased from 01-04-2004 to 31-03-2005 and are goods eligible for input tax credit.

(b) Subject to the conditions if any, prescribed, input tax credit shallbe allowed to a VAT dealer on registering as VAT dealer if any inputtax is paid or payable in respect of all purchases of taxable goods,where such goods are for use in the business as VAT dealer,provided the goods are in stock on the effective date of registrationand such purchase occurred not more than three months prior tosuch date of registration.

(3) A VAT dealer shall be entitled to claim :- (a) input tax credit under sub-section (1), on the date the goods arereceived by him, provided he is in possession of a tax invoice;(b) input tax credit or sales tax credit under sub-section (2), on thedate of registration, provided he is in possession of documentaryevidence therefor.

(4) A VAT dealer shall not be entitled for input tax credit or salestax credit in respect of the purchases of such taxable goods asmay be prescribed.

(5) No input tax credit shall be allowed on the following:

(a) works contracts where the VAT dealer pays tax under theprovisions of clauses (b),(c) and (d) of sub-section (7) of Section 4; (b) transfer of a business as a whole;

(c) sale of exempted goods except when such goods are sold in thecourse of export or exported outside the territory of India;(d) exempt sale; (e) transfer of exempted goods on consignment basis or to branchesof the VAT dealer outside the State otherwise than by way of sale;(f) supply of goods by the VAT dealer as mentioned in sub-section(9) of Section 4.

(6) The input tax credit for transfer of taxable goods outsidethe State by any VAT dealer otherwise than by way of saleshall be allowed for the amount of tax in excess of 4%.

(7) Where any VAT dealer pays tax under clause (a) of sub-section (7) of Section 4, the input tax credit shall be limited to90% of the related input tax.

(8) Where goods purchased by a VAT dealer are partly for hisbusiness use and partly for other than his business use, theamount of the input tax credit shall be limited to the extent ofinput tax that relates to the goods used in his business.

(9) A Turnover Tax dealer or a casual trader shall not beentitled to claim input tax credit.

(10) Any dealer covered by Explanation III & IV of clause (10)of Section 2 shall not be eligible for input tax credit against orrelatable to sale of un-serviceable goods or scrap, surplus,old, obsolete or discarded material or waste products whether by auction or otherwise.

(11) Any VAT dealer who purchases any taxable goods froma dealer covered under sub-section (10) above, shall beeligible for input tax credit, on production of documentaryevidence that tax has been charged.

The conspectus of above two provisions is as follows. A VATdealer can avail i.t.c. in respect of all purchases of taxable goods onlyif such goods are used in his business. But no such credit will beallowed in respect of goods, specified in Schedule VI subject tospecial rates of tax. The benefit under Section 9 of the VAT Act, andSection 13(1) of the VAT Act is, however, subject to the conditions asmay be prescribed by the VAT Rules. A VAT dealer cannot claim anyi.t.c. in respect of certain deemed sales. Furthermore, as per Section13 (10) and (11) read with Explanations III and IV to Section 2(10) ofthe VAT Act, the Central Government, State Government andGovernment Undertakings are not eligible for i.t.c. against sale ofunassessable goods or scrap and discarded material. The purchasesby a VAT dealer from such organizations shall, however, be eligible fori.t.c. on proof of payment of tax. Be it also noted that a VAT dealershall be entitled to claim tax credit only when such a dealer isregistered, and is in possession of a tax invoice containing theparticulars as stipulated in Rule 27 of the VAT Rules.

Section 13(4) of the VAT Act has specifically conferred the poweron the Government to select and prescribe other taxable goods (otherthan those mentioned in Section 13(5) of the VAT Act) in respect ofwhich a VAT dealer shall not be entitled to claim i.t.c. Rule 20 of theVAT Rules is the provision which deals with items/goods not eligiblefor tax credit. In this case, we are not concerned with Sub-rule (1) ofRule 20 of the VAT Rules. Rule 20(2) of the VAT Rules contains a listof 17 items/goods which are not eligible as specified in Section 13(4)of the VAT Act. To begin with when the Rules came into force (witheffect from 31.1.2005 and/or 01.4.2005), 11 (eleven) items wereenumerated in Clauses (a) to (k). By an amendment videG.O.Ms.No.1452, dated 26.7.2005, with effect from 01.4.2005, clause(l) was added. By another amendment vide G.O.Ms.No.1675, dated23.9.2005, with effect from 01.4.2005, clause (m) was added. Thiswas followed by yet another amendment vide G.O.Ms.No.2201, dated29.12.2005, with effect from 01.4.2005, substituting “natural gas andcoal used for power generation” with “natural gas, naptha and coalunless the dealer is in the business of dealing in these goods”. By thesame notification, clauses (n), (o) and (p) were also added. Clause (q)was added by an amendment vide G.O.Ms.No.503, dated 08.5.2009,

with effect from 01.5.2009. After these four amendments, Rule 20(2) ofthe VAT Rules reads as under.

20. Input Tax Credit.

2) The following shall be the items not eligible for input taxcredit as specified in sub-section (4) of Section 13,- (a) all automobiles including commercial vehicles / twowheelers / three wheelers required to be registered under theMotor Vehicles Act 1988 and including tyres and tubes,spare parts and accessories for the repair and maintenancethereof; unless the dealer is in the business of dealing inthese goods.

(b) fuels used for automobiles or used for captive powergeneration or used in power plants;

(c) air conditioning units other than used in plant andlaboratory, restaurants or eating establishments, unless thedealer is in the business of dealing in these goods.

d) any goods purchased and used for personal consumption.(e) any goods purchased and provided free of charge as giftsotherwise than by way of business practice. (f) anygoods purchased and accounted for in the businessbut utilized for the purpose of providing facilities toemployees including any residential accommodation.(g) crude oil used for conversion or refining intopetroleum products; (h) Natural gas, naptha and coal unless the dealer is inthe business of dealing in these goods.

(i) any input used in construction or maintenance ofany buildings including factory or office buildings,unless the dealer is in the business of executing workscontracts and has not opted for composition.

(j) earth moving equipment such as bulldozers, JCB’s, andpoclain etc., and parts and accessories thereof unless thedealer is in the business of dealing in these goods; (k) generators and parts and accessories thereof used forcaptive generation unless the dealer is in the business ofdealing in these goods.

(l) rice purchased by Food Corporation of India from VATdealers or farmers or farmers clubs or associations offarmers in the State.

(m) rice purchased by Andhra Pradesh State CivilSupplies Corporation Ltd., from the Depots of FoodCorporation of India, in Andhra Pradesh or from any otherVAT dealer in the State.

(n) refrigerators, coolers and deep freezers purchased by Soft Drink Manufacturers not for use intheir manufacturing premises.

(o) any goods purchased and used as inputs in jobwork.

(p) PDS Kerosene purchased by wholesale dealers forthe purpose of supplying to Fair Price Shops.

(q) Furnace Oil, LSHS and other similar fuels, used in the furnaces and boilers of the factories or manufacturing or processing units.

When any goods mentioned above are subsequently soldwithout availing any input tax credit, no tax shall be levied and recovered from a VAT dealer having been denied the input taxcredit at the time of purchase. Any VAT dealer havingpurchased items mentioned above shall maintain a separateaccount or record without including such purchases in thepurchase of eligible inputs taxable at each rate.Whenever a VAT dealer makes a claim for input tax credit for anytax period, the tax paid on the purchases of above goods shallbe excluded for arriving the eligible input tax credit. Thisprinciple applies to all the sub rules in this rule.

A reading of Sections 4(3) and 13(1) of the VAT Act wouldreveal that i.t.c. shall be allowed in respect of purchases of taxablegoods except tax paid on purchase of goods in Schedule VI. This ishowever subject to conditions that may be prescribed by the VATRules. Subsection (4) of Section 13 of the VAT Act bars a VAT dealerclaiming i.t.c. in respect of the purchases of taxable goods as may beprescribed by the rule making authority. To that extent the position isnot denied. In exercise of the powers conferred under Section 78 ofthe VAT Act, by Rule 20(2) of the VAT Rules, purchases of goods inrespect of which i.t.c. cannot be claimed have been prescribed. As ofnow seventeen (17) items/ goods are mentioned in Rule 20(2) of theVAT Rules.

It is submitted that Section 13(4) of the VAT Act enables i.t.c. tobe denied only on the goods which are exempt from tax or if they areincluded in Schedule VI in respect of which i.t.c. cannot be claimed byreason of Section 13(1) of the VAT Act. They would, therefore, urgethat Section 13(1) read with Section 13(4) of the VAT Act cannot beconstrued as conferring power on the Government to deny i.t.c. on allthe goods. According to them i.t.c. can be denied only in respect ofthose goods which are exempt from tax or attracts special rates of taxprovided under Schedule VI. Per contra, the Special Counsel forCommercial Taxes submits that the Court has to give a plain meaningto Section 13(1) and Section 13(4) of the VAT Act. Doing so, it doesnot warrant any interpretation as suggested by the petitioners. According to him, all the items in Rule 20(2) of the VAT Rules, exceptthe item electrical energy, attracts VAT. While asserting that Rule20(2) of the VAT Rules refers to goods and items he would urge thatSection 13(4) of the VAT Act cannot be read narrowly. If thepetitioners’ plea is accepted, he would contend, it amounts tosupplying casus omissus which ought to be avoided.

The power to tax is neither incidental nor implied power. It is tobe conferred specifically on the competent legislature. Ordinarily, thelegislative power includes all incidental and subsidiary powers. Butnot so in respect of taxation. If the source of taxing power is silent, itcannot be implied. Expanding the width of source, to include the power to tax is not permissible. “The power to tax”, ‘the person to betaxed’, ‘the thing to be taxed’ and ‘the event to be taxed’ must bespecifically indicated. Any vagueness in the statute must benefit thetaxpayer and not the Sovereign because “the burden of showing taxingpower lies on the State”.

In ‘Principles of Statutory Interpretation’ by Justice G.P.Singh(Tenth edn., 2006), the general principles of strict interpretation aresummarized as below.

A taxing statute is to be strictly construed. The well-established rule in the familiar words of LORDWENSLEYDALE, reaffirmed by LORD HALSBURY andLORD SIMONDS, means: “The subject is not to be taxedwithout clear words for that purpose; and also that every Actof Parliament must be read according to the naturalconstruction of its words”. In a classy passage LORDCAIRNS stated the principle thus: “If the person sought to betaxed, however great the hardship may appear to the judicialmind to be. On the other hand, if the Crown seeking torecover the tax, cannot bring the subject within the letter of thelaw, the subject is free, however, apparently within the spirit oflaw the case might otherwise appear to be. In other words, ifthere be admissible in any statute, what is called an equitable,construction, certainly, such a construction is not admissiblein a taxing statute where you can simply adhere to the wordsof the statute”. VISCOUNT SIMON quoted with approval apassage from ROWLATT, J. expressing the principle in thefollowing words: “In a taxing Act one has to look merely atwhat is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as totax. Nothing is to be read in, nothing is to be implied. Onecan only look fairly at the language used”. Relying upon thispassage LORD UPJOHN said: “Fiscal measures are not builtupon any theory of taxation”.

The above passage was quoted with approval in Commissioner of Income Tax v Kasturi and Sons Ltd.[[8]]. In State of West Bengal v Kesoram Industries Ltd.[[9]], citing the same, the apex Courtsummed up the following settled principles of interpretation (i) Ininterpreting a taxing statute, equitable considerations are entirely out ofplace. Taxing statutes cannot be interpreted on any presumption orassumption. A taxing statute has to be interpreted in the light of whatis clearly expressed; it cannot imply anything which is not expressed; itcannot import provisions in the statute so as to supply any deficiency;(ii) Before taxing any person it must be shown that he falls within theambit of the charging section by clear words used in the section; and(iii) If the words are ambiguous and open to two interpretations, thebenefit of interpretation is given to the subject. There is nothing unjust in the taxpayer escaping if the letter of the law fails to catch him onaccount of the legislature’s failure to express itself clearly.

Applying the above settled rules, the submission of the Counselcannot be accepted. A reading of Sections 13(1), 13(4) and 2(19) ofthe VAT Act would show that the tax payable under VAT Act isconsidered as input tax if the purchase of such goods is in the courseof business. As per the charging section, every VAT dealer is liable topay tax on every sale of goods at the rates specified in the schedules. Therefore irrespective of inclusion in one or the other schedules all thesales and purchases are taxable goods, if such transactions take placein the course of business. Section 2(6) of the VAT Act defines the term“business”. It means and includes trade, commerce or manufacture,whether or not it is carried on with profit motive. All transactions,incidental or ancillary to trade, are also included within the definition.

I n State of Gujarat v Raipur Manufacturing Co. Ltd.[[10]]dwelling on the expression ‘business’, the Supreme Court laid downas follows.

The expression “business” though extensively used intaxing statutes, is a word of indefinite import. In taxingstatutes, it is used in the sense of an occupation, orprofession which occupies the time, attention and labour of aperson, normally with the object of making profit. To regard anactivity as business there must be a course of dealings, eitheractually continued or contemplated to be continued with aprofit motive, and not for sport or pleasure. Whether a personcarries on business in a particular commodity must dependupon the volume, frequency, continuity and regularity, oftransactions of purchase and sale in a class of goods and thetransactions must ordinarily be entered into with a profitmotive. By the use of the expression “profit motive” it ‘is notintended that profit must in fact be earned. Nor does theexpression cover a mere desire to make some monetary gainout of a transaction or even a series of transactions. Itpredicates a motive which pervades the whole series oftransactions effected by the person in the course of hisactivity. In actual practice, the profit motive may be easilydiscernible in some transactions: in others it would have to beinferred from a review of the circumstances attendant uponthe transaction.

Therefore, on a true construction of Section 13(4) of the VATAct, it has to be held that the Government can prescribe any or all‘purchases of such taxable goods’ in respect of which i.t.c. shall not beallowed. Whether or not those taxable goods are included inSchedule I (exempted from tax) or Schedule II (zero rated transactions)or Schedule VI (special rate tax category), does not make anydifference. All the goods which are subject matter of sale or purchaseattract tax and VAT under Sections 4(1) and 4(3) of the VAT Act and,therefore, necessarily no such distinction can be made whileinterpreting Section 13(4) of the VAT Act. It is altogether different matter if the Rule making authority to begin with, decided to prescribesuch goods which may incidentally find place in Schedule I orSchedule II or Schedule VI. The same may not preclude theGovernment from prescribing other goods on which there is no outputtax.

If the submission of the petitioners is accepted, one would beforced to read Section 13(4) of VAT Act somewhat as follows: “a VATdealer shall not be entitled for tax credit or sales tax credit in respect ofthe purchases of such taxable goods as may be prescribed on whichno output tax is payable or on which special rates of tax are leviedunder Schedule VI.” The underlined phrase cannot be inferred byimputing an interpretation as suggested. We are afraid, it isimpermissible. It is axiomatic that in construing a taxing statute theinterpreter cannot and should not introduce words or something to givedifferent meaning which was never the legislative intent. When thelegislature clearly expresses nothing can be implied nor read into it. The Court cannot diminish or enlarge its scope by supplying casusomissus.

I n Commissioner of Sales Tax v Parson Tools andPlants[[11]], the respondent’s turnover for the years 1958-59 and 1959-60 was assessed under U.P. Sales Tax Act, 1948 (UP Act). Theassessee’s appeals were dismissed for default. They filedapplications to set aside the order. During the pendency of thoseapplications, Rule 68(5) of U.P. Sales Tax Rules, which enabled theappellate authority to dismiss for default, were declared ultra vires. Therefore the applications to set aside were dismissed. The assesseethen filed revision under Section 10 of UP Act before revisionalauthority beyond the period of 18 months. The revisional authorityexcluded the time spent in the proceedings under Section 68(6) andcomputed the period by applying Section 14 of Limitation Act. On areference, a Full Bench of the Allahabad High Court agreed with therevisional authority and held that the time spent in prosecutingapplications for setting aside the order of dismissal can be excluded. Before the Supreme Court, it was contended that Section 10 of UP Actexcludes the unrestricted application of principles of Sections 5 to 10of Limitation Act and that by analogy the provisions of Limitation Actincluding Section 14(2) cannot be incorporated in the UP Act. Thesubmission weighed with the Division Bench of Supreme Court, whoapplied the principle of not supplying the omission. Therein it washeld as follows.

Be that as it may, from the scheme and language ofSection 10, the intention of the legislature to exclude theunrestricted application of the principles of Sections 5 and 10of the Limitation Act is manifestly clear. These provisions of the Limitation Act which the legislature did not, after dueapplication of mind, incorporate in the Sales Tax Act, cannot beimported into it by analogy. An enactment being the will of thelegislature, the paramount rule of interpretation, whichoverrides all others, is that a statute is to be expounded“according to the intent of them that made it”. “The will of thelegislature is the supreme law of the land and demandsperfect obedience”. “Judicial power is never exercised”, saidMarshall, C.J. of the United States, “for the purpose of givingeffect to the will of the Judges; always for the purpose ofgiving effect to the will of the legislature; or in other words, tothe will of the law”.

If the legislature wilfully omits to incorporate something ofan analogous law in a subsequent statute, or even if there is acasus omissus in a statute, the language of which is otherwiseplain and unambiguous, the Court is not competent to supplythe omission by engrafting on it or introducing in it, under theguise of interpretation, by analogy or implication, somethingwhat it thinks to be a general principle of justice and equity. Todo so “would be entrenching upon the preserves oflegislature”, the primary function of a Court of law being jusdicere and not jus dare.

In Illachi Devi v Jain Society, Protection of Orphans India[[12]],law is stated thus:

It is equally well settled that when the Legislature hasemployed a plain and unambiguous language, the Court is notconcerned with the consequences arising therefrom.Recourse to interpretation of statues may be restored onlywhen the meaning of the statute is obscure. The Court is notconcerned with the reason as to why the Legislature thought itfit to lay emphasis one category of suitors than the others. Astatute must be read in its entirety for the purpose of findingout the purport and object thereof. The Court, in the event of itscoming to the conclusion that a literal meaning is possible to berendered, would not embark upon the exercise of judicialinterpretation thereof and nothing is to be added or taken from astatute unless it is held that the same would lead to an absurdityor manifest injustice.

In Sri Ram Saha v State of West Bengal[[13]], the appellant whowas the owner of garden land desired to plant hybrid saplings afterremoving worm affected and non-fruit bearing old trees in his land. When he was doing so, the land reforms officer prevented him fromfelling the trees. He challenged the same before the High Court ofCalcutta. The Division Bench relied on Section 4B of the West BengalLand Reforms Act, 1955, which required the Collector’s permission forfelling the trees by owners of non-forest private plantations, and heldthat the appellant was entitled to cut one out of ten trees in two years. Before the Supreme Court, the appellant contended that in the absence of any provision in the Act, or in any other legislation, hecannot be prevented from felling trees in his garden land. The ApexCourt referred to the decisions in Parson Tools and Sankar Ram &

Co., v Kasi Naicker[[14]]and observed as under.

It is well-settled principle of interpretation that a statuteis to be interpreted on its plain reading; in the absence of anydoubt or difficulty arising out of such reading of a statutedefeating or frustrating the object and purpose of anenactment, it must be read and understood by its plainreading. … … At any rate, in the guise of purposiveinterpretation, the Courts cannot re-write a statute. A purposiveinterpretation may permit a reading of the provision consistentwith the purpose and object of the Act but the Courts cannotlegislate and enact the provision either creating or taking awaysubstantial rights by stretching or straining a piece oflegislation.

As rightly contended by the Government the goods included inthe negative list do not support any contention that the power conferredis to prescribe the purchases of only non-taxable goods. Theitems/goods which are found in Rule 20(2)(a) to (q) are included eitherin IV or V or VI Schedules. Schedule I and Schedule II are eitherexempted goods or zero rated goods whereas Schedule III attract 1%VAT. If we exclude Schedules I to III, the Schedules IV, V and VI formthe core VAT structure. The goods included in the negative list arethus spread over in all the three schedules which deal withgoods/transactions attracting VAT of 4%, 12.5% (now 14.5%) or higherrates. We, accordingly, hold that Section 13(4) read with Section 78(1)of the VAT Act confers widest power on the delegate to prescribe thetaxable goods in respect of which i.t.c. cannot be allowed. It is notpossible to argue with the petitioners that legislature intended to denyi.t.c. only in respect of VAT exempted goods or goods attractingmaximum VAT.

(iv) Constitutional vires of Section 13(4)

The petitioners argue that Section 13(4) of the VAT Act is ultravires the legislative power of the State. According to them, withoutbroad legislative policy, it confers unguided power and suffers from thevice of excessive delegation. Indisputably the legislature expressedits intent that the liability to pay VAT under Section 4(3) is subject toSection 13 of the VAT Act i.e., i.t.c. as may be allowed. The policy isclear. But according to the Counsel, for inclusion in the negative listno guidelines are provided to the delegated authority. The question forour consideration is whether there is excessive delegation? and if sowhether the impugned provision ought to suffer curial invalidation?

We shall begin with a brief reiteration of settled principles in thisregard. In ‘Administrative Law’ by Justice C.K.Thakker (first edition,1992), the following permissible legislative aspects which can bedelegated are pointed out: (i) commencement of the statute; (ii)function of supplying details; (iii) inclusion or area of operation or classof persons to whom the law is applied; (iv) power to exempt; (v) powerto suspend the operation of the provisions; (vi) application ofexisting laws; (vii) modification of existing statute before its application;(viii) prescribing punishments, framing of rules, bylaws, regulations;and (ix) the power to remove difficulties (popularly called Henry-VIIIClause).

The following impermissible acts of delegation are alsoenumerated by the learned author: (i) essential legislative functions; (ii)power to repeal law; (iii) power to modify without limitation; (iv) powerto grant exemption without norms and policy for guidance; (v) power togive retrospective effect to legislature; (vi) power to adopt the lawswhich may be passed in future; (vii) power to oust the Court’sjurisdiction; and (viii) power to define and prescribe punishment foroffences.

In relation to the Taxing legislation the learned author afterreferring to various Supreme Court decisions enumerated the followingwell settled principles of delegated legislation. (1 ) The power toimpose a tax is essentially a legislative function. Under Article 265 ofthe Constitution no tax can be levied or collected save by authority oflaw, and here ‘law’ means law enacted by the competent legislatureand not made by the executive authority. Therefore, the legislaturecannot delegate the essential legislative function of imposition of tax toexecutive authority; (2) Subject to the above limitation, a power can beconferred on the government to exempt a particular commodity fromthe levy of tax. Similarly, the power may also be delegated to bringcertain commodities under the levy of tax; (3) The power to fix the rateof tax is a legislative function, but if the legislative policy has been laiddown and necessary guidelines have been provided, the said powercan be delegated to the executive; (4) It is open to the legislature orexecutive to select different rates of tax for different commodities; (5)Commodities belonging to the same category should not, however, besubjected to different and discriminatory rates of tax in absence of anyrational basis or justifiable grounds; (6) Needs of the taxing body is nota test for determining whether guidance was furnished by thelegislature in exercising the power to tax; (7) The circumstance that theaffairs of the taxing body are administered by the electedrepresentatives responsible to the people is wholly irrelevant andimmaterial in determining whether the delegation is excessive or otherwise; (8) A taxing statute should be construed strictly. If theprovision is clear and unambiguous, full effect should be given to it. Where, however, such a provision is ambiguous or two interpretationsare possible, the interpretation which favours the assessee should beaccepted; and (9) A distinction should, however, be made betweencharging provisions and machinery provisions. Machinery provisionsshould be construed liberally so as to make charging provisionseffective.

It is not disputed that Section 13(4) of the VAT Act is an enablingprovision under which the Government may make Rules to includecertain goods in the negative list. Section 78(1) of the VAT Actempowers the making of Rules, “to carry out the purpose of the Act.” Clauses (a) to (r) of subsection (2) of Section 78 of the VAT Actillustratively enumerate the matters or subjects which may beprescribed by Rules. Clause (a) reads, “all matters expressly requiredor allowed by the Act to be prescribed.” Wherever a section orsubsection or a clause in the Act requires a thing to be done or dealtwith as may be prescribed, the Government is competent to makerules. Section 78(3) explicitly empowers retrospective rule making. Section 78(5) of the VAT Act makes it obligatory to table the Rulesbefore the legislative assembly for a period of 14 days. During thatperiod the legislative assembly may modify or annul any of them, andthe rules so made shall have effect only as modified. In view of this, itis clear that the legislature has retained control over the delegatedlegislative authority. Further, it is well settled that when once rules aremade, they get incorporated into the main statute whereafter they haveto be read and interpreted as if they are made by the legislature itself (State of U.P. v Babu Ram Upadhya[[15]]and State of Tamil Nadu vHind Stone[[16]]).

It is argued that Section 13(4) of the VAT Act does not give anyguidance, it confers absolutely unchannelled power and suffers fromthe defectof excessive delegation. Two questions spring up, namely,is there any guidance provided under Section 13(4) and/or is there anyexcess delegation of the legislative power.

In Banarsi Das Bhanot v State of M.P[[17]], the ConstitutionBench of the Supreme Court was concerned with the validity of theprovisions of the Central Provinces and Berar Sales Tax Act, 1947. Itwas urged that the notification issued by the Government underSection 6(2), empowering amendment of the schedule, suffers fromunconstitutional delegation of legislative authority. The Benchunanimously held that executive authority can be authorized to modifyeither existing or future laws but it cannot modify essential features. It was observed that what constitutes essential features has to bedecided depending on the nature of the delegated legislation. “It is notunconstitutional for the legislature to leave it to the executive todetermine details relating to working of Tax laws, such as selection ofpersons on whom the tax is to be laid, the rates at which it is to becharged in respect of different class of goods and the like.” Reliance was placed on Powell v Appollo Candle Company Limited[[18]]and Hampton Jr & Co., v United States[[19]]. In the second of these underthe U.S. Tariff Act, 1922, the President was empowered to make suchincreases or decreases in the rates of import duty as were foundnecessary for carrying out policies declared in the statute on theprinciple that, “so long as the motive of Congress and the effect of itslegislative action are to secure revenue for the benefit of the generalgovernment, the existence of other motives in the selection of the subjects oftaxes cannot invalidate congressional action.”

In Municipal Corporation of Delhi v Birla Cotton, Spg. and Wvg. Mills, Delhi[[20]]a seven Judge Bench observed that,considering the complexity of modern life, the legislature cannot havetime to legislate in every minute detail and, therefore, it is open todelegate the power to make ancillary rules for the purpose of carryingout the intention of the legislature indicated in the law which gives thepower to frame. The relevant placitum reads; A review of these authorities therefore leads to theconclusion that so far as this Court is concerned the principleis well established that essential legislative function consistsof the determination of the legislative policy and its formulationas a binding rule of conduct and cannot be delegated by thelegislature. Nor is there any unlimited right of delegationinherent in the legislative power itself. This is not warranted bythe provisions of the Constitution. The legislature must retainin its own hands the essential legislative functions and whatcan be delegated is the task of subordinate legislationnecessary for implementing the purposes and objects of theAct. Where the legislative policy is enunciated with sufficientclearness or a standard is laid down, the courts should notinterfere. What guidance should be given and to what extent andwhether guidance has been given in a particular case at alldepends on a consideration of the provisions of the particularAct with which the Court has to deal including its preamble.Further it appears to us that the nature of the body to whichdelegation is made is also a factor to be taken into considerationin determining whether there is sufficient guidance in the matterof delegation.

In Sita Ram Bishambhar Dayal v State of U.P[[21]]a provisionin the U.P. Sales Tax Act, 1948, empowering the Government to makerules for determination of taxable turnover was assailed as a piece ofexcessive delegation. Repelling the contention, the apex Court ruled as follows.

It is true that the power to fix the rate of a tax is alegislative power but if the Legislature lays down thelegislative policy and provides the necessary guidelines, thatpower can be delegated to the executive. Though a tax islevied primarily for the purposes of gathering revenue, inselecting the objects to be taxed and in determining the rate oftax, various economic and social aspects such as theavailability of the goods, administrative convenience, theextent of evasion, the impact of tax levied on the varioussections of the society etc. have to be considered. In amodern society taxation is an instrument of planning. It can beused to achieve the economic and social goals of the State.For that reason the power to tax must be a flexible power. Itmust be capable of being modulated to meet the exigencies ofthe situation. In a Cabinet form of Government, the Executiveis expected to reflect the views of the legislatures. In fact inmost matters it gives the lead to the Legislature. Howevermuch one might deplore the “New Despotism” of theExecutive, the very complexity of the modern society and thedemand it makes on its Government have set on motionforces which have made it absolutely necessary for theLegislatures to entrust more and more powers to theexecutive. Text book doctrines evolved in the 19th centuryhave become out of date. Present position as regardsdelegation of legislative power may not be ideal, but in theabsence of any better alternative, there is no escape from it.The Legislatures have neither the time, nor the requireddetailed information nor even the mobility to deal in detail withthe innumerable problems arising time and again. In certainmatters they can only lay down the policy and guidelines in asclear a manner as possible.

In Hiralal Rattanlal v State of U.P[[22]], the question was posedand answered thus.

It is true that the Legislature cannot delegate its legislativefunctions to any other body. But subject to that qualification, itis permissible for the legislature to delegate the power toselect the persons on whom the tax is to be levied or thegoods or the transactions on which the tax is to be levied. Inthe Act, under Section 3 the Legislature has sought to imposemulti-point tax on all sales and purchases. After having donethat it has given power to the executive, a high authority andwhich is presumed to command the majority support in theLegislature, to select for special treatment dealings in certainclass of goods. In the very nature of things, it is impossible forthe Legislature to enumerate goods, dealings in which sales taxor purchase tax should be imposed. It is also impossible for theLegislature to select the goods which should be subjected to asingle-point sales or purchase tax. Before making suchselections several aspects such as the impact of the levy on thesociety, economic consequences and the administrativeconvenience will have to be considered. These factors maychange from time to time. Hence in the very nature of things,these details have got to be left to the executive.

In Lohia Machines Ltd v Union of India[[23]], the ConstitutionBench of the apex Court was concerned with the constitutional validityof Rule 19-A of the Income Tax Rules, 1962 and interpretation ofSection 80-J of the Income Tax Act, 1961. One of the grounds urgedwas that Section 80-J of the Income Tax Act leaving the power toCentral Board of Direct Taxes to prescribe items that shall be includedor excluded in computation of the “capital employed” suffers fromexcessive delegation of legislative power and consequently void. Relying on Banarsi Das Bhanot, Sitaram Bishambhar Dayal andHiralal Rattanlal, the Supreme Court by a majority of 4 : 1 rejected thecontention observing as follows.

The legislature having laid down the legislative policy ofgiving relief to an assessee who is starting a new industrialundertaking or the business of a hotel, had necessarily toleave it to the Central Board of Revenue to determine whatshould be the amount of capital employed that should berequired to be taken into account for the purpose ofdetermining the quantum of the relief allowable under thesection. What should be the quantum of the relief allowable tothe assessee would necessarily depend upon diverse factorssuch as the impact of the relief on the industry as a whole, theresponse of the industry to the grant of the relief, the adequacyor inadequacy of the relief granted in promoting the growth ofnew industrial undertakings, the state of the economy prevailingat the time, whether it is buoyant or depressed andadministrative convenience. These are factors which maychange from time to time and hence in the very nature of things,the working out of the mode of computation of the “capitalemployed” for the purpose of determining the quantum of therelief must necessarily be left to the Central Board of Revenuewhich would be best in a position to consider what should bethe quantum of the relief necessary to be given by way of taxincentive in order to promote setting up of new industrialundertakings and hotels and for that purpose, what amount ofthe “capital employed” should form the basis for computation ofsuch relief.

I n J.K. Industries Ltd v Union of India[[24]], the questionbefore the apex Court was whether Accounting Standard 22 (AS 22)insofar as it relates to differed taxation is ultra vires the provisions ofthe Companies Act, 1956. Section 642(1) of the Companies Actconferred power on the Central Government to make rules. It was interalia urged that the impugned AS 22 suffers from the vice of excessivedelegation and that it is incongruous/inconsistent with the provisions ofthe Companies Act. In that context the Supreme Court reiterated theextent and scope of the power of the legislature to delegate ancillary legislative functions to another agency. We shall quote Para 133 (ofSCC) which sums up the law of the land.

It is well settled that, what is permitted by the conceptof “delegation” is delegation of ancillary or subordinatelegislative functions or what is fictionally called as “power to fillup the details”. The judgments of this Court have laid downthat the legislature may, after laying down the legislativepolicy, confer discretion on administrative or executiveagency like the Central Government to work out details withinthe framework of the legislative policy laid down in the plenaryenactment. Therefore, power to supplement the existing law isnot abdication of essential legislative function. Therefore,power to make subordinate legislation is derived from theenabling Act and it is fundamental principle of law which isself-evident that the delegate on whom such power isconferred has to act within the limitations of the authorityconferred by the Act. It is equally well settled that rules madeon matters permitted by the Act in order to supplement theAct and not to supplant the Act, cannot be held to be inviolation of the Act. A delegate cannot override the Act eitherby exceeding the authority or by making provisionsinconsistent with the Act.

The conspectus of the above often cited precedents may beenumerated is four principles. These are (i) the essential legislativefunction which consists of determination of legislative policy and itsformulation as a binding rule of conduct. This cannot be delegated bythe legislature. There is no unlimited right of delegation inherent to thelegislative power itself; (ii) it is permissible for the legislature to retainessential legislative functions and delegate all other things forimplementing the purposes and objects of the Act to the subordinatelegislative authority. This can be sustained only when properguidance is provided to the delegate. Such guidance has to bededuced from the provision empowering the rule making or fromdifferent provisions of the statute; (iii) it is not unconstitutional for thelegislature to delegate the determination of details relating to workingof Tax laws. The details can be with regard to enumeration of goods,transactions in which sales/purchase tax should be imposed, taxableevents whether single point or multi point and the grant or denial ofrelief in the computation of income etc; and (iv) while determining theworking details of tax laws, it is always open to the delegated authorityto consider market conditions, state of the economy prevailing at thattime, economic consequences, administrative convenience and theimpact of levy on the society and State exchequer.

Whether Section 13(4) of VAT Act is devoid of broad legislativeguidelines? We are afraid; the answer must be in the negative. It isnot uncommon that the legislature while conferring power to makerules indicates the subjects illustratively for the purpose of makingrules specifically and for making rules, “to carry out the purpose of theAct”. Enacting history of VAT Act would show that the State intendedto minimize evasion of tax; to prevent cascading effect of multi point taxation; to introduce dual rates of tax (except for bullion and otherspecified items) and by doing so to increase the revenue recoveriesfrom VAT. We have also seen from the enacting history that thelegislature never intended to provide the benefit of i.t.c. to all thedealers in respect of purchases of inputs they made. The submissionof the Counsel that, by enacting Section 4(3) subject to Section 13 ofthe VAT Act, the legislature intended not to deny i.t.c. at every stagecannot be countenanced. It is not permissible to do so and any suchconstruction would offend Sections 4(1), 4(3), 13(1) and 13(4) of theVAT Act. As rightly pointed out by the respondents, the credit for inputtax is allowed to the VAT dealer (subject to the conditions prescribed),and when the State, by making rules under Section 78, has prescribedineligible purchases under Section 13(4) of the VAT Act, it is notpossible to hold that the legislature did not give any guidance, and hasconferred unguided power.

In every case of delegated legislation, especially in respect of ataxing statute, mere absence of explicit guiding principles at one placecannot compel inference of Constitutionally impermissible excessdelegation. It is well settled that when the legislature retains priorcontrol to modify or annul the Rules, they are not vulnerable to thedefect of excessive delegation. In Birla Cotton, the Supreme Courtconsidered this aspect and laid down the law as under.

What form the guidance should take is again a matterwhich cannot be stated in general terms. It will depend uponthe circumstances of each statute under consideration; insome cases guidance in broad general terms may be enough;in other cases more detailed guidance may be necessary. Aswe are concerned in the present case with the field oftaxation, let us look at the nature of guidance necessary inthis field. The guidance may take the form of providingmaximum rates of tax upto which a local body may begiven the discretion to make its choice, or it may take theform of providing for consultation with the people of thelocal area and then fixing the rates after suchconsultation. It may also take the form of subjecting therate to be fixed by the local body to the approval of theGovernment which acts as a watch-dog on the actions ofthe local body in this matter on behalf of the legislature.There may be other ways in which guidance may beprovided. But the purpose of guidance, whatsoever may bethe manner thereof, is to see that the local body fixes areasonable rate of taxation for the local area concerned. Solong as the legislature has made provision to achieve thatreasonable rates of taxation are fixed by local bodies,whatever may be the method employed for this purpose —provided it is effective —, it may be said that there is guidancefor the purpose of fixation of rates of taxation.

The Constitution Bench in Lohia Machines referring to thedecision of Judicial committee in Powell and Garewal v State of Punjab[[25]]applied the principle while upholding Section 80J ofIncome Tax Act. The relevant observations are as follows.

Moreover, it may be noticed that under Section 296 ofthe Income Tax Act, 1961 every rule made under the Act isrequired to be laid before each House of Parliament so thatboth Houses of Parliament have an opportunity of knowingwhat the Rule is and considering whether any modificationshould be made in the Rule or the Rule should not be made orissued and if both Houses agree in making any modification inthe Rule or both Houses agree that the Rule should not bemade or issued, then the Rule would thereafter have effectonly in such modified form or have or have no effect at all, asthe case may be. Parliament has thus not parted with itscontrol over the Rule-making authority and it exercises strictvigilance and control over the Rule-making power exercisedby the Central Board of Revenue.

Here we may quote Section 78(5) of the VAT Act.

78. Power to make rules

(5) Every rule made under the Act, shall immediately after it ismade, be laid before the Legislative Assembly of the State if itis in session and, if it is not in session, in the sessionimmediately following, for a total period of fourteen days whichmay be comprised in one session or in two successivesessions, and if before the expiration of the session in which itis so laid or the session immediately following, the LegislativeAssembly agrees in making any modification in the rule or inthe annulment of the rule, the rule shall, from the date onwhich the modification or annulment is notified have effectonly in such modified form or shall stand annulled as the casemay be; so however, that any such modification or annulmentshall be without prejudice to the validity of anything previouslydone under that rule.

On a plain reading, it is clear that prior legislative control on therule making authority is retained by the legislature. VAT Rules so laidbefore the legislative assembly for a period of 14 days can be modifiedor annulled and they shall be enforced only subject to suchmodification or annulment. Therefore Section 13(4) of the VAT Actdoes not suffer from excessive delegation. This point is decidedaccordingly against the petitioners.

CONSTITUTIONAL VALIDITY OF RULE 20(2)(h) OF VAT RULES

We will consider this under two broad headings, namely, (i)Vires of Rule 20(2)(h) of VAT Rules; and (ii) Infringement of Article 14of the Constitution.

(i) Vires of Rule 20(2)(h)

Delegation is a constituent element of legislative power. But, azealous delegate cannot overstep the power donated nor ignorestatutory essentials in making rules as it would offend plenarylegislation. The legislative power to delegate to fill is wide, “subject tolimitation, namely, it cannot be the delegate in control of the power …… delegation is valid only when it is confined to policy andguidelines” (J.K. Industries Ltd). When a Court reviews the Rulesand the delegate’s construction of the statute, balancing legislativeintent with the rule making executive policy is a somewhat difficulttask.

In Chevron v Natural Resources Defence

Council[[26]], a decision often cited in administrative law cases,Justice Paul Stevens summed up judicial review parameters in this regard. We quote the relevant passages.

When a court reviews an agency's construction of thestatute which it administers, it is confronted with twoquestions. First, always, is the question whether Congress hasdirectly spoken to the precise question at issue. If the intent ofCongress is clear, that is the end of the matter; for the court, aswell as the agency, must give effect to the unambiguouslyexpressed intent of Congress. If, however, the court determinesCongress has not directly addressed the precise question atissue, the court does not simply impose its own construction onthe statute, as would be necessary in the absence of anadministrative interpretation. Rather, if the statute is silent orambiguous with respect to the specific issue, the question forthe court is whether the agency's answer is based on apermissible construction of the statute.

If Congress has explicitly left a gap for the agency tofill, there is an express delegation of authority to the agency toelucidate a specific provision of the statute by regulation. Suchlegislative regulations are given controlling weight unless theyare arbitrary, capricious, or manifestly contrary to the statute.Sometimes the legislative delegation to an agency on aparticular question is implicit rather than explicit. In such acase, a court may not substitute its own construction of astatutory provision for a reasonable interpretation made by theadministrator of an agency...

We have long recognized that considerable weightshould be accorded to an executive department'sconstruction of a statutory scheme it is entrusted toadminister, and the principle of deference to administrativeinterpretations has been consistently followed by this Courtwhenever decision as to the meaning or reach of a statute hasinvolved reconciling conflicting policies, and a fullunderstanding of the force of the statutory policy in the givensituation has depended upon more than ordinary knowledgerespecting the matters subjected to agency regulations.

Judges are not experts in the field, and are not part ofeither political branch of the Government. Courts must, insome cases, reconcile competing political interests, but noton the basis of the judges' personal policy preferences. Incontrast, an agency to which Congress has delegatedpolicymaking responsibilities may, within the limits of thatdelegation, properly rely upon the incumbent administration'sviews of wise policy to inform its judgments. While agenciesare not directly accountable to the people, the Chief Executiveis, and it is entirely appropriate for this political branch of theGovernment to make such policy choices -- resolving thecompeting interests which Congress itself either inadvertentlydid not resolve, or intentionally left to be resolved by the agencycharged with the administration of the statute in light ofeveryday realities.

In somewhat similar terms Chevron test is reiterated inMaharashtra S.B.O.S. & H.S. Education v Paritosh[[27]]. It was heldthat validity of the rule has “to be determined with reference only to thespecific provisions contained in the relevant statute conferring thepower to make the rule, regulation, etc., and also the object andpurpose of the Act as can be gathered from the various provisions ofthe enactment. It would be wholly wrong for the court to substitute itsown opinion for that of the legislature or its delegate as to whatprinciple or policy would best serve the objects and purposes of theAct and to sit in judgment over the wisdom and effectiveness orotherwise of the policy laid down by the regulation-making body anddeclare a regulation to be ultra vires merely on the ground that, in theview of the Court, the impugned provisions will not help to serve theobject and purpose of the Act.”

So long as the body, entrusted with the task of framing VATRules or regulations, acts within the scope of the authority conferredon it, in the sense that Rules made by it have a rational nexus with theobject and purpose of the Statute, the court should not concern itselfwith the wisdom or efficacy of such Rules. It is exclusively within theprovince of the legislature and its delegate to determine, as a matter ofpolicy, how the provisions of the Statute can best be implemented andthat measures, substantive as well as procedural, would have to beincorporated in the VAT Rules or regulations for the efficaciousachievement of the objects and purposes of the Act. It is not for theCourt to examine the merits or demerits of such a policy because itsscrutiny has to be limited to the question as to whether the impugnedregulations fall within the scope of the donated power to the delegate.

Precedents are galore on the point that delegated legislationmust comply with statutory essentials. I n Indian Express Newspapers Bombay (Private) Ltd v Union of India[[28]], it was held

that subordinate legislation does not carry the same degree ofimmunity which is enjoyed by a statute and that it can be questionedon any of the grounds on which plenary legislation may bequestioned. In addition it may also be questioned on the ground that itdoes not conform to the statute under which it is made as well as onthe ground that it is manifestly arbitrary and unreasonable. It is alsosettled that the expression, “for carrying out the purpose of the Act” isnot construed as to bring something in the statute which has beenexcluded by the Act itself (see Kunj Behari Lal Butail v State ofH.P.[[29]],Kerala Samsthana Chethu Thozhilali Union v State ofKerala[[30]]and Global Energy Ltd v Central Electricity Regulatory Commission[[31]]).

To be able to succeed on the ground, it should be demonstratedthat subordinate legislation lacks statutory essentials, in that it is not inaccordance with the plenary legislation or it included something whichwas excluded by the Act itself. Vague allegation of general hardshipcannot render the rules ultra vires. One must look to the entire Act todetermine the intention and purpose of the legislation in giving powerto the agency to make rules for the purpose of implementing the Act. Looking to the illustrative subjects mentioned in the rule makingprovision, or the long title of the enactment, itself may not be pivotal. The entire Act has to be churned before coming to the conclusion thatit did not empower the agency to exclude or include something in theRules never intended by the legislation itself.

Section 13(4) of the VAT Act empowers the Government ofAndhra Pradesh to prescribe on ‘purchases of such taxable goods’which shall not be entitled for i.t.c. The use of the word ‘such taxablegoods’ in Section 13(4) and 78(1) of the VAT Act makes it very clearthat there is no limit on the power delegated to make VAT Rules. Theterm “prescribed” should receive broader meaning.

I n Nagrik Upbhokta M. Manch v Union of India[[32]],Government of Madhya Pradesh framed rules under Section 3 of theEssential Commodities Act, 1955 and Para 2(d) of the Kerosene(Restriction on Use of Fixation of Selling Price) Order, 1993 providingfor rounding of the rates to utilize such saved amount for strengtheningpublic distribution system. The challenge to this as ultra vires failedbefore the High Court of Madhya Pradesh. The argument before theSupreme Court was that the rule is ultra vires. Accepting the point,appeals were allowed by observing as under.

The Kerosene Order defines the “declared price” beingthe maximum selling price by reference to an area. Apart from

the cost of production, what can be included therein are othercharges, rates, duties, taxes prescribed by the StateGovernment or District Collector in the case of an area of aState. The term “prescribed” contemplates the determinationof charges, rates, duties and taxes which are leviable onkerosene under the law of the State or local legislation andare, therefore, better known to the State Government orDistrict Collectors and would be available to be added to themaximum selling price declared by the Central Governmentor by the State Government subject to delegation of power bythe Central Government. The definition of “declared price”cannot be so read as empowering the State Government, theDirector or the District Collectors to prescribe by themselvesand levy on the kerosene, any charges, rates, duties andtaxes in purported exercise of power under the Control Order.In other words, the charges, rates, duties and taxes must bepre-existing or originating from a lawful source other than theprovisions of the Kerosene Order and can only be quantifiedby the State Government or District Collector so as to beprescribed for being added to the declared maximum sellingprice. The term “charges” must be read ejusdem generistaking colour from the succeeding terms — rates, duties andtaxes.

The term ‘prescribed’ should be given a broad and extendedmeaning to include any item as the Government may deem fit andproper in the negative list. If it is construed as permitting theGovernment to prescribe only such goods on which there is no outputtax or special rate of VAT it would render Section 13(4) of the VAT Actitself unconstitutional. Any interpretation which has the effect ofmaking a statutory provision unconstitutional must be avoided. TheCourt must always uphold the constitutionality of a provision of an Act,if necessary by construing in such a manner that it is intra vires (K.P.Varghese v ITO[[33]]).We have already rejected the petitioner’sargument that the legislature never intended the Government toexclude i.t.c. on purchase of all goods. In our considered opinion theobject of the VAT Act is to increase State’s revenue. It is always opento the rule making agency to explore all possibilities within thepermissible limits to do so. If the power is conferred on the agency todisentitle any ‘such purchase of goods’ from claiming i.t.c. it has to beupheld. Thus Rule 20(2)(h) of the VAT Rules which disqualifiesnatural gas, naphta and coal from claiming i.t.c. is valid and does notsuffer from any defect of being ultra vires.

(ii) Infringement of the Article 14 of Constitution of India The three aspects here are (a) Whether the impugned Rule isarbitrary and unreasonable; (b) Whether it is discriminatory; and (c)Whether retrospective operation is unconstitutional.

(a) Whether the impugned Rule is unreasonable

The test is not whether it is not reasonable but whether it ismanifestly arbitrary. It may be noticed that any challenge on theground of competency and jurisdiction calls for primary reviewwhereas the challenge on the ground of arbitrariness, irrationality andunreasonableness calls for secondary review. The latter has its ownlimitations. What is reasonable to one person in one context might beunreasonable for another. If the agency was expressed a reasonablepolicy of including or excluding a particular thing from the tax net, theCourt cannot substitute its opinion merely because the Court feels thatit is unreasonable. The question in such a situation is whether theplenary legislation intended that the delegate should not grant any taxbenefit or should not include such goods in the tax ambit.

In this regard a reference need to be made to the following oft quoted passage from Shrilekha Vidyarthi v State of U.P.[[34]]inwhich the meaning and true import of arbitrariness was considered asfollows.

The meaning and true import of arbitrariness is moreeasily visualized than precisely stated or defined. Thequestion, whether an impugned act is arbitrary or not, isultimately to be answered on the facts and in thecircumstances of a given case. An obvious test to apply is tosee whether there is any discernible principle emerging fromthe impugned act and if so, does it satisfy the test ofreasonableness. Where a mode is prescribed for doing an actand there is no impediment in following that procedure,performance of the act otherwise and in a manner which doesnot disclose any discernible principle which is reasonable,may itself attract the vice of arbitrariness. Every State actionmust be informed by reason and it follows that an actuninformed by reason, is arbitrary. Rule of law contemplatesgovernance by laws and not by humour, whims or caprices ofthe men to whom the governance is entrusted for the timebeing. It is trite that ‘be you ever so high, the laws are aboveyou’. This is what men in power must remember, always.

Shrilekha Vidyarthi refers to the following observations from thedecision of the Constitution Bench in S.G. Jaisinghani v Union of India[[35]]wherein it was held that every decision taken without anyprinciple would violate the equal protection clause.

Inthis context it is important to emphasize that theabsence of arbitrary power is the first essential of the rule oflaw upon which our whole constitutional system is based. In asystem governed by rule of law, discretion, when conferredupon executive authorities, must be confined within clearlydefined limits. The rule of law from this point of view meansthat decisions should be made by the application of knownprinciples and rules and, in general, such decisions should bepredictable and the citizen should now where he is. If adecision is taken without any principle or without any rule it isunpredictable and such a decision is the antithesis of a decision taken in accordance with the Rule of law.

The petitioners vehemently contend that the impugned provisionis without any rational basis and without any sustainable principle. The counter affidavit, filed on behalf of the Government of AndhraPradesh, to say the least, is silent on this aspect. The SpecialCounsel, however, submits that the purpose of amending the rule wasto prevent huge loss of revenue by disallowing i.t.c. on naphtha,natural gas and coal. He has placed before this Court the relevantfiles containing correspondence between the Commissioner and theGovernment.

The Government of Andhra Pradesh issued G.O.Ms. No.485,dated 20.7.2004, constituting a three member Cabinet sub committeeof Group of Ministers (GoM). They were required to meet from time totime to resolve various VAT issues. After coming into force of the VATAct with effect from 01.4.2005, the committee regularly met anddecided various amendments to the VAT Rules. The Commissionersent proposals vide his letter dated 21.9.2005 to the Government foramendment of the VAT Act and the VAT Rules. In his letter he refersto the proposals agreed to by the Review committee chaired by theHon’ble Chief Minister on 08.5.2005. Inter alia these proposals alsorelated to denying i.t.c. on the purchases of coal, naphtha and naturalgas irrespective of usage. A month thereafter the Commissioner againsent a D.O. letter dated 22.10.2005 to the Special Chief Secretary(Revenue) requesting for early convening of the GoM meeting. In theagenda for the said meeting dealing with the aspect of the inclusion ofcoal, naphtha and natural gas in the negative list, the Commissionerclearly mentioned that these items attract rate of tax at 12.5% and theamount of tax paid will have to be given back in the form of i.t.c. to thepurchasing dealers. This results in huge loss of revenue and henceproposal was muted for inclusion of these commodities in the negativelist. The proposal was approved by the GoM in its meeting held on14.11.2005. To our mind the involvement of huge revenue was thereason for amending Rule 20(2)(h) of the VAT Rules. Is it not sufficientenough to dispel the argument that it is manifestly arbitrary andirrational?

In Assistant Commissioner v Buckingham & Carnatic Co.

Ltd.[[36]], the Constitution Bench of Supreme Court considered theconstitutional validity of the Madras Urban Land Tax Act, 1966. Theappeal arose out of the Full Bench decision of the Madras High Courtwhich, by a majority of 4 : 1, struck down Section 6 of the said Act. Thesaid Section provided that, for the purposes of the Act, the marketvalue of any urban land shall be estimated to the price, which in the opinion of the Assistant Commissioner or Tribunal, such urban landwould fetch if sold in the open market. Before the Supreme Court, twoquestions arose, namely, the competence of the Madras legislature,and the reasonableness of the law impugned therein. Both thegrounds were decided against the assessee relying on the decision inRai Ramakrishna v State of Bihar[[37]]. Dealing with reasonablenessof the law, the unanimous Bench indicated the test as extractedhereunder.

It is not possible to put the test of reasonableness into thestraight jacket of a narrow formula. The objects to be taxed,the quantum of tax to be levied, the conditions subject towhich it is levied and the social and economic policies which atax is designed to subserve are all matters of politicalcharacter and these matters have been entrusted to theLegislature and not to the Courts. In applying the test ofreasonableness it is also essential to notice that the power oftaxation is generally regarded as an essential attribute ofsovereignty and constitutional provisions relating to the powerof taxation are regarded not as grant of power but as limitationupon the power which would otherwise be practically withoutlimit. … … As a general rule it may be said that so long asa tax retains its character as a tax and is not confiscatoryor extortionate, the reasonableness of the tax cannot bequestioned.

The law is thus well settled that, as long as taxing power isexercised within the legislative competence, the sovereign right toraise revenue by taxation is to be accepted. The quantum of taxlevied, the condition subject to which it is levied, and the manner inwhich it is sought to be recovered are all matters within thecompetence. If the taxing statute is plainly discriminatory, devoid ofany machinery for assessment or the tax is confiscatory, it is possibleto strike down a taxing statute as unconstitutional. But for doing sothere should be “palpable arbitrariness” (Kerala Hotel andRestaurant Assn. v State of Kerala[[38]]).

We have referred to the events preceding the impugnedamended Rule. There is no denial that as per Section 4(3) of the VATAct, naphtha and natural gas stand included in Schedule V to the VATAct, which are taxable at the standard rate of 12.5%. This indicatesthat all the dealers who are engaged in the manufacture of variousproducts like cement, fertilizers etc., buy these goods paying VAT at12.5% except coal (which attracts VAT of 4%). If they are allowed toclaim i.t.c., virtually there would not be any VAT on the purchase ofthese goods. Resultantly there would be huge loss of revenue to theGovernment. Schedule V is incorporated in the VAT Act to deal withsuch of those goods attracting VAT at 12.5% and, if i.t.c. is allowed even in respect of such goods, it would make them zero rates goods. Before we part with this aspect, we may quote the passage froman unreported judgment in M/s.MAKS Casting Private Limited vGovernment of Andhra Pradesh (W.P.No.12804 of 2009 and batch,dated 16.9.2010) which upheld the validity of Rule 67 of VAT Rules. Dealing with the question of reasonableness, the Division Benchconsisting of one of us (Ramesh Ranganathan, J) made the followingobservations.

The lack of perfection in a legislative measure does notnecessarily imply its unconstitutionality. In such a complexarena, in which no perfect alternatives exist, the Court doeswell not to impose too rigorous a standard of criticism, underthe equal protection clause, reviewing fiscal provisions. Thelaw of taxation is, in the ultimate analysis, the result of thebalancing of several complex considerations, and it would beunreasonable to insist upon the application of a general rule. In the field of taxation, if the test of Article 14 is satisfied bygenerality of the provisions, Courts would not substitutejudicial wisdom for that of the legislature.Classification fortaxation, and the application of Article 14 in that context, mustbe viewed liberally, not meticulously. In tax cases, there aregood reasons for judicial self-restraint if not official deferenceto legislative judgment. The complexity of economicregulation, the uncertainty, and the bewildering conflict ofexpert opinion, would show that self-limitation is the path tojudicial wisdom. In view of the inherent complexity of fiscaladjustments, Courts give a larger discretion to the legislaturein these matters and effectuate the chosen system in allpossible and reasonable ways. If two or more methods ofadjustment are available, the legislative preference in favourof one of them cannot be questioned on the ground of lack oflegislative wisdom or that the method adopted is not the bestor that there are better ways of adjusting the competinginterests and claims. The legislature possesses the greatestfreedom in such areas. The test applicable for striking down ataxing provision is one of “palpable arbitrariness” applied inthe context of the felt needs of the times and societalexigencies informed by experience’.

Therefore, in our considered opinion, it is not unreasonable toinclude coal, naphtha and natural gas in the negative list. The plea ofunreasonableness, applying the tests in Rai Ramakrishna andBuckingham and Carnatic Co. Ltd., is unacceptable.

(b) Whether the impugned Rule is discriminatory Rule 20(2)(h) of the VAT Rules for the purpose of denying i.t.c.classified purchases of goods into two categories. First, wherenaphtha, natural gas and coal are used by non-traders who use the goods for manufacturing, and the second category are those trader-dealers who only deal in these goods for their business. This, asurged by petitioners, is vitiated and hit by Article 14. There cannot beany dispute that a dealer who is in the business of dealing in thesegoods is entitled to claim i.t.c. But manufacturers like the petitionerscannot claim i.t.c. For the purpose of i.t.c., the legislature resorted toclassification of goods which are eligible for claiming i.t.c, and thegoods which are not eligible for i.t.c. Even among them, the goodsused by a non-trader in the business of manufacturing are not eligiblewhereas a trader who is dealing in non-manufacturing business iseligible to claim i.t.c. The petitioners point out that Section 13(4) of theVAT Act empowers to prescribe “purchase of such taxable goods”which is not entitled for i.t.c. As the manufacturers as well as dealershave purchased these goods by paying VAT there cannot bediscrimination between the two categories. The point is whetherclassification of dealers into traders and non-traders for the purpose ofRule 20(2)(h) of the VAT Rules offends the equality clause?

As of now, as noticed supra, there are seventeen items/goods inclauses (a) to (q) of Rule 20(2) of the VAT Rules. Clauses (a), (c), (h),(i), (j) and (k) make the distinction between traders and non-traders. Inthese classes, the purchases made by the dealers are eligible for i.t.c.whereas the purchases made by non-traders are not eligible. But Rule20(2) of the VAT Rules itself makes it clear that when the goodsmentioned in clauses (a) to (q) are sold subsequently without availingi.t.c., no tax shall be levied and recovered from a VAT dealer who hasbeen denied i.t.c. at the time of purchase. If the trader or non-tradercategory dealers sell the goods subsequently, they need not payoutput tax on the goods on which they were denied i.t.c. This bringsout the rationale in classifying the traders and non-traders. Traderswho buy the goods mentioned in Rule 20(2)(a) to (q) of the VAT Rulesand sell the goods as such. The non-traders, on the other hand, buythese goods and use them as raw material or fuel in producingdifferent products with considerable value addition.

It is permissible for the sovereign – especially in taxing statutes –to classify goods and persons for the purposes of levying andcollecting different rates of tax in respect of different taxable events. The Sovereign power to tax, extends to choosing things and personshaving regard to need based innumerable situations. The personchallenging any such classification, as violating the equality clause orthe equal protection clause, has to discharge the initial burden. Theonus then shifts to the State to sustain the classification. Assumingthat the challenger discharges the burden satisfactorily the Court mayface two distinct situations.

A classification may suffer from the defect of under-inclusion orover-inclusion. If a group of people are classified as one category forthe purpose of denying, or for the purpose of conferring, benefit thepeople who are left out of the category can always complain that theyhave been discriminated. It is a case of under-inclusion because thebenefits or burdens go to some persons denying others. In the secondsituation, while burdening a group of people, other dissimilar peopleare also included. It is a case of over-inclusion. The Courts interfereand strike down the offending part when it is the case of over-inclusion. But, ordinarily, the Courts seldom touch cases of under-inclusion; the principle being that the legislature is free to recognizethe degree of harm, and that it may confine benefits or burdens tothose classes of cases where the need seem to be the clearest. If theCourt comes to conclusion that, by reason of under-inclusion, eligibleclass is left out, no direction can be given to include that category. Weare well supported by precedents on this.

In Sakhawant Ali v State of Orissa[[39]], Section 16(1)(ix) of theOrissa Municipalities Act disqualified the advocate for the municipalityfrom contesting election to a seat in the municipality. This provisionwas upheld by the apex Court holding:

The simple answer to this contention is that legislationenacted for the achievement of a particular object or purposeneed not be all embracing. It is for the Legislature to determinewhat categories it would embrace within the scope oflegislation and merely because certain categories whichwould stand on the same footing as those which are coveredby the legislation are left out would not render legislation whichhas been enacted in any manner discriminatory and violativeof the fundamental right guaranteed by Article 14 of theConstitution.

In B.R Kapur v State of T.N.[[40]], a submission was made thatSub-section (4) of Section 8 of the Representation of Peoples Act,1951 requires reading down so as to apply the same to a non-Legislator and to render the same constitutionally valid. Section 8(4) ofthe Representation of Peoples Act, 1951 lays down that thedisqualification under Section 8(3) thereof shall in the case of electedMember of Parliament or Legislature of a State, shall not take intoeffect until a final Court has confirmed the conviction and sentence.The submission was rejected by a Constitution Bench. It is apposite torefer to the observations made by the Supreme Court:

Section 8 (4) opens with the words "notwithstandinganything in Sub-section (1), Sub-section (2) or Sub-section(3)", and it applies only to sitting members of Legislatures.There is no challenge to it on the basis that it violatives Article

14. If there were, it might be tenable to contend thatLegislators stand in a class apart from non-Legislators, but weneed to express no final opinion. In any case, if it were foundto be violative of Article 14, it would be struck down in itsentirety. There would be, and is no question of so reading itthat its provisions apply to all, Legislators and non-Legislators,and that, therefore, in all cases the disqualification must awaitaffirmation of the conviction and sentence by a final Court.That would be "reading up" the provision, not "reading down",and that is not known to the law.

Any tax administration cannot be efficiently run without therebeing a proper classification of persons, things and rates of taxes. Itdoes not, however, mean that a taxing law can escape the rigour ofArticle 14 of the Constitution. I n East India Tobacco Company v State of Andhra Pradesh[[41]], it was argued that the classification ofVirginia tobacco and country tobacco by itself was not sufficient forjustifying a classification for the purpose of sales tax. The argumentwas rejected by the Supreme Court observing that, “the State canvalidly pick and choose one commodity for taxation and that is notopen to attack under Article 14.” It was also held that the distinctionbetween Virginia tobacco and country tobacco was also taken ascrucial in holding that the classification is not obnoxious to Article 14 ofthe Constitution. The relevant observations are as follows.

It is not in dispute that taxation laws must also pass thetest of Article 14. That has been laid down recently by thisCourt in Kunnathat Thathunni Moopil Nair v. State of Kerala,AIR 1961 SC 552. But in deciding whether a taxation law isdiscriminatory or not it is necessary to bear in mind that theState has a wide discretion in selecting the persons or objectsit will tax, and that a statute is not open to attack on the groundthat it taxes some persons or objects and not others. It is onlywhen within the range of its selection, the law operatesunequally, and that cannot be justified on the basis of anyvalid classification, that it would be violative of Article 14. Thefollowing statement of the law in Willis on “Constitutional Law”p.587, would correctly represent the position with reference totaxing statutes under our Constitution:

“A State does not have to tax everything in order to taxsomething. It is allowed to pick and choose districts, objects,persons, methods and even rates for taxation if it does soreasonably.... The Supreme Court has been practical and haspermitted a very wide latitudein classification for taxation.”

In Hiralal, levy of sales tax on dal splits or processed food grainswas challenged as discriminatory. The argument was that the Statecannot classify dal into independent commodity of split and unsplitpulses or processed or unprocessed pulses both being same. Thiswas rejected by a Constitution Bench observing that the classificationwhich is based on, “the use to which those goods can be put” is areasonable classification.

In Kerala Hotel the issue was whether levy of sales tax underthe Kerala Act on cooked food served in luxury hotels, whileexempting the food served in modest eating houses, was areasonable classification. Approving the classification, the Supreme Court observed as follows.

We are here concerned with the constitutional validity of alegislative provision which has the effect of making thecooked food sold in the posh eating houses alone eligible tosales tax while exempting from that levy the cooked food soldin the moderate eating houses. Reasonableness of theclassification has to be decided with reference to the realitiesof life and not in the abstract. A discernible dissimilaritybetween those grouped together and those excluded is apragmatic test, if there be a rational nexus of such classificationwith the object to be achieved. In the abstract all cooked foodmay be the same since its efficacy is to appease the hungerof the consumer. But when the object is to raise only limitedrevenue by taxing only some category of cooked food sold ineating houses and not all cooked food sold anywhere, it isundoubtedly reasonable to tax only the more costly cookedfood. The taxed cooked food being the more costly varietyconstitutes a distinct class with a discernible difference fromthe remaining tax free cooked food. A blinkered perception ofstark reality alone can equate caviar served with champagnein a luxury hotel with the gruel and buttermilk in a villagehamlet on the unrealistic abstract hypothesis that both themeals have the equal efficacy to appease the hunger andquench the thirst of the consumer. Validity of a classificationunder our Constitution does not require such a blurredperception.

Traders and non-traders do not stand on the same footing whenit comes to use of the goods referred to in the impugned Rule. Out ofthe 53cases before us, in 49 cases coal is used as a raw material andit is not sold as such. The traders in coal again sell the entire quantitywith little or no value addition whereas non traders sell the productslike cement, fertilizers etc., with considerable value addition. As seenfrom the precedents “the purpose or the use to which goods are put to”can be basis for a valid classification. As we already noticed supra,the object of denying i.t.c. on these goods is to increase the revenue. Thus the twin tests of classification, namely, nexus test and rationalitytest are satisfied. We have, therefore, no manner of doubt in rejectingthe submission that the impugned Rule is discriminatory. As it is acase of under inclusion we cannot give direction to include thepetitioners and the likes in the exempted category.

The alternative submission that all the petitioners should betreated as dealers as they also have been engaged in the continuedand continuing activity of buying these goods, does not merit anyconsideration. Section 2(10) of the VAT Act defines ‘dealer’ to mean

any person who carries on the business of buying, selling, supplyingor distributing goods or carries on any works contract involving supplyor use of material. Section 2(6) of the VAT Act defines ‘business’ toinclude any trade, commerce and manufacture carried on with amotive to make gain or profit. Therefore dealers, for the purpose ofVAT, are of two kinds: those who merely engage in buying and sellingand those dealers who buy goods and manufacture them into othergoods. For the purpose of VAT both are similarly situated but there isa considerable difference between trader and non-trader business. Itis nobody’s case that in these cases these non trader dealers aredenied i.t.c. on all the goods which they use as raw material inmanufacturing goods. The admitted case is that they are denied i.t.c.only on one of the raw materials used in the manufacture of cement,burnt lime, fertilizers or drugs as the case may be. This is thedistinguishing feature which has to be kept in mind while consideringthe effect of Rule 20(2)(h) of the VAT Rules.

I n Nandanam Construction Company v Assistant Commissioner[[42]]Section 6A of the APGST Act was assailed asviolating Article 14 of Constitution. Section 6A made a distinctionbetween a registered dealer and an unregistered dealer while levyingtax on the purchase of certain goods. The petitioners, who wereconstruction companies buying materials like sand, bricks, granite andmetal from unregistered dealers or non-dealers, were levied tax on theturnover of these goods bought from unregistered dealers. Theargument was that, as they sell the flats they cannot be treated as‘dealers’ within the meaning of the APGST Act. The submission wasrejected on the reasoning that, “a person who purchases goods in thecourse of his business is as much a dealer as a person who sells thegoods or distributes the goods and that even though the petitionersengage in the business of constructing and selling flats as theypurchase goods like sand, gravel etc., in the course of the business,they are the dealers”. But the writ petitions were allowed by theDivision Bench on the ground that in the absence of consumption ofthe original goods, the petitioners are not liable to pay the tax.

The appeal by the State (as reported in Asst. Commissioner v Nandanam Construction Company[[43]]), however, was accepted bya Constitution Bench of the Supreme Court observing that theintention of the legislature is to bring to purchase tax in either event ofconsumption of goods in the manufacture of goods for sale orconsumption of goods in any other manner and that once the goodsare utilized in the construction of buildings, the goods ceased to existor cease to be available in that form for such sale or purchase so as to attract the tax and, therefore, the correct meaning to be attributed to thesaid provision would be that tax will be attracted when such goods areconsumed in the manufacture of other goods or are consumedotherwise. After perusing the decision of this Court as well as thedecision of the Supreme Court, we are not able to countenance thepetitioners’ plea that they are dealers in the sense in which the term isused in Rule 20(2)(h) of VAT Rules. As is pointed out by the Act itselfthere is a clear dissimilarity between traders and non-traders althoughthey are dealers for the purpose of the VAT Act.

(c) Whether retrospectivity is unreasonable and arbitrary?

VAT Act came into force with effect from 01.04.2005. TheGovernment of Andhra Pradesh promulgated VAT Rules underSection 78 vide notification in G.O.Ms.No.394, dated 31.03.2005.Indeed, as per Rule 2(i), Rules 1, 2(i) and 3 to 11 are deemed to havecome into force with effect from 31.1.2005 and all others from01.4.2005. As originally made, Rule 20(2) consisted of eleven items inclauses (a) to (k) of sub-rule (2) of Rule 20 of VAT Rules. Except whennatural gas and coal was used for power generation, all trader andnon-trader dealers buying natural gas, naphtha and coal were eligibleto claim i.t.c. The Government of Andhra Pradesh issuedG.O.Ms.No.2201, dated 29.12.2005 amending Rule 20(2)(h) of theVAT Rules, the effect of which is except a trader dealer, all others aredenied i.t.c. on these three goods. This has been given retrospectiveeffect from 01.04.2005. By reason of this, demands have been raisedfrom the petitioners to pay the re-assessed VAT without providing fori.t.c. from April to December, 2005. Is this amendment, givingretrospective effect which is assailed, inequitable and arbitrary?

The source of legislative power to levy tax, it is well settled,includes the power to legislate retrospectively, subject however to theconstitutional restrictions. If a legislature can make a valid lawimposing tax, it can always provide for its retrospective operation. But,unless and until it is expressly provided for, the delegated authoritycannot make rules retrospectively. There is no dispute that Section78(3) of the VAT Act specifically empowers the Government to makeany rule so as to have retrospective effect. Relying on precedents,counsel for petitioners submit that the rule with retrospective effect iswithout reasons, inequitable and arbitrary.

In Eicher Motors Limited v Union of India[[44]], the issue wasthe vires of Rule 57F (4A) of the Central Excise Rules, 1944, underwhich MODVAT credit lying unutilized on 16.03.1995 with themanufacturers, stood lapsed. The plea was that MODVAT credit was avested right accrued or acquired by the assessee under the existing law and, therefore, the Central Government lacks power to take awaythe vested right. The submission was accepted by the Supreme Courtobserving thus:

As pointed out by us that when on the strength of VATRules available, certain acts have been done by the partiesconcerned, incidents following thereto must take place inaccordance with the Scheme under which the duty had beenpaid on the manufactured products and if such a situation issought to be altered, necessarily it follows that the right, whichhad accrued to a party such as the availability of a scheme, isaffected and, in particular, it loses sight of the fact that theprovision for facility of credit is as good as tax paid till tax isadjusted on future goods on the basis of the severalcommitments which would have been made by theassessees concerned. Therefore, the Scheme sought to beintroduced cannot be made applicable to the goods which hadalready come into existence in respect of which the earlierScheme was applied under which the assessees had availedof the credit facility for payment of taxes. It is on the basis ofthe earlier Scheme necessarily that the taxes have to beadjusted and payment made complete. Any manner or modeof application of the said Rule would result in affecting the rightsof the assessees. … We may look at the matter from anotherangle. If on the inputs, the assessee had already paid the taxeson the basis that when the goods are utilised in the manufactureof further products as inputs thereto then the tax on these goodsgets adjusted which are finished subsequently. Thus a rightaccrued to the assessee on the date when they paid the tax onthe raw materials or the inputs and that right would continueuntil the facility available thereto gets worked out or until thosegoods existed. Therefore, it becomes clear that Section 37 ofthe Act does not enable the authorities concerned to make arule which is impugned herein and, therefore, we may have nohesitation to hold that the Rule cannot be applied to the goodsmanufactured prior to 16-03-1995 on which duty had beenpaid and credit facility thereto has been availed of for thepurpose of manufacture of further goods.

In Tata Motors v State of Maharashtra[[45]], the Supreme Courtfound fault with retrospective withdrawal of the benefit of drawback andset off for a specified period by reason of an amendment to the ruleobserving as under.

Assuming that it was the legislative policy not to grantset-off in respect of waste or scrap material generated, itbecomes difficult to appreciate the stand of the State in the lightof the fact that the original rule continued to be in operation (withcertain modifications) subsequent to 1-4-1988. The reason forwithdrawal of the benefit retrospectively for a limited period isnot forthcoming. It is no doubt true that the State has enormouspowers in the matter of legislation and in enacting fiscal laws.Great leverage is allowed in the matter of taxation laws becauseseveral fiscal adjustments have to be made by the Governmentdepending upon the needs of the Revenue and the economiccircumstances prevailing in the State. Even so an action taken bythe State cannot be so irrational and so arbitrary so as tointroduce one set of rules for one period and another set of rulesfor another period by amending the laws in such a manner as towithdraw the benefit that had been given earlier resulting in higherburdens so far as the assessee is concerned, without any reason.

Retrospective withdrawal of the benefit of set-off only for aparticular period should be justified on some tangible andrational ground, when challenged on the ground ofunconstitutionality. Unfortunately, the State could not succeedin doing so.

The petitioners all along for a period of nine months availed i.t.c.,on the coal, naphtha and natural gas. In the absence of any denial, areasonable inference can be drawn that, while working out theirproduction and marketing costs, the tax credit availed by them was afactor. All the goods manufactured have been sold and there is noopportunity now for the petitioners to collect the increased cost byreason of non-availability of i.t.c. We have perused the files producedbefore us. No reasons whatsoever are forthcoming as to why theGovernment sought to amend the rule retrospectively. In the absenceof any such reasons, much less strong reasons, we have no hesitationto hold that giving retrospectivity to the impugned rule would certainlybe inequitable and arbitrary. To that limited extent, we are persuadedto accept the petitioners’ plea.

VALIDITY OF THE IMPUGNED ASSESSMENT ORDERS

In all the writ petitions, besides impugning Section 13(4) of theVAT Act and 20(2)(h) of the VAT Rules, the assessment orders for theperiod from April, 2005 to December, 2005 and subsequent thereto arealso challenged. There are effective, efficacious and speedyalternative remedies available under the Statute. The petitioners havenot availed these remedies. This is condonable as the provision of theAct and Rule have been challenged. These issues would not havebeen decided by the appellate authorities or statutory tribunals. Theassessment orders are challenged mainly on the ground that theywere passed without issuing notice and without giving opportunity ofbeing heard.

The Act requires every VAT dealer to file Tax return in Form VAT200 for every calendar month within twenty days after the end of thecalendar month. As per Section 20(2), such return shall be accepted asself assessment subject to correction of any arithmetical error. But, anassessing authority may assess to the best of his judgment within fouryears of the due date of return if he is not satisfied with the selfassessment. Thereafter, re-assessment can be taken up by therevisional authority within a period of four years. It is nobody’s case thatin any of these cases assessment as contemplated under Section 21(3)was completed. The admitted case is that all the petitioners filed self-assessment VAT returns. Therefore, till expiry of the period contemplated under Section 21(3), no VAT dealer can have a grudge ifassessment is taken up thereunder. We have come to the conclusionthat the retrospective denial of i.t.c. to the petitioners in respect of VATreturns for nine months is unsustainable and, therefore, all theseassessment orders must go. If so advised the assessing officers maynow take up the assessment after issuing notice and after affording anopportunity of being heard if requested. In the view taken, we are notinclined to consider the validity of the assessment orders in these writpetitions.

Conclusions

In the result, we dispose of the writ petitions declaring anddirecting that

(i) the impugned Section 13(4) of the Andhra Pradesh ValueAdded Tax Act, 2005 does not suffer from the vice of excessivedelegation;

(ii) the Rule 20(2)(h) of the Andhra Pradesh Value Added TaxRules, 2005 is valid with effect from the date it is notified i.e.,31.12.2005;

(iii) all the assessment orders be and hereby are set aside andstand remitted to the respective authorities to take action in accordancewith this judgment and order; and

(iv) there shall be no order as to costs.

_______________

(V.V.S. RAO, J)

______________________________

(RAMESH RANGANATHAN, J)

December , 2010

NOTE:L.R. Copy be marked.(By order)YS

[1](2005) 41 APSTJ 45

[2](2006) 3 SCC 1 : AIR 2006 SC 1383(2006) 3 SCC 1 : AIR 2006 SC 1383

[3]M/s.M.Govinda Rao and R.Kavita Rao[4]pp.55 – 122 at p.77[5]AIR 1940 PC 124[6](1981) 4 SCC 578 : AIR 1981 SC 1887 : (1981) 48 STC 466 (SC)[7]‘Prescribed’ means prescribed by VAT Rules made under the Act (Section 2(24))[8](1999) 3 SCC 346 : AIR 1999 SC 1275[9](2004) 10 SCC 201 (para 106)[10]AIR 1967 SC 1066 : (1967) 19 STC 1[11](1975) 4 SCC 22 : AIR 1975 SC 1039 : (1975) 35 STC 513[12](2003) 8 SCC 413 (para 44) : AIR 2003 SC 3397[13](2004) 11 SCC 497 (para 19) : AIR 2004 SC 5080[14](2003) 11 SCC 699 : AIR 2003 SC 4156[15]AIR 1961 SC 751[16](1981) 2 SCC 205 : AIR 1981 SC 711[17]AIR 1958 SC 909 : (1958) 9 STC 388 (SC)[18](1925) 10 AC 282[19](1928) 276 US 394; 72 L. Ed. 624[20]AIR 1968 SC 1232[21](1972) 4 SCC 485 : AIR 1972 SC 1168 : (1972) 29 STC 206[22](1973) 1 SCC 216 : AIR 1973 SC 1034 : (1973) 31 STC 178[23](1985) 2 SCC 197 : AIR 1985 SC 421 : (1985) 152 ITR 308 (SC)[24](2007) 13 SCC 673 : (2008) 297 ITR 176[25]AIR 1959 SC 512[26]467 US 837 (1984)[27](1984) 4 SCC 27 : AIR 1984 SC 1543[28](1985) 1 SCC 641 : AIR 1986 SC 515[29](2000) 3 SCC 40 : AIR 2000 SC 1069[30](2006) 4 SCC 327 : AIR 2006 SC 3480[31](2009) 15 SCC 570 : AIR 2009 SC 3194[32](2002) 5 SCC 466 : AIR 2002 SC 2405[33](1981) 4 SCC 173 : AIR 1981 SC 1922 (para 17)[34](1991) 1 SCC 212 : AIR 1991 SC 537[35]AIR 1967 SC 1427[36](1969) 2 SCC 55 : AIR 1970 SC 169[37]AIR 1963 SC 1667[38](1990) 2 SCC 502 : AIR 1990 SC 913[39]AIR 1955 SC 166 : (1955) 1 SCR 1004,[40](2001) 7 SCC 231 : AIR 2001 SC 3435[41]AIR 1962 SC 1733 : (1962) 13 STC 529[42](1983) 53 STC 42 (AP)[43](1999) 8 SCC 69 : AIR 1999 SC 3496 : (1999) 115 STC 427[44](1999) 2 SCC 361: AIR 1999 SC 892[45](2004) 5 SCC 783 : AIR 2004 SC 3618 : (2004) 136 STC 1