The Madras High Court has quashed the notification issued by the Secretary to Government (Finance), Government of Puducherry invoking Section 31 of the Puducherry Value Added Tax Act, 2007 increasing the rate of tax payable in respect of Petrol and Diesel and fixing the same at 28% and 21.8% respectively.
Petrol and Diesel were covered initially under Entry No.2/PartA/5th Schedule under the head ‘List of goods taxable at the rate of 20% at the point of first sale’. These commodities were brought under Entries 2 and 3 of the 6th schedule under the head ‘List of goods taxable at the rate of 35% at the point of first sale’. In line with the provisions of Section 75(1) of the PVAT Act that grants power to the Government to alter the rate of tax by amendment to the schedules.
The schedule rate of tax for Petrol and Diesel was raised to 35% at the point of first sale. A Bill was introduced and passed in the Legislative Assembly to give effect to the amendments made to the Schedule.
The rates of tax upon Petrol and Diesel were reduced to 22.15% and 18.5% respectively. This amendment was made invoking Section 31 of the PVAT Act which confer powers on the Government to, by Notification, reduce the rate of tax on commodities covered by the PVAT Act.
The petitioner contended that the amendment made under G.O.Ms.No.24 dated 27.05.2020 constitutes an excess of power insofar as the provision invoked, Section 31, only provides for the reduction of the tax rate by notification and not an increase, which is what has been done in the present case.
The respondents argued that the impugned Notification pointing out that the rate of tax pegged under the Schedule was 35% for both commodities. Power under Section 31 can be invoked in any instance so far as the rate of tax stayed within the rate fixed under the Schedule and did not exceed the same.
It was further contended that the rate fixed under the impugned Notification was 28% (petrol) and 21.8% (diesel) which remains within the overall rate fixed under the Schedule, which is 35% and thus, there is no violation or error in law.
The single judge, Justice Anita Sumanth held that the amendment of schedules in the VAT enactments extracted, uniformly require that the notification for amendment once made, be placed before the House within the timeframes stipulated therein for deliberation and ratification.
“It was thus incumbent upon the respondents to have followed the proper procedure for amendment of schedules set out under Section 75 of the PVAT Act and the invocation of Section 31 in the above circumstances is contrary to law,” the bench concluded.
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