Supreme Court strikes down retrospective effect given to Amendment of Sub-section (20) of Section 19 of TNVAT Act [Read Judgment]

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In a recent Judgment of Jayam & Co. vs Assistant Commissioner and Anr, the division bench of Supreme Court has struck down retrospective effect given to Amendment of Sub-section(20) of Section 19 of the Tamil Nadu Value Added Tax Act.

The plea was filed by bunch of petitioners challenging the vires of newly inserted sub-section (20) of Section 19 of the TNVAT Act. The provision came into force on August 19th 2010, by the aforesaid amendment act, was given retrospective affect from January 01st, 2007.

The petitioners had argued that, this provision is confiscatory in nature as well as unreasonable and arbitrary and is therefore, violative of Article 14 and 19(1)(g) of the Constitution and repugnant to the general scheme of the charging provisions of Section 3(2) and 3(3) of the VAT Act.

The petitioners also contended that, retrospective operation of a provision depriving the assessee of the vested statutory right and covering a long period imposed a prime facie unreasonable restriction and was, therefore, unconstitutional.

The division bench comprising of Justice A K Sikri and Justice R F Nariman relied on a constitution bench Judgment Commissioner of Income Tax (Central) – I, New Delhi vs. Vatika Township Private Limited, parameters laid down by this Court in testing validity of retrospective operation of fiscal laws.

The division bench found that, the amendment in question fails to meet the tests prescribed in the above said Judgment.

The Court also observed that, it is incorrect that, the High Court has primarily gone by the facts that there was no unforseen or unforeseeable financial burden imposed for the past period.

“Moreover, as can be seen, sub-section (20) of Section 19 is altogether new provision introduced for determining the input tax in specified situation i.e., where goods are sold at a lesser price than the purchase price of goods”.

While upholding the vires of Sub-section (20) of Section 19 of the Tamil Nadu Value Added Tax, the court also observed that, Sub-Section (20) of Section 19 is clearly a provision which is made for the first time to the detriment of the dealers. Such provision, therefore, cannot have retrospective effect, more so, when vested right has accrued in favour of these dealers in respect of purchases and sales made between Janaury 1, 2007 to August 19, 2010.

Read the full text of the Judgment below.

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