V. Gopala Gowda, C.J.@mdashThis batch of writ petitions have been filed by the registered dealers urging common facts and grounds praying to grant certain reliefs which will be extracted in the later part of the judgment. By consent of learned Counsel for parties, we have heard these matters together and pass the common order.
2. Certain relevant facts are stated for the purpose of examining the rival legal contentions urged in these writ petitions with a view to find out as to whether the petitioners are entitled for the reliefs sought for by them. They have prayed to hold that the conferment of power upon the State Government u/s 94 of the Orissa Value Added Tax Act, 2004 (hereinafter called as �the OVAT Act�) be declared as excessive, unfettered and, therefore, unconstitutional and ultravires. A further prayer has been made seeking for a declaration that Sub-Rule (3) of Rule 11 of the OVAT Rules is ultra vires the provision of Section 20 of the OVAT Act read with the definition of "input tax" and "input tax credit" as defined in Sub-sections (26) and (27) of Section 2 of the Act. The petitioners have further sought for an injunctive order against opposite party Nos. 1 and 2 and their officers restraining them not to enforce collection of tax in terms of Sub-rule (3) of Rule 11 of OVAT Rules and statutory prescription in column No. 21(II) in VAT Form 201 and Annexure-II to VAT Form 201 urging various facts and legal contentions.
3. The petitioners are all registered dealers under the OVAT Act. They have been allotted with Tax Identification Numbers and they are submitting their returns in compliance with the provisions of the OVAT Act and the Rules. All the petitioners are claiming input tax credit facility in conformity with the provisions of Section 20 of the OVAT Act. They purchase the required raw materials, consumables and other allied items required for their business activities both from inside as well as outside the State and while they sell some of the manufactured goods inside the State, most of their sales are made on inter-State basis. Raw materials, consumables and other allied materials including names of finished products are specified in the registration certificates issued under the OVAT Act. It is their case that they charge tax at 2% on inter-State sales effected by them subject to submission of Central Sales Tax declaration forms submitted by the buyer. This is done in compliance with the tax rate notified by the opposite party No. 2 in terms of Section 8(5) of the Central Sales Tax Act, 1956 as the said provisions empowers the opposite party No. 2 to issue notification in the public interest prescribing certain conditions. The registered dealers charge the tax on their sales bills and pay the balance tax after making proper calculation as provided under the OVAT Act. It is stated that the OVAT Act, 2004 was brought into operation with effect from 1.4.2005 and since then they have been submitting returns and making claims in accordance with the provisions of the OVAT Act. The State Legislature amended the provisions of the law by inserting proviso (d) to Sub-section (3) of Section 20 of the OVAT Act with effect from 1.6.2008.
4. It is the case of the petitioners that input tax credit is to be regulated and determined under the provisions of Section 20 of the Act. A bare reading of Section 20 of the OVAT Act would reveal that "input tax credit" is to be computed in accordance with the provisions. The opening sentence of Section 20 states "subject to other provisions of this Act" and mandates about the method of calculation of payment of net input tax credit and further it mandates that the determination of the input tax credit is to be made in accordance with the provisions as laid down in the said section, in respect of all sales or purchases taxable under the OVAT Act, other than sales or purchases of goods specified in Schedule B and Schedule C. It is the further case of the petitioners that Sub-section (2) of Section 20 envisages that input tax credit to which registered dealers are entitled under Sub-section (1) shall be the amount of tax payable by a registered dealer for any tax period, an input tax paid by the registered dealer to the seller on his turnover of purchase of goods during the tax period, calculated, subject to the provisions contained in Sub-sections (3), (4) and (5) in such manner as may be prescribed. It is further stated that a bare reading of Section 20 would reveal about the method of calculation for entitlement of input tax credit. Rule 11 is the statutory prescription framed by opposite party No. 2 which speaks about the calculation of input tax credit. The Sub-rule (3) has been inserted to the Rules by way of amendment which came into force with effect from 25.2.2009 through the OVAT (Amendment) Rules, 2009. It is further stated that a careful reading of the proviso (d) of Sub-section (3) of Section 20 would reveal that "input tax credit" on purchases when sold in course of inter-State trade and commerce shall be allowed only to the extent of the Central Sales Tax payable under the Central Sales Tax Act, 1956. It is their further case that the said proviso is attracted for input tax credit for purchase when sold in inter-State trade and commerce. In other words, the said provision is applicable to the registered dealers only when there is resale of their goods. "Resale" has been defined u/s 2(4) of the OVAT Act which means a sale of goods in the same form in which they were purchased. Framing of the rules by the State Government is to carry out the purposes specified in the proviso (d) appended to Sub-section (3) of Section 20 of the OVAT Act. It is stated that a plain reading of the provisions contained in Sub-rule (3) of Rule 11 would go to establish that the said provisions are applicable for resale or trading purposes. In other words, the provisions contained in Sub-rule (3) of rule 11 is not applicable to the manufacturing units.
5. From a plain reading of proviso (d) of Sub-section (3) of Section 20, it is evident that input tax credit on purchases when sold in course of inter-State trade and commerce shall be allowed only to the extent of Central Sales Tax payable under the Central Sales Tax Act. A bare reading of the provisions envisaged in Clauses (a) to (f) of Sub-rule (3) of Rule 11 of the Rules would reveal that creditable input tax shall be calculated limiting to the extent of CST payment where the dealer effects sale of goods in course of inter-State trade and commerce. Clause (b) of Sub-rule (3) of Rule 11 prescribes that if the sale is made which falls under Clause (a), the registered dealer making such sale, shall furnish the particulars of sales corresponding purchase of goods made from registered dealer inside the State while submitting return under the Act. The said clause requires that where a dealer effects sales in the inter-State trade and commerce, he shall file the return and furnish the particulars of such sales and corresponding purchase of goods made from the registered dealer inside the State complying to the requirements as laid down in Annexure-II of Form VAT 201. Sub-clause (c) of Sub-rule (3) of Rule 11 provides that if the sale of the goods falls within the scope of Clause (a), results in CST payable less than the corresponding input tax on the corresponding purchase of goods, the input tax creditable for the tax period shall be reversed by the amount calculated in box provided in sl. No. 5 of Annexure-II in the return. The aforesaid Sub-clause (c) postulates that when the sales of goods falls under Clause (a), the registered dealer who has sold the goods during the tax period 1.6.2008 till the introduction of Sub-rule (3) shall be required to file the return disclosing the required information conforming to the requirements of Annexure-II-A of VAT 201. Clause (f) of Sub-rule (3) of Rule 11 enjoins that when the sale of goods falls under Clause (a) during the tax period 1.6.2008 to 27.2.2009 results in CST payable, less than the corresponding input tax on the corresponding purchase of goods, input tax creditable for the tax period shall be reversed by the amount as calculated in Annexure-II-A of Form VAT 201. It is stated that while framing Sub-Rule (3) of Rule 11 of the Rules, the State Government exceeded its power conferred upon it in framing the VAT Form 201. Opposite party No. 2 prescribed certain information and requirements which are contrary to the express provision laid down u/s 20(3) of OVAT Act. The opposite parties specified that the manufacturer of goods sold in inter-State trade and commerce is required to calculate the purchase value of those inputs as well as the input tax. In order to give effect to Form 201, opposite party No. 2 inserted a new column 21(ii) which mandates about the reduction of input tax credit in excess of the CST payable as per proviso (d) to Sub-section (3) of Section 20.
6. A combined reading of the provisions laid down under the proviso (d) to Sub-Section (3) of Section 20 leaves no manner of doubt that the benefits of the provision are available only for traders because the proviso and the rules clearly speak about the sale and purchase. Calculation of input tax credit for determination shall be made in terms of the proviso (d) of Sub-section (3) of Section 20 read with Rule 11(3) of the OVAT Rules, when the goods are purchased and sold in the course of inter-State trade and commerce. The same cannot be made applicable for the manufacturers which is not in consonance with the scheme of the Act. The sale made in course of inter-State trade and commerce falls under the scope of Section 8. Therefore, it is contended that the framing of the Rule 11(3)(b) and Form 201 Part-II of Column 21(ii) of VAT Form 201 while a manufacturer shall be liable to pay tax on the goods at the time of purchase and yet shall be entitled for adjustment as "input tax credit" only to the extent of the Central Sales Tax payable. Such limitation of credit is unauthorized, illegal and violative of Articles 14 and 265 of the Constitution. In the guise of exercise of power u/s 94 of the OVAT Act, framing of the rule is beyond the conferment of power in relation to matters provided u/s 94. Therefore, they have prayed to grant the reliefs sought for in the writ petitions.
7. Counter statement is filed in W.P. (C) No. 11772 of 2009. The same is adopted in all these petitions justifying the framing of the impugned rule and the Form traversing the petition averments contending that framing of the rule is in conformity with Section 94 of the OVAT Act. It is contended by them that the legal contentions urged in the writ petitions by the registered dealers is on account of misreading of the Section 20, 18 and also the definition provisions of �input tax� and �input tax credit� as given u/s 2(26) and 2(27) of OVAT Act. The framing of Sub-rule (3) of Rule 11 of the Rules is in conformity with the proviso (d) of Sub-section (3) of Section 20 of the Act as it has got application to all manufacturers. From a careful reading of Section 20(3) of the Act, it is clear that "input tax credit" shall be allowed for purchases made within the State from a registered dealer holding a valid certificate of registration in respect of goods intended for the purpose, inter alia, sale or resale by him in the State or use as inputs. The petitioners have stated in their petitions that they purchase goods which are used by them as "raw material/ inputs" for the purpose of manufacture of various goods related to iron and steel. The statute does not restrict claiming set off of input tax against output tax. The said input tax credit in respect of inter-state sale has been restricted up to the extent of CST payable under the CST Act.
8. It is further stated that Clause (a) of Sub-rule (3) of Rule 11 is a mere repetition of proviso (d) of Sub-section (3) of Section 20 and other clauses of the said Sub-rule are providing the manner and modalities to claim input tax credit in respect of inter-State transactions. Clause (b) of Sub-rule (3) of Rule 11 refers to Annexure-II of Form VAT 201 wherein the convenient mode to claim input tax credit against CST payable has been prescribed. Under the said form the manufacturer is required to calculate the proportionate inputs (goods) used in the manufacture of goods sold in inter-State trade and calculate the purchase value of those input (goods) as well as the input tax. Form VAT 201 at sl. No. 21 it is stated as reduction of ITC in excess of CST payable, as per proviso (d) to Sub-section (3) of Section 20 as at sl. No. 5 of Annexure-II or serial No. 8 of Annexure-IIA. Once the said columns are filled up, the assessee would be in an advantageous position since he is not required to be noticed for regular assessment which is not contemplated under the Statute. Further placing reliance upon Sub-section (2) of Section 20 of the Act which provides that input tax credit to which the registered dealer is entitled under Sub-section (1) shall be the amount of tax paid by the registered dealer to the seller on his turnover of purchase of goods during the tax period. The same is subject to the provisions contained in Sub-sections (3), (4) and (5) of Section 20 of OVAT Act. For this purpose Rule 11(3) is prescribed. The same is in consonance with Sub-Section (1) read with Sub-Section (2) of Section 20. The power of prescription of rule by way of subordinate legislation by the State Government is derived from the power conferred u/s 94 of the Act. The same has been framed to give effect to the provisions of Section 20(3) Proviso (d). Therefore, the same cannot be said as unguided, unfettered or ultra vires Section 20 of the Act or Articles 14 and 265 of the Constitution of India. Therefore, they have requested for dismissal of all the writ petitions as the same are without any merit.
9. We have heard learned Senior Counsel Mr. J. Patnaik, Mr. S.C. Lal and Mr. Pati on behalf of the registered dealer-petitioners extensively. We have also heard learned Standing Counsel Mr. Patnaik on behalf of the opposite parties with reference to the above said legal contentions urged in their petitions and the counter statement in support of their respective claim and counter claim. On the basis of the aforesaid rival legal contentions urged by the learned Senior Counsel and by the Government Advocate and the Standing Counsel on behalf of the Commercial Taxes Department, the following points would arise for our consideration: (i) whether the framing of Rule 11(3) is ultra vires Section 20 of OVAT Act, (ii) whether Rule 11(3) framed by the State Government in exercise of its power u/s 94 is unguided, unfettered upon the State Government and whether prescription of the said rule is for the purpose of carrying out the object of the Act.
10. The aforesaid points are answered against the petitioners registered dealers and in favour of the State Government by assigning the following reasons.
For the aforesaid purpose, it is necessary for us to extract the provisions of the OVAT Act, namely, the definitions of �input tax� and �input tax credit� as in Section 2(26), 2(27) and also the definition of �business� as in Section 2(7) and proviso to Clause (d) of Sub-section (3) of Section 20 which read thus:
2 (26)�input tax� in relation to any registered dealer means the tax collected and payable under this Act in respect of sale to him of any taxable goods for use in the course of his business, but does not include tax collected on the sale of goods made to a commission agent purchasing such goods on behalf of such dealer.
(27) �input tax credit� in relation to any tax period means the setting off of the amount of input tax or part thereof u/s 20 against the output tax, by a registered dealer other than a registered dealer paying turnover tax u/s 16;
(7) �business� includes(a) anytrade, commerceor manufacture;
(b)any adventure or concern in the nature of trade commerce or manufacture;
(c) any transaction in connection with, or incidental or ancillary to such trade, commerce, manufacture, adventure or concern;
(d) any transaction in connection with, or incidental or ancillary to, the commencement or closure of such trade, commerce, manufacture, adventure or concern;
(e)any occasional transaction, whether or not there is volume, frequency, continuity or regularity of such transaction, in the nature of such trade, commerce, manufacture, adventure or concern;
Whether or not such trade, commerce, manufacture, adventure, concern or transaction is effected with a motive to gain or profit or whether or not any gain or profit accrues from such trade, commerce, manufacture, adventure, concern or transaction. Explanation For the purpose of this clause-
(i)the activity of raising of man-made forest or
rearing of seedlings or plants shall be deemed to be a business,
(ii)transaction of sale or purchase of capital
goods pertaining to any trade commerce, manufacture, adventure, concern or transaction shall be deemed to be a transaction comprised in business,
(iii)purchase of any goods, the price of which is
debited to the business and sale of any goods, the proceeds of which are credited to the business shall be deemed to be transactions comprised in business."
Proviso (d) of Sub-section (3) of Section 20 reads as under:
(d) the input tax credit on purchase when sold in course of inter state trade or commerce shall be allowed only to the extent of central sales tax payable under the Central Sales Tax Act, 1956 (74 of 1956).
11. The definition of �business� as in Clause 2(7) is an inclusive definition and brings within its ambit any trade, commerce or manufacture. It is an undisputed fact that the petitioners who are registered dealers are manufacturers. It is also an undisputed fact that on the goods/raw materials purchased by them to use as input to manufacture a new goods, they are required to be paid purchase tax. The definition of �input� is very clear that any goods purchased by a dealer in the course of his business for using the same as raw material for manufacturing is called as �input� for which input tax is payable under the provisions of the Act in respect of the sale to him of any taxable goods for use in the course of his business is permissible to avail the said facility. In view of Section 2(27) definition which provision is extracted above input tax credit facility in relation to any tax period means the setting off of the amount of input tax or part thereof u/s 20 against the output tax by a registered dealer other than a registered dealer paying turnover tax u/s 16. Section 18 provides for zero rated tax when the goods are sold by a registered dealer in course of inter-State trade or commerce they are not liable to pay tax. Section 20 deals with input tax credit which provides for determination under the aforesaid provision. We are concerned here with proviso (d) of Sub-section (3) of Section 20. Proviso (d) states that input tax credit on purchase when sold in course of inter-State trade or commerce shall be allowed only to the extent of the CST payable under the CST Act. Constitutional validity of the aforesaid proviso in the OVAT Act has not been questioned by the petitioners. The said proviso was inserted with effect from 1.6.2008. In the absence of challenge to the said provision, the framing of Rule 11(3) by the State Government in exercise of statutory power to frame subordinate legislation cannot be found fault with. Rule 11 provides the procedure regarding collection of input tax credit. The same has been framed in 2009 and has come into force with effect from 25.02.2009.The contention urged by the petitioners that the said rule cannot be applied to a manufacture is wholly untenable in law in view of the definition of �business� in Section 2(7). If that is read along with the definition of "input" and "input tax credit" u/s 2(26) and (27) along with Section 20(3) proviso (d) would make it abundantly clear that a manufacturer also comes within the definition of �business� and �the goods/input� is raw material used for the manufacturing process by the petitioner as registered dealer is not in dispute. Therefore, they are all claiming input tax credit facility as provided u/s 20 of the Act. When they are claiming the said benefits, framing of the rules by the State Government in exercise of statutory power u/s 94 for execution of the provisions of the Act cannot be said at any rate as excessive, unguided and unfettered exercise of power by the State Government. When Section 20(3) Proviso (d) makes it explicitly clear as to what is the extent of statutory right given to the dealer for grant of input tax credit. Further the particulars required to be furnished in Annexure-IIA of Form VAT 201 also cannot be termed as arbitrary. The said particulars/information are required to be furnished by the traders for the purpose of availing input tax credit while selling the manufactured goods in the course of inter-State sale. That is what is provided in Clauses (a) to (e) of Sub-Rule (3) of Rule 11. The strong reliance placed upon the Clause (f) of Sub-rule (3) of Rule 11 and the particulars provided in Annexure-IIA Form VAT201 cannot be made use of for the purpose of justification of getting more benefit that what is not provided under the proviso (d) of Sub-section (3) of Section 20. Clause (f) of Sub-rule (3) is not required to be provided for the purpose of determination of input tax credit in view of the clear provision in proviso (d) of Sub-section (3) of Section 20. Therefore, for the aforesaid reasons, we do not find any merit whatsoever on any one of the legal contentions urged on behalf of the petitioners. The writ petitions are devoid of merit and are accordingly dismissed.
