Holding

Section 19(5)(c) of the Tamil Nadu VAT Act is constitutionally valid, but must be read down to allow input tax credit for sales exclusively to other State Governments without the requirement of Form C, subject to a certificate from the purchasing State.

Summary

The appellants, registered dealers under the Tamil Nadu Value Added Tax Act, challenged the denial of input tax credit (ITC) on inter‑state sales where Form C was not filed, contending that Section 19(5)(c) of the Act and Rule 10(9)(a) of the Rules were unconstitutional. The Supreme Court held that the provision is a valid legislative measure aimed at preventing tax evasion and is a permissible classification under Article 14. However, the Court read down the provision to allow ITC for dealers who sell exclusively to other State Governments, provided they obtain a certificate from the purchasing State, without the need for Form C. The Court dismissed the other appeals and allowed the specific civil appeal with costs.

Issues considered

Whether Section 19(5)(c) of the Tamil Nadu Value Added Tax Act and Rule 10(9)(a) violate Articles 14, 19(1)(g), 256 and 301 of the Constitution.
Whether the provisions are ultra vires the Central Sales Tax Act, 1956.
Whether the denial of ITC on sales to unregistered dealers, including State Governments, is discriminatory.
Whether the provision can be read down to permit ITC for sales exclusively to other State Governments without Form C.

Legislation cited

Central Sales Tax Act, 1956s. 2(g), s. 3, s. 6, s. 8
Central Sales Tax (Registration and Turnover) Rules, 1957s. Form C
Constitution of Indias. Article 14, s. Article 19(1)(g), s. Article 256, s. Article 301
Tamil Nadu Value Added Tax Act, 2006s. 19(20), s. 19(5)(c), s. 2(15), s. 38
Tamil Nadu Value Added Tax Rules, 2007s. Rule 10(9)(a)
Taxation Laws (Amendment) Act, 2007

Subjects

Input Tax CreditTamil Nadu VATSection 19(5)(c)Form CConstitutional validityArticle 14Inter‑state salesTax evasionDiscriminationReading down

Judgment

[2018] 13 S.C.R. 961 961

M/S. TVS MOTOR COMPANY LTD. A
v.
THE STATE OF TAMIL NADU AND OTHERS
(Civil Appeal Nos. 10560-10564 of 2018)
B
OCTOBER 12, 2018
[A. K. SIKRI AND ASHOK BHUSHAN, JJ.]
Tamil Nadu Value Added Tax Act, 2006: s. 19(5)(c) – Input
tax credit, set-off against tax liability on all intra-state and inter-
C
state sales, allowed only if Form C as prescribed is filed – Validity
of – On facts, claim of input tax credit by assessee – Issuance of
notice by Revenue denying input tax credit availed against the
transactions for which Form C were not filled, and reversing credit
on inter-State sales – Writ petition by assessee challenging the
constitutional vires of s. 19(5)(c) and r. 10(9)(a) – Held: s. 19(5)(c) D
is constitutionally valid – Provision was aimed at achieving a specific
and justified purpose to protect the Revenue against clandestine
transaction resulting in invasion of tax and could not be treated as
discriminatory – Sale by a dealer who is registered in the State of
Tamil Nadu which is effected outside the State of Tamil Nadu will
E
qualify for ITC only when the said sale is made to a registered dealer
– Insofar sales to unregistered dealers, that too situated outside the
State of Tamil Nadu, the State would not have any mechanism to
find out the genuineness of these sales – In essence, the State is
putting the condition that ITC would be admissible when Form ‘C’
is given, which can be given only in those cases where sale is to a F
registered dealer – Prescribing such a condition in order to ensure
that there is no evasion, has a rationale purpose and objective –
Tamil Nadu Value Added Tax Rules, 2007 – r. 10(9)(a).
Disposing of the appeals, the Court
HELD: 1.1 In ALD Automotive Pvt. Ltd. & Anr. v. The G
Commercial Tax Officer & Ors. it was held that Input tax credit-
ITC is a form of concession which is provided by the Act; it cannot
be claimed as a matter of right but only in terms of the provisions

H
961
962 SUPREME COURT REPORTS [2018] 13 S.C.R.

A of the statute; therefore, the conditions mentioned in Section
19(5)(c) of the Tamil Nadu Value Added Tax Act, 2006 had to be
fulfilled by the dealer; and sub-section (20) of Section 19 was
constitutionally valid. In the process, that there were valid and
cogent reasons for inserting that provision and the main purpose
was to protect the Revenue against clandestine transaction
B
resulting in invasion of tax. The reasoning given while upholding
sub-section (20) of Section 19 shall equally apply while examining
the validity of Section 19(5)(c) thereof. The High Court noted
that in respect of unregistered dealer in other States, the State of
Tamil Nadu has no mechanism to prevent invasion of tax and
C loss of revenue cost by trade with such unregistered dealers in
the State of Tamil Nadu. Therefore, the provision was aimed at
achieving a specific and justified purpose and could not be treated
as discriminatory. [Para 41, 42][996-C-F]
ALD Automotive Pvt. Ltd. & Anr. v. The Commercial Tax
D Officer & Ors. SLP (Civil) Nos. 36112-36113 of 2013
– relied on.
1.2 Section 19 of TNVAT Act deals with ITC. It incorporates
provision for grant of ITC under certain circumstances and, at
the same time, also lays down the conditions in which such ITC
E would be admissible. It is in this context sub-section (5) of Section
19 is to be analysed. Sub-section (5) stipulates certain
contingencies where such ITC would not be admissible. Clause
(c) of this sub-section which provides that ITC would not be
allowed on the purchase of goods sold as such or used in the
manufacture of other goods and sold in the course of inter-State
F trade or commerce falling under sub-section (2) of Section 8 of
the Central Sales Tax Act. Sale by a dealer who is registered in
the State of Tamil Nadu which is effected outside the State of
Tamil Nadu will qualify for ITC only when the said sale is made to
a registered dealer. If it is to an unregistered dealer, it would not
G be admissible. This classification is based on intelligible differentia
having a proper rationale. Insofar sales to unregistered dealers
are concerned, that too situated outside the State of Tamil Nadu,
the State would not have any mechanism to find out the
genuineness of these sales. In essence, the State is putting the
condition that ITC would be admissible when Form ‘C’ is given,
H which can be given only in those cases where sale is to a
M/S. TVS MOTOR COMPANY LTD. v. THE STATE OF 963
TAMIL NADU AND OTHERS

registered dealer. Prescribing such a condition in order to ensure A
that there is no evasion, has a rationale purpose and objective.
In the context of the nature of the ITC scheme, which is a
concession and not a right, leads to the conclusion that it was
open to the Legislature to make such a provision. [Para 43]
[996-G-H; 997-A-C]
B
1.3 Wherever the State Government buys, sells, supplies
or distribute goods, it shall be deemed to be the dealer for the
purposes of TNVAT Act. At the same time, TNVAT Act does not
require registration by the State Government inasmuch as Section
38 which deals with registration of dealers explicitly provides,
under sub-section (8) thereof, that this provision shall not apply C
to any State Government or Central Government. A conjoint
reading of the said two provisions would show that when a sale is
made to the State of Karnataka, it is made to a dealer but that
dealer is under no obligation to get itself registered under the
TNVAT Act. Because of this exemption, no State Government D
does that and since it is not a registered dealer, it would not be in
a position to issue any Form C. But for that, the genuineness of
sales made to a State Government cannot be doubted. This
situation puts those dealers who are making sales to the State
Government in disadvantageous position, even when it is clear
that there is no possibility of tax evasion as there cannot be any E
such apprehension in case of sales to the State Government. The
benefit of ITC is given whenever sale is made to a dealer outside
State of Tamil Nadu and the said dealer is a registered dealer.
The provisions of Section 19(5)(c) are to be read down by
construing that those dealers who are making sales exclusively F
to the other State Governments (i.e. outside the State of Tamil
Nadu), the said States would be deemed as registered dealers
for the purposes of availing benefits of ITC. Otherwise, in such a
situation, it would be difficult to hold that test of reasonable
classification is met in this limited context. [Para 47, 48]
[997-G-H; 998-A-E] G

1.5 The judgment of the High Court is upheld with one
rider, that in those cases where a dealer makes sales exclusively
to the other State Government(s), benefit of ITC would be allowed
without insisting on the furnishing of Form ‘C’. However, in order
to avail this benefit, a certificate from said the State Government H
964 SUPREME COURT REPORTS [2018] 13 S.C.R.

A to whom the supplies are made would be obtained by the dealer
claiming ITC and submitted to the VAT authorities. [Para 49]
[998-E-F]
State of Madras v. N. K. Nataraja Mudaliar 1968 SCR
(3) 829; State of Tamil Nadu and Another v. Sitalakshi
B Mills Ltd. and Others (1974) 4 SCC 408 : [1974] 3
SCR 1; Gwalior Rayon Silk Manufacturing (Wvg.) Co.,
Ltd. v. Assistant Commissioner of Sales Tax and others
(1974) 4 SCC 98 : [1974] 2 SCR 879; Messrs Govind
Saran Ganga Saran v. Commissioner of Sales Tax and
Others 1985 (Supp) SCC 205 : [1985] SCR 985; Bolani
C Ores Ltd. v. State of Orissa (1974) 2 SCC 777 : [1975]
2 SCR 138; Mahindra and Mahindra Ltd. v. Union of
India and Another (1979) 2 SCC 529 : [1979] 2 SCR
1038; D. S. Nakara and Others v. Union of India (1983)
1 SCC 305 : [1983] 2 SCR 165; Union of India and
D Others v. N.S. Rathnam and Sons (2015) 10 SCC 681 :
[2015] 8 SCR 751; Jayam and Company v. Assistant
Commissioner and Another (2016) 15 SCC 125 : [2016]
6 SCR 787 – referred to.
Case Law Reference
E [1968] SCR (3) 829 referred to Para 26
[1974] 3 SCR 1 referred to Para 26
[1974] 2 SCR 879 referred to Para 27
[1985] SCR 985 referred to Para 31
[1975] 2 SCR 138 referred to Para 34
F
[1979] 2 SCR 1038 referred to Para 34
[1983] 2 SCR 165 referred to Para 35
[2015] 8 SCR 751 referred to Para 35
[2016] 6 SCR 787 referred to Para 36
G CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 10560-
10564 of 2018
From the Judgment and Order dated 29.10.2014 of the High Court
of Judicature at Madras in Writ Petition Nos. 29017, 29019, 29021, 29023
and 29025 of 2013
H
M/S. TVS MOTOR COMPANY LTD. v. THE STATE OF 965
TAMIL NADU AND OTHERS

WITH A
Civil Appeal Nos. 10566, 10567, 10565, 10568, 10576, 10569 of
2018.
Vijay Narayan, AG, Ms. Narmada Sampath, AAG, S. K. Bagaria,
V. Giri, Sr. Advs., Aditya Sharma, Kunwar Ajit Singh, Akash Jindal, Manu
Bajaj, M/s. Parekh & Co., Anil Kaushik, Abhishek Mishra, Akash B
Bhardwaj, Ms. Shilpa Singh, Mrs. T. Archana, K. K. Mani, Ms. M.
Mishra, K. V. Ramkumar, K. V. Vijayakumar, Advs. for the appearing
parties.
The Judgment of the Court was delivered by
C
A. K. SIKRI, J. 1. Leave granted.
2. This group of eleven appeals was heard together and is being
disposed of by this common judgment as identical issues are involved in
all these appeals.
3. At the outset, the issues involved in the present appeals are: D
whether Section 19(5)(c) of the Tamil Nadu Value Added Tax Act, 2006,
Act No. 32/2006 (hereinafter referred to as “TNVAT Act”) and Rule
10(9)(a) of the Tamil Nadu Value Added Tax Rules, 2007 (hereinafter
referred to as “Rules”) are ultra vires of Articles 14, 19(1)(g), 256 and
301 of the Constitution of India as also the Central Sales Tax Act
E
(hereinafter referred to as “CST Act”) and whether Notice dated August
16, 2018 of the Revenue is liable to be quashed?
4. The instant appeals have been preferred against the common
impugned judgment of the High Court of Judicature at Madras dated
October 29, 2014 (hereinafter referred to as “Impugned Judgment I”) in
F
the writ petitions which were filed by the appellants and the impugned
judgment dated 17th November, 2017 of the High Court of Judicature at
Madras (hereinafter referred to as “Impugned Judgment II”) in W.P.
No. 29393 of 2017.
5. The brief facts leading to the cases are as follows:
G
6. All the appellants herein are the Assessees under the TNVAT
Act and are duly registered on the file of their respective Jurisdictional
Commercial Officers.
7. On January 17, 2005, a White Paper was released by the
Committee of Finance Ministers (hereinafter referred to as “White H
966 SUPREME COURT REPORTS [2018] 13 S.C.R.

A Paper”), making it clear that Input Tax Credit (hereinafter “ITC”) would
be available to set-off against tax liability on all intra-state and inter-
state sales. Paragraph 2.3 of the same states as follows:
“Coverage of Set-Off / Input Tax Credit
2.3 This input tax credit will be given for both manufacturers and
B traders for purchase of inputs/supplies meant for both sale within
the State as well as to other States, irrespective of when these
will be utilised/sold. This also reduces immediate tax liability.
Even for stock transfer/consignment sale of goods out of the State,
input tax paid in excess of 4% will be eligible for tax credit.”
C
8. Thereafter, on December 15, 2006, the TNVAT Act was
enacted under List II, Entry 54 of the Constitution of India and notified
in the Official Gazette after receiving assent of the Governor (on
December 14, 2006), to consolidate and amend the law relating to the
levy of tax on the sale or purchase of goods in the State of Tamil Nadu.
D Section 19(5)(c) of the same read as follows:
“No input tax credit shall be allowed on the purchase of goods
sold as such or used in the manufacture of other goods and
sold in the course of inter-State trade or commerce falling
under sub-section (2) of section 8 of the Central Sales Tax
E Act, 1956. (Central Act 74 of 1956).”
9. Thereafter, on January 01, 2007, the Government of Tamil Nadu,
in exercise of its powers under Section 80(1) of the TNVAT Act, notified
the Rules vide Notification No. SROA-(ai1)/2007 G.O.M.S.No. 1. Rule
10(9)(a) of the same states as follows:
F
“Input tax credit on inter-state sales shall be allowed only if Form
Cprescribed in the Central Sales Tax (Registration and Turnover)
Rules, 1957 is filed.”
10. After the Assessment was completed for the appellants for
Assessment Year 2007-08, they received Show Cause Notices from the
G Revenue in and around 2013, proposing to reverse the ITC claimed made
by them on the ground that they had not filed the Declaration Form C for
the purpose of availing the concessional rate of tax. The appellants paid
the differential tax arising out of the Assessment order for 2007-08 as
well as the amount relating to proportionate ITC under process.
H
M/S. TVS MOTOR COMPANY LTD. v. THE STATE OF 967
TAMIL NADU AND OTHERS [A. K. SIKRI, J.]

11. Consequently, on 16th August, 2013, the Revenue issued A
Impugned Notice in TIN 33450460109/2007-08 proposing to deny the
ITC credit availed against the transactions for which Form C were not
filled, and reversing credit on inter-State sales without Forms C in terms
of the impugned Section 19(1)(c).
12. Aggrieved by the same, the appellants, who were Assessees B
under the TNVAT Act, preferred writ petitions challenging the
constitutional vires of 19(5)(c) of the TNVAT Act and Rule 10(9)(a) of
the Rules contending that the same had been enacted in violation of
Articles 14, 19(1)(g), 246 and 301 of the Constitution of India. It was
urged by the appellants that Respondent No. 1 — State had enacted the
Act under Entry 54 of List II of the Constitution of India in terms of C
consensus amongst States to bring about a nation-wide uniform taxation
structure/scheme for VAT and for the promotion of inter-State trade,
commerce and industrialization, with its primary object to reduce the
cascading effect of tax imposed at successive stages, either at the stage
of usage as raw material or at the time of reselling of the article so D
produced. They further urged that while the White Paper provided for
set-off of the ITC even against inter-State sales, Section 19(5)(c) of
the Tamil Nadu Act sought to negate the object of promoting inter-State
trade and commerce.
13. It was urged by the appellants that Respondent No. 1 — E
State, having committed and consented before the Empowered Committee
of State Finance Ministers, vide the aforementioned White Paper,
towards administration of VAT allowing ITC set-off against tax liability
on intra-State sales or inter-State sales, sought to deviate on the issue in
terms of Section 19(5)(c) of the TNVAT Act, by not entitling a dealer
who effected inter-state sales under Section 8(2) of the Central Sales F
Tax Act to ITC of the tax paid by him on local purchases.
14. The Respondents/Revenue, on the other hand, contended that
the Taxation Laws (Amendment) Act, 2007 (Act No. 16/2007) has
amended the Central Sales Tax Act with effect from 01.04.2008 and
prior to that, in cases of inter-State sales falling under Section 8(2) of the G
same in cases of declared goods, the rate of tax was to be calculated at
twice the rate applicable to the sale or purchase of such goods inside the
appropriate State and in case of non-declared goods, the rate of tax
applicable was to be calculated at 10% or at the rate applicable to the
purchase of goods inside the appropriate State, whichever was higher. H
968 SUPREME COURT REPORTS [2018] 13 S.C.R.

A 15. The appellants had also urged that the impugned Section and
Rule were ‘colourable legislation’, as they seek to override the supremacy
of Entry 92A of List I of the Seventh Schedule of the Constitution of
India.
16. The Respondents had refuted this argument by contending
B that as per the impugned provision, ITC was permissible if the inter-
State sales were made under Section 8(1) of the CST Act after duly
filing the Form C declaration. The same was not permissible in
accordance with Rule 10(9)(a) if the inter-State sales were made under
Section 8(2) of the CST Act.
C 17. It was also the case of the respondents that the impugned
provisions were in tune with the recommendations of the Empowered
Committee of State Finance Ministers. They further threw light upon
the fact that the CST Act provided for multiple rates of tax, being different
for sales made to registered dealers and sales made to non-registered
dealers.
D
18. The High Court of Judicature, vide the Impugned Judgment-I
dated October 29, 2014, has dismissed the writ petitions thereby upholding
the constitutional vires of Section 19(5)(c) of the TNVAT Act and Rule
10(9)(a) of the Rules. At the same time, it has allowed the assessees/
appellants to submit their responses to the Show Cause Notices and/or
E challenge the orders passed negativing their request for ITC, in
accordance with the TNVAT Act and Rules framed thereunder.
19. The Impugned Judgment-II dated November 17, 2017 arose
out of Writ Petition No. 29393 of 2017, challenging the constitutional
vires of Section 19(5)(c) of the TNVAT Act and Rule 10(9)(a) of the
F Rules, where the High Court of Judicature at Madras, while relying on
its previous decision dated 29.10.2014 in Impugned Judgment-I, observed
that the same issue had arisen in the Impugned Judgment-I and the vires
of the TNVAT Act and the Rules had been upheld therein and accordingly,
dismissed the Writ Petition No. 29393/2017.
G 20. Correctness of these judgments is the subject matter of instant
appeals.
21. Before adverting to the respective submissions which were
made by the counsel for the appellants as well as learned Advocate
General who appeared on behalf of the respondents, it would be apposite
H
M/S. TVS MOTOR COMPANY LTD. v. THE STATE OF 969
TAMIL NADU AND OTHERS [A. K. SIKRI, J.]

to scan through the impugned judgment dated October 29, 2014 to A
understand the rationale and reasoning which is given by the High Court
in arriving at its conclusions on the issues raised.
22. The High Court formulated following two questions which
arose for consideration
“(1) Whether Section 19(5)(c) of TNVAT Act, 2006 and Rule B
10(9)(a) of TNVAT Rules, 2007 are ultra vires the provision of
CST Act, 1956?
(2) Whether the impugned provisions are violation of Articles 14,
19(1)(9) and 301 of the Constitution of India?”
C
23. Thereafter, it took note of the relevant provisions of the CST
Act, TNVAT Act as well as Rules and also Article 301 of the Constitution.
We deem it proper to reproduce the relevant portions of these Acts and
Rules at this stage itself.
“Central Sales Tax Act, 1956 D
S. 3. When is a sale or purchase of goods said to take place in the
course of inter-State trade or commerce.-
- A sale or purchase of goods shall be deemed to take place in the
course of inter-State trade or commerce if the sale or purchase-
(a) occasions the movement of goods from one State to E
another; or
(b) is effected by a transfer of documents of title to the
goods during their movement from one State to another.
Explanation 1.- Where goods are delivered to a carrier or other F
bailee for transmission, the movement of the goods shall, for the
purposes of clause (b), be deemed to commence at the time of
such delivery and terminate at the time when delivery is taken
from such carrier or bailee.
Explanation 2.- Where the movement of goods commences and G
terminates in the same State it shall not be deemed to be a
movement of goods from one State to another by reason merely
of the fact that in the course of such movement the goods pass
through the territory of any other State.

H
970 SUPREME COURT REPORTS [2018] 13 S.C.R.

A xx xx xx
S. 6. Liability to tax on inter-State sales.- (1)Subject to the other
provisions contained in this Act every dealer shall, with effect
from such date as the Central Government may, by notification in
the Official Gazette, appoint, not being earlier than thirty days
B from the date of such notification, be liable to pay tax under this
Act on all sales [of goods other than electrical energy) effected
by him in the course of inter-State trade or commerce during any
year on and from the date so notified.
[Provided that a deal shall not be liable to pay tax under this Act
C on any sale of good which, in accordance with the provisions of
sub-section (3) of Section 5 is a sale in the course of export of
those goods out of the territory of India]
[(1A) A dealer shall be liable to pay tax under this Act on a sale of
any goods effected by him in the course of inter-State trade or
D commerce notwithstanding that no tax would have been leviable
(whether on the seller or the purchaser) under the sales tax law
of the appropriate State if that sale had taken place inside that
State.]
(2) Notwithstanding anything contained in sub-section (1) or sub-
E section (1A), where a sale of any goods in the course of inter-
State trade or commerce has either occasioned the movement of
such goods from one State to another or has been effected toy a
transfer of documents of title to such goods during their movement
from one State to another, any subsequent sale during such
movement effected by a transfer of documents of title to such
F goods- (a) to the Government or (b) to a registered dealer other
than the Government if the goods are of the description referred
to in sub-section (3) of section or shall be exempt from tax under
this Act:
Provided that no such subsequent sale shall be exempt from tax
G under this subsection unless the dealer effecting the sale furnishes
to the prescribed authority in the prescribed manner and within
the prescribed time or within such further time as that authority
may, for sufficient cause, permit:—
(a) a certificate duly filled and signed by the registered dealer
H from whom the goods were purchased containing the prescribed
M/S. TVS MOTOR COMPANY LTD. v. THE STATE OF 971
TAMIL NADU AND OTHERS [A. K. SIKRI, J.]

particulars in a prescribed form obtained from the prescribed A
authority; and
(b) if the subsequent sale is made to a registered dealer, a
declaration referred to in clause (a) sub-section (4) of section 8:
Provided further that it shall not be necessary to furnish the
declaration referred to in clause (b) of the preceding proviso in B
respect of a subsequent sale of goods if,—
(a) the sale or purchase of such goods is, under the sales tax law
of the appropriate State exempt from tax generally or is subject to
tax generally at a rate which is lower than three per cent, or such
reduced rate as may be notified by the Central Government, by C
notification in the Official Gazette, under sub-section (1) of section
8 (whether called a tax or fee or by any other name); and……….
xx xx xx
S. 8. Rates of tax on sales in the course of inter-State trade or D
commerce— (1) Every dealer, who in the course of inter-State
trade or commence, sells to a registered dealer other than the
Government goods of the description referred to in sub-section
(3), shall be liable to pay tax under this Act, which shall be three
per cent, of his turnover or at the rate applicable to the sale or
purchase of such goods inside the appropriate State under the E
Sales Tax law of that State whichever is lower:
Provided that the Central Government may, by notification in the
Official Gazette, reduce the rate of tax under this sub-section.
(2) The tax payable by any dealer on his turnover in so far as the
F
turnover or any part thereof relates to the sale of goods in the
course of inter-State trade or service not falling within sub-section
(1), shall be at the rate applicable to the sale or purchase of such
goods inside the appropriate State under the sales tax law of that
State;
Explanation.—For the purposes of this sub-section, a dealer shall G
be deemed to be a dealer liable to pay tax under the sales tax law
of the appropriate State, notwithstanding that he, in fact, may not
be so liable under that law.
S.9. Levy and collection of tax and penalties.—
H
972 SUPREME COURT REPORTS [2018] 13 S.C.R.

A xx xx xx
(2) Subject to the other provisions of this Act and the rules made
thereunder, the authorities for the time being empowered to assess,
re-assess, collect and enforce payment of any tax under the general
sales tax law of the appropriate State shall, on behalf of the
B Government of India, assess3 re-assess, collect and enforce
payment of tax, including any [interest or penalty, payable by a
dealer under this Act as if the tax or interest or penalty payable by
such a dealer under this Act is a tax orinterest or penalty payable
under the general sales tax law of the State; and for this purpose
they may exercise all or any of the powers they have under the
C general sales tax law of the State; and the provisions of such law,
including provisions relating to returns, provisional assessment,
advance payment of tax, registration of the transferee of any
business, imposition of the tax liability of a person carrying on
business on the transferee of, or successor to, such business,
D transfer of liability of any firm of Hindu undivided family to pay
tax in the event of the dissolution of such firm or partition of such
family, recovery of tax from third parties, appeals, 5 reviews,
revisions, references,refunds, rebated, penalties,] [charging or
payment of interest, compounding of offences and treatment of
documents furnished by a dealer as confidential, shall apply
E accordingly:—
Provided that if in any State or part thereof there is no general
sales tax law in force, the Central Government may, be rules made
in this behalf make necessary provision for all or any of the matter
specified in this sub-section.
F
xx xx xx
Tamil Nadu Value Added Tax Act, 2006
S. 2 – Definitions:
(23) “input” means any goods including capital goods purchased
G
by a dealer in the course of his business;
(32) “reversal of tax credit” means reversal of input tax credit
already claimed and availed under this Act;
xx xx xx
H
M/S. TVS MOTOR COMPANY LTD. v. THE STATE OF 973
TAMIL NADU AND OTHERS [A. K. SIKRI, J.]

S. 19. Input tax credit.— (1) There shall be input tax credit of A
the amount of[tax paid] under this Act, by the registered dealer to
the seller on his purchases of taxable goods specified in the First
Schedule :
(2) Input tax credit shall be allowed for the purchase of goods
made within the State from a registered dealer and which are for B
the purpose of —
(i) re-sale by him within the State; or
(ii) use as input in manufacturing or processing of goods in the
State; or
C
(iii) use as containers, labels and other materials for packing of
goods in the State; or
(iv) use as capital goods in the manufacture of taxable goods.
(v) sale in the course of inter-State trade or commerce falling
under sub-sections (1) and (2) of section 8 of the Central Sales D
Tax Act, 1956 (Central Act 74 of 1956).
(vi) Agency transactions by the principal within the State in the
manner as may be prescribed.
(5) …….
E
(c) No input tax credit shall be allowed on the purchase of goods
sold as such or used in the manufacture of other good and sold in
the course of inter-State trade or commerce failing under sub-
section (2) of Section 3 of the Central Rules Act, 1956 (Central
Act 74 of 1956).
F
Tamil Nadu Value Added Tax Rule, 2007
10. Input tax credit.—(1) The input tax credit that can be deducted
from the input tax payable month or year shall be calculated by
using the formula (A + B) - (C + D) Where,
A = Input tax credit carried forward from the previous month or G
year
B = Input tax credit accrued during the month or year
C = Input tax credit reversed during the month or year
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974 SUPREME COURT REPORTS [2018] 13 S.C.R.

A D = Input tax credit refunded during the month or year
(2) Every registered dealer who claims input tax credit under sub-
section (1) of section 19 shall, produce the original tax invoice, in
support of his claim of the input tax credit, containing the following
details, namely:
B (a) A consecutive serial number;
(b) The date on which the invoice is issued;
(c) The name, address and the Taxpayer Identification Number
of the seller;
C (d) The name, address and the Taxpayer Identification Number
of the buyer;
(e) The description of the goods;
(f) The quantity or volume of the goods;
D (g) The value of the goods;
(h) The rate and amount of tax charged; and
(i) The total value of the goods.
(9)(a) Input tax credit on inter-state sales shall be allowed only if
E lots ‘C’ prescribed in the Central Sales Tax (Registration and
turnover) Rules, 1957 is filed.”
24. After taking note of the aforesaid provisions, the High Court
proceeded to discuss question no. (1). It pointed out that the definition
of “dealer” under Section 2(b) of the CST Act means the assessee
F under the said Act and he is solely liable to pay tax under the CST Act
whether or not he is allowed by the law or contract to pass on or actually
passes on the liability of his customers. The onus of proof that a person
sought to be treated as a dealer is one who comes within the said definition
is on the assessing authority.
25. The definition of “sale” under Section 2(g) of the CST Act
G
means that a sale inside a State as well as an inter-State sale arising in
that State, has situs in that State in case of sale inside a State, it is
taxable under the State law (TNVAT Act) and inter-State sale is liable
to tax in the same State under the CST Act. Section 3 of the CSTAct
speaks about when a sale or purchase of goods said to have taken place
H
M/S. TVS MOTOR COMPANY LTD. v. THE STATE OF 975
TAMIL NADU AND OTHERS [A. K. SIKRI, J.]

in the course of inter-State trade or commerce. Section 6 of the CST A
Act speaks about liability to tax on inter-State sales and it is a charging
Section. Section 8 of the CST Act speaks about rates of tax on sales in
the course of inter-State trade or commerce and as per sub-section(1)
of Section 8 if sale is effected by a dealer to a registered dealer goods of
the description referred to in sub-section(3), it shall be liable to pay tax
B
under this Act which shall be 3% of the turnover or at the rate applicable
to the sale or purchase of such goods inside the appropriate State under
the Sales Tax law of that State, whichever is lower. Section 8(2) says
that if the sale of goods is in the course of inter-State trade or commerce
not falling within sub-section(1) the tax payable shall be at the rate
applicable to the sale or purchase of such goods inside the appropriate C
State under the sales tax law of that State and as per explanation to
Section 8(2), for the purpose of this sub-section, a dealer shall be deemed
to be a dealer liable to pay tax under the sales tax law of the appropriate
State, notwithstanding that he, in fact, may not be so liable under that
law.
D
26. The High Court also noticed that the vires of the aforesaid
provisions was tested by the Constitution Bench of this Court in State of
Madras vs. N.K. Nataraja Mudaliar1. The Constitution Bench upheld
the provisions of Section 2(b) of the CST Act and repelled the challenge
predicated on Articles 301 and 303(1) of the Constitution of India. This
position is reiterated in State of Tamil Nadu and Another vs. Sitalakshi E
Mills Ltd. and Others2.
27. Discussing the provisions of Section 8(1) and (2) of the CST
Act, the High Court pointed out that Section 8(1) gives preferential
treatment to sale by a dealer to a registered dealer. Vires of this provision
has also been upheld in Gwalior Rayon Silk Manufacturing (Wvg.) F
Co., Ltd. vs. Assistant Commissioner of Sales Tax and others3.
28. Discussing ratio of the aforesaid judgments, the High Court
pointed out that this Court noted the proposition that the aforesaid provision
was to check the evasion of tax on inter-State sales and to prevent
discrimination between the rates in one State and those in other States, G
the Parliament thought fit to enact Section 8(2)(b) of the CST Act and

1
AIR 1969 SC 147 (CB) = 1968 SCR (3) 829
2
(1974) 33 STC 200 (SC) = 1974 AIR 1505 = (1974) 4 SCC 408
3
(1974) 4 SCC 98
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976 SUPREME COURT REPORTS [2018] 13 S.C.R.

A further held that the object of the law apparently is to deter inter-State
sales to unregistered dealers as such inter-State sales would facilitate
evasion of tax and the fixation of the rate of local sales tax is essentially
a matter for the State legislatures and the Parliament does not have any
control in the matter. It has been further held in the said decision that it
is in public interest to see that in the guise of freedom of trade, they do
B
not evade the payment of tax and it is an effective safeguard against the
evasion of tax.
29. Based on the aforesaid discussion, the High Court has
answered question No. 1 against the appellants in the following manner:
C “It is the specific stand of the official respondents/State
Government in para 14 of the counter affidavit that where sales
are made to registered dealers on filing of Form ‘C’ declaration
the entire transaction goes into the mainstream and thereby
automatically comes into the net of taxation in the purchasing
State wherever applicable and if sales are made to other than
D registered dealers, it is option of the purchasing dealer concerned
to disclose it or not and there is, therefore, possibility of such
transactions being wrapped up and disappearing into oblivion
without even surfacing again for the purpose of levy of tax
otherwise legally due on such transactions. Therefore, the
E contention put forward by the respective learned counsel appearing
for the writ petitioners that such provision aggravate the Central
Sales Tax rate or liability under Section 8(2) of CST Act by TNVAT
is unsustainable and therefore, question no. 1 is answered in
negative against the writ petitioners.”

F 30. While entertaining question no. (2), namely, whether the
impugned provisions are violative of Articles 14, 19(1)(g) and 301 of the
Constitution, the High Court pointed out that on this aspect, argument of
the assessees was that the words ‘rate applicable’ employed in Section
8(2) of the CST Act has to necessarily take into account the effective
rate after considering the deductions made under Section 3(3) of the
G TNVAT Act. It was argued that Section 19(5)(c) of the TNVAT Act,
which denied ITC on purchase of goods sold or used in the manufacture
of other goods and falls within Section 8(2) of the CST is per se
discriminatory. The High Court took note of the scheme of TNVAT Act
and found that though Section 3(2) stipulated many taxable transactions,
H
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TAMIL NADU AND OTHERS [A. K. SIKRI, J.]

only few such transactions are carved out to give benefit of ITC. After A
discussing certain judgments of this Court and other High Courts, the
High Court has observed that the legal position was that right to claim
ITC is not a vested right or an indefeasible right. It is a benefit conferred
under the Act in certain contingencies and subject to conditions prescribed
in the statutory scheme. Therefore, it is open to the State Legislature to
B
provide for conditions and restrictions while extending the concession.
Likewise, it was also necessary for any assessee to claim input credit to
fulfill those conditions. Thus, the provision made in the statute that
unregistered dealers in other States would not be entitled to ITC was
justified. The High Court noted that specific stand of the State
Government was that in respect of such unregistered dealers in other C
states, the State of Tamil Nadu had no mechanism to prevent evasion of
tax and loss of revenue caused by trade with such unregistered dealers
in the State of Tamil Nadu. This kind of evasion, in the opinion of the
High Court, was not violative of the constitutional provisions contained
in Articles 14, 19(1)(g) and 301.
D
31. Mr. Giri, learned senior counsel appearing in some of these
appeals pressed into service the same arguments which were advanced
before the High Court and attempted to find fault with the approach of
the High Court. His submission was that once the tax was paid at an
intermediary stage, the dealers could not be denied benefit of claiming
credit thereof and Section 19(5)(c) of TNVAT Act went contrary to the E
visions of CST Act and, therefore, was ultra vires. He referred to the
following judgments of this Court in support and, in particular, following
portions in those judgments.
(i) Messrs Govind Saran Ganga Saran vs. Commissioner of Sales
Tax and Others4: F

“6.The components which enter into the concept of a tax are
well known. The first is the character of the imposition known by
its nature which prescribes the taxable event attracting the levy,
the second is a clear indication of the person on whom the levy is
imposed and who is obliged to pay the tax, the third is the rate at G
which the tax is imposed, and the fourth is the measure or value
to which the rate will be applied for computing the tax liability. If
those components are not clearly and definitely ascertainable, it is
4
1985 (Supp) SCC 205
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978 SUPREME COURT REPORTS [2018] 13 S.C.R.

A difficult to say that the levy exists in point of law. Any uncertainty
or vagueness in the legislative scheme defining any of those
components of the levy will be fatal to its validity.
(ii) Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd.:
“70. We think that Parliament fixed the rate of tax on inter-State
B sales of the description specified in Section 8(2)(b) of the Act at
the rate fixed by the appropriate State Legislature in respect of
intra-State sales with a purpose, namely, to check evasion of tax
on inter-State sales and to prevent discrimination between residents
in one State and those in other States. Parliament thought that
C unless the rate fixed by the States from time to time is adopted as
the rate of tax for inter-State sales of the kind specified in the
sub-clause, there will be evasion of tax in inter-State sales as well
as discrimination. We have already pointed out in our judgment in
Civil Appeals No. 2547-2549 of 1969 and 105-106 of 1970 the
objectives which Parliament wanted to achieve by adopting the
D rate of tax in the appropriate State for taxing the local sales. And
for attaining these objectives Parliament could not have fixed the
rate otherwise than by incorporating the rate to be fixed from
time to time by the appropriate State Legislature in respect of
local sales. It may be noted that in so far as inter-State sales are
E concerned, the Central Sales Tax Act, by Section 9(2) has adopted
the law of the appropriate State as regards the procedure for levy
and collection of the tax as also for imposition of penalties.
71. There can be no doubt that Parliament can repeal the provisions
of Section 8(2)(b) adopting the higher rate of tax fixed by the
F appropriate State Legislature in respect of intra-State sales. If
Parliament can repeal the provision, there can be no objection on
the score that Parliament has abdicated its legislative function. It
retains its control over the fixation of the rate intact. In other
words, so long as Parliament can repeal the provisions of Section
8(2)(b) adopting the higher rate of tax fixed by the State
G Legislatures, it has not abdicated its legislative function. As already
stated, this point has been expressly decided by the Privy Council
in Cobb & Co. Ltd. v.Kropp.”
32. Mr. S.K. Bagaria, learned senior counsel appearing in the
Civil Appeal arising out of SLP(Civil) No. 9326 of 2015, submitted that
H
M/S. TVS MOTOR COMPANY LTD. v. THE STATE OF 979
TAMIL NADU AND OTHERS [A. K. SIKRI, J.]

the appellant/dealer in this case was making supplies only to the A
Government and, therefore, there was no reason to nurture any
apprehension that there would be evasion of tax. He also submitted that
this dealer had sales in Tamil Nadu and Karnataka wherein it was stated
that the appellant had effected sales to Karnataka State Government
covered under Section 8(2) of the CST Act. However, the appellant
B
was not entitled to ITC as per Section 18(5)(c) of the TNVAT Act but
had not declared reversal of ITC. Hence, the reversal of ITC was
proposed and the appellant was called upon to file objections, if any,
thereto. In its reply to the said show cause notice the appellant pointed
out that the VAT laws were introduced by different states from the year
2005. Tamil Nadu enacted TNVAT Act from January 01, 2007. While C
so, by the Taxation Laws (Amendment) Act, 2007, the sales to
Government departments against ‘D’ form was abolished and such sales
to Government departments fell under Section 8(2) of the CST Act.
Therefore, when VAT Act was introduced, sales to Government
departments fell under Section 8(1) of the CST Act and only sales to
D
unregistered dealers or non-dealers fell under Section 8(2) of the Act.
Therefore, the effect was that sales to Government departments outside
the State would fall under Section 8(2) of the CST Act. It was also
submitted that retention of provision such as Section 19(5)(c) of the
VAT Act to completely deny the ITC in respect of sales to Central and
State Government departments outside the State was causing unintended E
hardship. Mr. Bagaria also submitted that the two reasons which were
given by the respondents before the High Court to deny ITC were:
(i) Where sales are made to a registered dealer on filing of Form
‘C’ declaration, the entire transaction goes into the mainstream
and thereby automatically comes to the net of the transaction in F
the purchasing State, where applicable. On the other hand, if
sales are made to other than the registered dealers, it is the option
of the purchasing dealer concerned to disclose it or not to disclose
it. Therefore, there was a possibility of such transaction being
wrapped up and disappearing into oblivion without even surfacing
again for the purpose of levy of tax otherwise legally due. G

(ii) As regards unregistered dealers in other States, the State of
Tamil Nadu has no mechanism to prevent evasion of tax and loss
of revenue caused by trade with such unregistered dealers outside
its territory.
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980 SUPREME COURT REPORTS [2018] 13 S.C.R.

A 33. Submission of Mr. Bagaria was that both these reasons were
inapplicable in the case of the appellant where the sales were to the
Government of Karnataka. Referring to Section 19(4) of TNVAT Act,
Mr. Bagaria argued that situations mentioned therein were those where
the Tamil Nadu Government was not getting any tax. Likewise, as per
Section 4 of the CST Act situs of such sales would be Tamil Nadu, even
B
when goods go out of the State. In such an eventuality, State gets its
share of tax by virtue of Article 269 of the Constitution.
34. He also referred to the insertion of sub-clause (v) to sub-
section (2) of Section 19 which provision now enables getting of ITC in
those cases also where sale in the course of inter-State trade or
C commerce falls under Section 8(1) and (2) of the CST Act. In this
scenario, according to him, Section 19(5)(c) would apply when there
were inter-State sales at the time of incorporation. In support of this
submission, he referred to the following two judgments:
(i) Bolani Ores Ltd. vs. State of Orissa5
D
“29. The question then remains as to whether these vehicles
though registrable under the Act are motor vehicles for the purpose
of the Taxation Act. It has already been pointed out that before
the amendment vehicles used solely upon the premises of the
owner, though they may be mechanically propelled vehicles adapted
E for use upon roads were excluded from the definition of ‘motor
vehicle’. If this definition which excludes them is the one which is
incorporated by reference under Section 2(c) of the Taxation Act,
then no tax is leviable on these vehicles under the Taxation Act.
Shri Tarkunde for the State of Orissa contends that the definition
F of ‘motor vehicle’ in Section 2(c) of the Taxation Act is not a
definition by incorporation but only a definition by reference, and
as such the meaning of ‘motor vehicle’ for the purpose of Section
2(c) of the Taxation Act would be the same as defined from time
to time under Section 2(18) of the Act. In ascertaining the intention
of the legislature in adopting the method of merely referring to the
G definition of ‘motor vehicle’ under the Act for the purpose of the
Taxation Act, we have to keep in mind its purpose and intendment
as also that of the Motor Vehicles Act. We have already stated
what these purposes are and having regard to them the registration
5
(1974) 2 SCC 777
H
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TAMIL NADU AND OTHERS [A. K. SIKRI, J.]

of a motor vehicle does not automatically make it liable for taxation A
under the Taxation Act. The Taxation Act is a regulatory measure
imposing compensatory taxes for the purpose of raising revenue
to meet the expenditure for making roads, maintaining them and
for facilitating the movement and regulation of traffic. The validity
of the taxing power under Entry 57 List II of the Seventh Schedule
B
read with Article 301 of the Constitution depends upon the
regulatory and compensatory nature of the taxes. It is not the
purpose of the Taxation Act to levy taxes on vehicles which do
not use the roads or in any way form part of flow of traffic on the
roads which is required to be regulated. The regulations under the
Motor Vehicles Act for registration and prohibition of certain C
categories of vehicles being driven by persons who have no driving
licence, even though those vehicles are not plying on the roads,
are designed to ensure the safety of passengers and goods etc.
etc. and for that purpose it is enacted to keep control and check
on the vehicles. Legislative power under Entry 35 of List III
D
(Concurrent List) does not bar such a provision. But Entry 57 of
List II is subject to the limitations referred to above, namely, that
the power of taxation thereunder cannot exceed the compensatory
nature which must have some nexus with the vehicles using the
roads viz. public roads. If the vehicles do not use the roads,
notwithstanding that they are registered under the Act, they cannot E
be taxed. This very concept is embodied in the provisions of
Section 7 of the Taxation Act as also the relevant sections in the
Taxation Acts of other States, namely, that where a motor vehicle
is not using the roads and it is declared that it will not use the
roads for any quarter or quarters of a year or for any particular
F
year or years, no tax is leviable thereon and if any tax has been
paid for any quarter during which it is not proposed to use the
motor vehicle on the road, the tax for that quarter is refundable. If
this be the purpose and object of the Taxation Act, when the motor
vehicle is defined under Section 2(c) of the Taxation Act as having
the same meaning as in the Motor Vehicles Act, 1939, then the G
intention of the Legislature could not have been anything but to
incorporate only the definition in the Motor Vehicles Act as then
existing, namely, in 1943, as if that definition was bodily written
into Section 2(c) of the Taxation Act. If the subsequent Orissa
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982 SUPREME COURT REPORTS [2018] 13 S.C.R.

A Motor Vehicles Taxation (Amendment) Act, 1943, incorporating
the definition of ‘motor vehicle’ referred to the definition of ‘motor
vehicle’ under the Act as then existing, the effect of this legislative
method would, in our view, amount to an incorporation by reference
of the provisions of Section 2(18) of the Act in Section 2(c) of the
Taxation Act. Any subsequent amendment in the Act or a total
B
repeal of the Act under a fresh legislation on that topic would not
affect the definition of ‘motor vehicle’ in Section 2(c) of the
Taxation Act. This is a well-accepted interpretation both in this
country as well as in England which has to a large extent influenced
our law. This view is further reinforced by the use of the word
C ‘has’ in the expression “has the same meaning as in the Motor
Vehicles Act, 1939” in Section 2(c) of the Taxation Act, which
would perhaps further justify the assumption that the Legislature
had intended to incorporate the definition under the Act as it then
existed and not as it may exist from time to time. This method of
drafting which adopts incorporation by reference to another Act
D
whatever may have been its historical justification in England in
this country does not exhibit an activists draftsmanship which
would have adopted the method of providing its own definition.
Where two Acts are complimentary or interconnected, legislation
by reference may be an easier method because a definition given
E in the one Act may be made to do as the definition in the other Act
both of which being enacted by the same Legislature. At any
rate, Lord Esher, M.R. dealing with legislation by incorporation,
in In re. Wood’s Estate [(1886) 31 Ch D 607] said at p. 615:
“If a subsequent Act brings into itself by reference some of
F the clauses of a former Act, the legal effect of that, as has
often been held, is to write those sections into the new Act just
as if they had been actually written in it with the pen, or printed
in it, and, the moment you have these clauses in the later Act,
you have no occasion to refer to the former Act at all.”
G The observations in Clarke v. Bradlaugh [(1881) 8 QBD 63 607]
are also to the same effect. Brett, L.J. in that case had said at p.
69:
“… there is a rule of construction that, where a statute is
incorporated by reference into a second statute, the repeal of
H the first statute by a third statute does not affect the second.”
M/S. TVS MOTOR COMPANY LTD. v. THE STATE OF 983
TAMIL NADU AND OTHERS [A. K. SIKRI, J.]

30. In Secretary of State for India in Council v. Hindusthan A
Cooperative Insurance Society Ltd. [AIR 1931 PC 149 : 132
IC 748 : LR 58 IA 259] the Privy Council was considering a case
where the incorporation effected in the statute viz. the Calcutta
Improvement Trust Act, 1911 — referred to by their Lordships as
the “Local Act” — was in express terms and in the form illustrated
B
by 54 and 55 Vict., Ch. 19. The “Local Act” in dealing with the
acquisition of land for the purposes designated by it, made provision
for the acquisition under the Land Acquisition Act, and the
provisions of the Land Acquisition Act were subjected to numerous
modifications which were set out in the Schedule, so that in effect
the “Local Act” was held to be the enactment of a Special Law C
for the acquisition of land for the special purpose. It was in the
context of these and several other provisions which pointed to the
absorption of certain of the provisions of the Land Acquisition
Act into the “Local Act” with vital modifications that Privy Council
observed at p. 266:
D
“But Their Lordships think that there are other and perhaps
more cogent objections to this contention of the Secretary of
State, and their Lordships are not prepared to hold that the
sub-section in question, which was not enacted till 1921, can
be regarded as incorporated in the Local Act of 1911. It was
not part of the Land Acquisition Act when the Local Act was E
passed, nor in adopting the provisions of the Land Acquisition
Act is there anything to suggest that the Bengal Legislature
intended to bind themselves to any future additions which might
be made to that Act. It is at least conceivable that new
provisions might have been added to the Land Acquisition Act F
which would be wholly unsuitable to the local code. Nor again,
does Act 19 of 1921 contain any provision that the amendments
enacted by it are to be treated as in any way retrospective, or
are to be regarded as affecting any other enactment than the
Land Acquisition Act itself. Their Lordships regard the Local
Act as doing nothing more than incorporating certain provisions G
from an existing Act, and for convenience of drafting doing so
by reference to that Act, instead of setting out for itself at
length the provisions which it was desired to adopt.”

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984 SUPREME COURT REPORTS [2018] 13 S.C.R.

A It was further observed at p. 267:
“In this country it is accepted that where a statute is
incorporated by reference into a second statute, the repeal of
the first statute does not affect the second: see the cases
collected in Craies on Statute Law, 3rd Edn. pp. 349-50. This
B doctrine finds expression in a common-form section which
regularly appears in the amending and repealing Acts which
are passed from time to time in India …. The independent
existence of the two Acts is therefore recognized; despite the
death of the parent Act, its off-spring survives in the
incorporating Act. Though no such saving clause appears in
C the General Clauses Act, their Lordships think that the principle
involved is as applicable in India as it is in this country.
It seems to be no less logical to hold that where certain
provisions from an existing Act have been incorporated into a
subsequent Act, no addition to the former Act, which is not
D expressly made applicable to the subsequent Act, can be
deemed to be incorporated in it, at all events if it is possible for
the subsequent Act to function effectually without the addition.”
This Court in the Collector of Customs, Madras v. Nathella
Sampathu Chetty [AIR 1962 SC 316 : (1962) 3 SCR 786, 830-
E 833 : (1962) 1 Cr LJ 364] considered the Privy Council decision in
the Hindustan Cooperative Insurance Society Ltd. and
distinguished that case and held the principle inapplicable to the
facts of that case.
31.In State of Bihar v. S.K. Roy [AIR 1966 SC 1995 : 1966 Supp
F SCR 259 : (1966) 2 LLJ 759] this Court was considering the
definition of “employer” in Section 2(e) of the Coal Mines Provident
Fund and Bonus Schemes Act, 1948, where that expression was
defined to mean “the owner of a coal mine as defined in clause
(g) of Section 3 of the Indian Mines Act, 1923”. The Indian Mines
G Act, 1923, had been repealed and substituted by the Mines Act,
1952 (Act 35 of 1952). In the latter Act the word “owner” had
been defined in clause (1) of Section 2. The question was whether
by virtue of Section 8 of the General Clauses Act, the definition of
the word “employer” in clause (e) of Section 2 of the Coal Mines
Provident Fund and Bonus Schemes Act should be construed with
H
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TAMIL NADU AND OTHERS [A. K. SIKRI, J.]

reference to the definition of the word, “owner” in clause (1) of A
Section 2 of Act 35 of 1952, which repealed the earlier Act and
re-enacted it. It may be mentioned that according to Section 2(1)
of Act 35 of 1952 the word “owner”, when used in relation to a
mine, means “any person who is the immediate proprietor or lessee
or occupier of the mine or of any part thereof and in the case of a
B
mine the business whereof is being carried on by a liquidator or
receiver, such liquidator or receiver….” The expression “coal
mine” is separately defined in clause (b) of Section 2 of the Coal
Mines Provident Fund and Bonus Schemes Act, 1948. Ramaswami,
J. speaking for the Court observed at p. 261:
“As a matter of construction it must be held that all works, C
machinery, tramways and sidings, whether above or below
ground, in or adjacent to a coal mine will come within the scope
and ambit of the definition only when they belong to the coal
mine. In other words, the word or occurring before the
expression ‘belonging to a coal mine’ in the main definition has D
to be read to mean ‘and’.”
This case, as well as the decision in New Central Jute Mills Co.
Ltd. v. Assistant Collector of Central Excise, Allahabad [(1970)
2 SCC 820 : (1971) 2 SCR 92] are distinguishable on the facts
and legislation which this Court was considering. In the New E
Central Jute Mills Co. Ltd. case, the Privy Council decision in
the Hindusthan Cooperative Insurance Society Ltd. case was
referred to and distinguished. It is, however, contended by the
learned Solicitor General that both in Nathella Sampathu Chetty
case as well as the New Central Jute Mills Co. Ltd. case this
Court was considering the effects of the two Acts which were F
made by Parliament by Central legislation and it is, therefore, not
strictly a case of incorporation because the Central Legislature is
deemed to have, while making the latter enactment, kept in view
the provisions of the former Act. In our view this may not be
conclusive. G
32. In Ram Sarup v. Munshi [AIR 1963 SC 553 : (1963) 3 SCR
858] a judgment of the Bench of five Judges of this Court held
that the repeal of the Punjab Alienation of Land Act, 1900, had no
effect on the continued operation of the Punjab Pre-emption Act,
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986 SUPREME COURT REPORTS [2018] 13 S.C.R.

A 1913, and that the expression “agricultural land” in the later Act
had to be read as if the definition of the Alienation of Land Act
had been bodily transposed into it. After referring to the
observations of Brett, L.J. in Clarke case, Rajagopala Ayyangar,
J. speaking for the Court observed at pp. 868-69:
B “Where the provisions of an Act are incorporated by reference
in a later Act the repeal of the earlier Act has, in general, no
effect upon the construction or effect of the Act in which its
provisions have been incorporated.
***
C In the circumstances, therefore, the repeal of the Punjab
Alienation of Land Act of 1900 has no effect on the continued
operation of the Pre-emption Act and the expression
‘agricultural land’ in the later Act has to be read as if the
definition in the Alienation of Land Act had been bodily
D transposed into it.”
The above decision of this Court is more in point and supports our
conclusion. In our view, the intention of Parliament for modifying
the Motor Vehicles Act has no relevance in determining the
intention of the Orissa Legislature in enacting the Taxation Act.
E Apart from this aspect of the power of taxation, as we have said
earlier, is not in the Concurrent List III but in List II and construed
as a taxation measure we cannot extend the ambit of it by mere
implication. As we said it is possible for both the Acts to co-exist
even after the definition of ‘motor vehicle’ in the Act has been
amended. It is, therefore, clear that the definition of ‘motor vehicle’
F as existing prior to 1956 Amendment would alone be applicable
as being incorporated in the Taxation Act.”
The principle laid down in Mahindra and Mahindra Ltd. Vs.
Union of India and Another6 is to the same effect.
35. His second submission was that Section 19(5)(c) and Rule
G
10(9)(c) were violative of Article 14 of the Constitution as there was no
rational nexus with the objective sought to be achieved. He reiterated
that when the purpose behind such a provision is only to check evasion,
and there was no such apprehension in the case of sales to State
6
(1979) 2 SCC 529
H
M/S. TVS MOTOR COMPANY LTD. v. THE STATE OF 987
TAMIL NADU AND OTHERS [A. K. SIKRI, J.]

Government, benefit of ITC could not be denied wherever dealers were A
making sales to the Government. He further argued that when benefit
of ITC is given even when sales are made outside the State but to a
registered dealer, then why it should not be accorded on sales that are
made to the Government as well as by treating the sales to outside State
Government at par with the sales to the registered dealers. It was sought
B
to be justified on the ground that insofar as the State Government is
concerned, though it is treated as a dealer, no registration is required
since the State Governments are not obliged to get themselves registered
under the TNVAT Act. The only problem was that because of this the
State Government is not in a position to give ‘C’ form. ITC to the
appellant was denied only for not furnishing ‘C’ form. For this proposition, C
apart from relying upon the celebrated judgment in the case of D.S.
Nakara and Others vs. Union of India7, Mr. Bagaria also relied upon
the judgment of this Court in Union of India and Others vs. N.S.
Rathnam and Sons8 in the following manner:
“12. The judgment of this Court in Kasinka Trading case [(1995) D
1 SCC 274] , no doubt, lays down the principle that there is wide
discretion available to the Government in the matter of granting,
curtailing, withholding, modifying or repealing the exemptions
granted by earlier notifications. It is also correct that the
Government is not bound to grant exemption to anyone to which it
so desires. When the duty is payable under the provisions of the E
Act, grant of exemption from payment of the said duty to particular
class of persons or products, etc. is entirely within the discretion
of the Government. This discretion rests on various factors which
are to be considered by the Government as these are policy
decisions. In the present case, however, the issue is not of granting F
or not granting the exemption. When the exemption is granted to
a particular class of persons, then the benefit thereof is to be
extended to all similarly situated persons. The notification has to
apply to the entire class and the Government cannot create sub-
classification thereby excluding one sub-category, even when both
the sub-categories are of same genus. If that is done, it would be G
considered as violating the equality clause enshrined in Article 14
of the Constitution. Therefore, judicial review of such notifications
7
(1983) 1 SCC 305
8
(2015) 10 SCC 681
H
988 SUPREME COURT REPORTS [2018] 13 S.C.R.

A is permissible in order to undertake the scrutiny as to whether the
notification results in invidious discrimination between two persons
though they belong to the same class. In Aashirwad
Films v. Union of India [(2007) 6 SCC 624] , this aspect has
been articulated in the following manner: (SCC pp. 628-29, paras
9-12)
B
“9. The State undoubtedly enjoys greater latitude in the matter
of a taxing statute. It may impose a tax on a class of people,
whereas it may not do so in respect of the other class.
10. A taxing statute, however, as is well known, is not beyond
C the pale of challenge under Article 14 of the Constitution of
India.
11. In Chhotabhai Jethabhai Patel & Co. v. Union of
India [AIR 1962 SC 1006], it was stated: (AIR p. 1021, para
37)
D ‘37. But it does not follow that every other article of Part III is
inapplicable to tax laws. Leaving aside Article 31(2) that the
provisions of a tax law within legislative competence could be
impugned as offending Article 14 is exemplified by such
decisions of this Court as Suraj Mall Mohta & Co. v. A.V.
E Visvanatha Sastri [AIR 1954 SC 545 : (1955) 1 SCR 448]
and Shree Meenakshi Mills Ltd. v. A.V. Visvanatha
Sastri [AIR 1955 SC 13 : (1955) 1 SCR 787] . In K.T. Moopil
Nair v. State of Kerala [AIR 1961 SC 552] the Kerala Land
Tax Act was struck down as unconstitutional as violating the
freedom guaranteed by Article 14. It also goes without saying
F that if the imposition of the tax was discriminatory as contrary
to Article 15, the levy would be invalid.’
12. A taxing statute, however, enjoys a greater latitude. An
inference in regard to contravention of Article 14 would,
however, ordinarily be drawn if it seeks to impose on the same
G class of persons or occupations similarly situated or an instance
of taxation which leads to inequality. The taxing event under
the Andhra Pradesh State Entertainment Tax Act is on the
entertainment of a person. Rate of entertainment tax is
determined on the basis of the amount collected from the visitor
H
M/S. TVS MOTOR COMPANY LTD. v. THE STATE OF 989
TAMIL NADU AND OTHERS [A. K. SIKRI, J.]

of a cinema theatre in terms of the entry fee charged from a A
viewer by the owner thereof.”
xx xx xx
14. What follows from the above is that in order to pass the test
of permissible classification two conditions must be fulfilled, namely,
(i) that the classification must be founded on an intelligible B
differential which distinguishes persons or things that are grouped
together from others left out of the group; and (ii) that, that
differential must have a rational relation to the object sought to be
achieved by the statute in question. If the Government fails to
support its action of classification on the touchstone of the principle C
whether the classification is reasonable having an intelligible
differentia and a rational basis germane to the purpose, the
classification has to be held as arbitrary and discriminatory.
In Sube Singh v. State of Haryana[(2001) 7 SCC 545] , this
aspect is highlighted by the Court in the following manner: (SCC
p. 548, para 10) D

“10. In the counter and the note of submission filed on behalf
of the appellants it is averred, inter alia, that the Land Acquisition
Collector on considering the objections filed by the appellants
had recommended to the State Government for exclusion of
the properties of Appellants 1 and 3 to 6 and the State E
Government had not accepted such recommendations only on
the ground that the constructions made by the appellants were
of ‘B’ or ‘C’ class and could not be easily amalgamated into
the developed colony which was proposed to be built. There is
no averment in the pleadings of the respondents stating the F
basis of classification of structures as ‘A’, ‘B’ and ‘C’ class,
nor is it stated how the amalgamation of all ‘A’ class structures
was feasible and possible while those of ‘B’ and ‘C’ class
structures was not possible. It is not the case of the State
Government and also not argued before us that there is no
policy decision of the Government for excluding the lands G
having structures thereon from acquisition under the Act.
Indeed, as noted earlier, in these cases the State Government
has accepted the request of some landowners for exclusion of
their properties on this very ground. It remains to be seen
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990 SUPREME COURT REPORTS [2018] 13 S.C.R.

A whether the purported classification of existing structures into
‘A’, ‘B’ and ‘C’ class is a reasonable classification having an
intelligible differentia and a rational basis germane to the
purpose. If the State Government fails to support its action on
the touchstone of the above principle, then this decision has to
be held as arbitrary and discriminatory. It is relevant to note
B
here that the acquisition of the lands is for the purpose of planned
development of the area which includes both residential and
commercial purposes. That being the purpose of acquisition, it
is difficult to accept the case of the State Government that
certain types of structures which according to its own
C classification are of ‘A’ class can be allowed to remain while
other structures situated in close vicinity and being used for
same purposes (residential or commercial) should be
demolished. At the cost of repetition, it may be stated here that
no material was placed before us to show the basis of
classification of the existing structures on the lands proposed
D
to be acquired. This assumes importance in view of the specific
contention raised on behalf of the appellants that they have
pucca structures with RC roofing, mosaic flooring, etc. No
attempt was also made from the side of the State Government
to place any architectural plan of different types of structures
E proposed to be constructed on the land notified for acquisition
in support of its contention that the structures which exist on
the lands of the appellants could not be amalgamated into the
plan.”
36. The learned Advocate General, in reply to the aforesaid
F arguments, submitted that the High Court had repelled these contentions
in its well reasoned judgment by referring to the law laid down in various
judgments of this Court. He also submitted that a recent judgment
pronounced by this Court in the case of Jayam and Company vs.
Assistant Commissioner and Another9 fully covers the case against
the appellants. Specifically refuting the argument that Section 19(5)(c)
G of the Act will only apply when there were inter-State sales at the time
of incorporation, he submitted that Section 19(5)(c) as well as Section
8(2) remain unchanged as there were no amendments therein. Only
Section 8(1) was amended vide Taxation Laws (Amendment) Act, 2007.
9
(2016) 15 SCC 125
H
M/S. TVS MOTOR COMPANY LTD. v. THE STATE OF 991
TAMIL NADU AND OTHERS [A. K. SIKRI, J.]

The purpose thereof was reflected in the objects and reasons thereto as A
follows:-
“2. CST being an origin-based tax is inconsistent with VAT (which
is a destination-based tax). Moreover, CST results in cascading
of tax (i.e. tax on tax), since it is not rebatable against VAT. In
view of these factors, there has been a consensus that the CST B
should be phased out. This is also a pre-requisite for introduction
of an integrated Goods and Services Tax (GST), which the
Government purposes to introduce by 1st April, 2010. The issue
of phasing out of the CST has been deliberated upon for over a
decade. The Empowered Committee of State Finance Ministers
(EC), constituted by the Government of India, has been making C
efforts in this direction since July, 2000. Finally, after a series of
meetings, a consensus has been arrived at between the Central
Government and the State Governments on the roadmap for
phasing out of the CST as also on the package of compensation
to the States for revenue loss on this account. D
3. Accordingly, it is proposed to phase out the CST in 4 steps, i.e.,
reducing the CST rate from 4% to 3% w.e.f. 1st April, 2007, from
3% to 2% w.e.f. 1st April, 2008, from 2% to 1% w.e.f.1st April,
2009 and eventually abolishing the tax on 31st March, 2010. An
integrated national Goods and Services Tax (GST) is proposed to E
be introduced w.e.f. 1st April, 2010. The agreed package for
compensation to the States for revenue loss on account of phasing
out of the CST shall consist of non-monetary measures as well as
monetary measured.
4. The implementation of the above proposals requires the F
amendment of the CST Act as also the Additional Duties of Excise
(Goods of Special Importance) Act, 1957…….”
37. Insofar as argument of the appellant predicated on Article 14
is concerned, reply of the learned Advocate General was that a reading
of Section 8(1) of the CST Act would show that classification is contained G
in the Central Act itself which treats sale to a registered dealer outside
the State in one category and sale to an unregistered dealer outside the
State in a different category. This provision contained in Section 8(1) of
the CST Act never underwent any change. Therefore, those sales which
were made to unregistered dealers outside the State were constituted a
H
992 SUPREME COURT REPORTS [2018] 13 S.C.R.

A different class and, thus, provisions contained in Section 19(5)(c) to deny
ITC on such sales was perfectly justified based on reasonable
classification.
38. After considering the respective submissions and going through
the case law that is presented before this Court, it would be apt to remark
B at the outset that most of the contentions of the appellants stand answered
by the judgment of this Court in Jayam and Company. That case also
pertains to the TNVAT Act. The issue was as to whether sub-section
(20) of Section 19 of the TNVAT Act, which was brought into this statute
by Amendment Act 22 of 2013, could be given retrospective effect.
Sub-section (20) of Section 19 reads as under:
C
“S. 19(20) Notwithstanding anything contained in this section,
where any registered dealer has sold goods at a price lesser than
the price of the goods purchased by him, the amount of the input
tax credit over and above the output tax of those goods shall be
reversed.”
D
39. Thus, this case also concerned the same provision, namely,
Section 19 of the TNVAT Act, though the issue raised was not the same
which has arisen for consideration in these appeals. However, while
answering the aforesaid question, the ITC scheme contained in Section
19 of the TNVAT Act was gone into and discussed at length. After
E reproducing Section 19, attributes of this provision were taken note of in
the following manner:
“11. From sub-section (10) onwards, provisions are made to follow
the procedure and fulfill the requisite conditions foravailingITC.
For the purposes of this particular issue, sub-section (10) is the
F material provision. This provision, which is couched in negative
terms, categorically stipulates that such ITC would be admissible
to the registered dealer and he would not be entitled to claim this
credit ‘until the dealer receives an original tax invoice duly filled,
signed and issued by a registered dealer from wherethe goods
G are purchased.......’. Further, such originaltax invoice should
evidence the amountof input tax. So much so, even if the original
tax invoice is lost, the obligation cast on the registered dealer is to
obtain duplicate or carbon copy of such tax invoice from the selling
dealer and only then input tax is allowed.

H
M/S. TVS MOTOR COMPANY LTD. v. THE STATE OF 993
TAMIL NADU AND OTHERS [A. K. SIKRI, J.]

From the aforesaid scheme of Section 19 following significant A
aspects emerge:-
(a) ITC is a form of concession provided by the Legislature. It is
not admissible to all kinds of sales and certain specified sales are
specifically excluded.
(b) Concession of ITC is available on certain conditions mentioned B
in this Section.
(c) One of the most important condition is that in order to enable
the dealer to claim ITC it has to produce original tax invoice,
completed in all respect, evidencing the amount of input tax.
C
12. It is a trite law that whenever concession is given by statute
or notification etc. the conditions thereof are to be strictly complied
with in order to avail such concession. Thus, it is not the right of
the ‘dealers’ to get the benefit of ITC but its a concession granted
by virtue of Section 19. As a fortiorari,conditions specified in
Section 10 must be fulfilled. In that hue, we find that Section 10 D
makes original tax invoice relevant for the purpose of claiming
tax. Therefore, under the scheme of the VAT Act, it is not
permissible for the dealers to argue that the price as indicated in
the tax invoice should not have been taken into consideration but
the net purchase price after discount is to be the basis. If we E
were dealing with any other aspect do hors the issue of ITC as
per the Section 19 of the VAT Act, possibly the arguments of Mr.
Bagaria would have assumed some relevance. But, keeping in
view the scope of the issue, such a plea is not admissible having
regard to the plain language of sections of the VAT Act, read
along with other provisions of the said Act as referred to above. F
13. For the same reasons given above, challenge to constitutional
validity of sub-section (20) of Section 19 of VAT Act has to fail.
When a concession is given by a statute, the Legislature has power
to make the provision stating the form and manner in which such
concession is to be allowed. Sub-section (20) seeks to achieve G
that. There was no right, inherent or otherwise, vested with dealers
to claim the benefit of ITC but for Section 19 of the VAT Act.
That apart, we find that there were valid and cogent reasons for
inserting Section 19(20). Main purport was to protect the Revenue
against clandestine transactions resulting in evasion of tax. High
H
994 SUPREME COURT REPORTS [2018] 13 S.C.R.

A Court has discussed this aspect in detail and our task would be
accomplished in reproducing those paras as we are concurring
with the discussion:
“64. Let us now point out the background/reasons for inserting
Section 19(20) by Amendment Act 22 of 2010, by referring to
B the Chart, the sample instance is detailed in the Chart in
paragraph (34). Let us recapitulate the entries in the Chart.
Based on the sale price, i.e., Rs. 36,780/- in the tax invoice, an
amount of Input Tax Credit, i.e., Input Tax Credit of Rs.
4m597.50 was available to the petitioner when he re-sells goods.
Based on the Credit Note, the same goods are re-sold within
C the State at a lesser price than what was purchased, i.e., Rs.
33,777.78 (taking into account discount price, there is a profit
margin for the dealer) and thereby the output tax payable to
the Government is reduced, leaving excess Input Tax Credit at
the hands of the dealer. The said excess credit in the hands of
D the dealer might be adjusted to their other liabilities or might
claim refund of the said excess Input Tax Credit. Taking excess
Input Tax Credit and later in the guise of credit note giving
discount and reducing the price of the goods which reduces
the Output tax payable to the Government dwindles State
revenue.
E
65. Learned Advocate General contended that seller and buyer
coalition is issuing purchase invoice at an escalated price
thereby taking benefit of excess Input Tax Credit and later in
the guise of credit notes giving discount, reduced the price of
the same goods and thereby reducing the output tax payable
F to the Government creates a dent of the State revenue.
Learned Advocate General further submitted that excess Input
Tax Credit available in the hands of the dealer is being adjusted
to their other liabilities and the dealer might also make a claim
of refund of Input Tax Credit as per Section 19(18) of the Act
G which were ultimately resulted in creating dent on the State
revenue.
66. To contend as to how the so called discount and reduction
of sale price caused revenue loss to the Government, the learned
Advocate General has drawn our attention to the illustration
H stated in paragraph (6) of the counter which reads as under:-
M/S. TVS MOTOR COMPANY LTD. v. THE STATE OF 995
TAMIL NADU AND OTHERS [A. K. SIKRI, J.]

“Purchase price of 10 A
Washing Macines ... Rs. 1,00,000/-
Tax paid on purchase at 12.5%
(ITC allowed) ... Rs. 12,500/-
Sale price after discount ... Rs. 75,000/-
tax payable on sales at 12.5% ... Rs. 9,375/-
B
Excess ITC available
(Difference between ITC and
Output Tax) ... Rs. 3,125/-
Rs. 12,500 - Rs.9,375
Excess ITC Adjusted ... Rs. 3,125/-”
67. As rightly contended by the learned Advocate General, the C
“Input Tax Credit” adjusted in the above illustration comes to
Rs. 3,125/- in a single transaction and that it would run to
several lakhs and crores for a year for a single dealer. The
excess Input Tax Credit earned by the petitioners is being
adjusted against the outstanding tax due or carried forward to D
next year or refunded. If this trend is allowed to continue, the
concept of VAT that meant for payment of tax on every value
addition gets defeated.
68. In order to protect the revenue and with a vie to curb the
clandestine transactions resulting in evasion of tax, in respect E
of second and subsequent sales, Section 19(20)was introduced,
where any dealer has sold goods at a price lesser than the
price of the goods purchased by him, the amount of “Input Tax
Credit” over and above the output tax of those goods, shall be
reversed.
F
69. Constitutional Validity of fiscal legislation:- When there is a
challenge to the constitutional validity of the provisions of a
Statute, Court exercising power of judicial review must be
conscious of the limitation of judicial review must be conscious
of the limitation of judicial intervention, particularly, in matters
relating to the legitimacy of the economic or fiscal legislation. G
While enacting fiscal legislation, the Legislature is entitled to a
great deal of latitude. The Court would interfere only where a
clear infraction of a constitutional provision is established. The
burden is on the person, who attacks the constitutional validity
of a statute, to establish clear transgression of constitutional
H
996 SUPREME COURT REPORTS [2018] 13 S.C.R.

A principle. Observing that the law relating to economic activities
should be viewed with greater latitude than laws touching civil
rights such as freedom of speech, religion, etc., in R.K. Garg
vs. Union of India [(1981) 4 SCC 675, this Court held as
under:
B xx xx xx”
40. In another judgment in ALD Automotive Pvt. Ltd. & Anr. v.
The Commercial Tax Officer & Ors. (SLP (Civil) Nos.36112-36113
of 2013) pronounced in today’s date, the scheme of this very provision is
discussed again in detail to the same effect.
C 41. It is very clear from the aforesaid discussion that this Court
held that ITC is a form of concession which is provided by the Act; it
cannot be claimed as a matter of right but only in terms of the provisions
of the statute; therefore, the conditions mentioned in the aforesaid Section
had to be fulfilled by the dealer; and sub-section (20) of Section 19 was
D constitutionally valid. It was also noted, in the process, that there were
valid and cogent reasons for inserting that provision and the main purpose
was to protect the Revenue against clandestine transaction resulting in
invasion of tax.
42. The reasoning given in that judgment while upholding sub-
E section (20) of Section 19 shall equally apply while examining the validity
of Section 19(5)(c) thereof. The High Court has noted the specific
stand taken by the State Government to the fact that in respect of
unregistered dealer in other States, the State of Tamil Nadu has no
mechanism to prevent invasion of tax and loss of revenue cost by trade
with such unregistered dealers in the State of Tamil Nadu. Therefore,
F the provision was aimed at achieving a specific and justified purpose
and could not be treated as discriminatory.
43. It is stated at the cost of repetition that Section 19 of TNVAT
Act deals with ITC. It incorporates provision for grant of ITC under
certain circumstances and, at the same time, also lays down the conditions
G in which such ITC would be admissible. It is in this context sub-section
(5) of Section 19 is to be analysed. Sub-section (5) stipulates certain
contingencies where such ITC would not be admissible. There is no
quarrel about clauses (a) and (b). We are only concerned with clause
(c) of this sub-section which provides that ITC would not be allowed on
the purchase of goods sold as such or used in the manufacture of other
H
M/S. TVS MOTOR COMPANY LTD. v. THE STATE OF 997
TAMIL NADU AND OTHERS [A. K. SIKRI, J.]

goods and sold in the course of inter-State trade or commerce falling A
under sub-section (2) of Section 8 of the Central Sales Tax Act. To put
it tersely, sale by a dealer who is registered in the State of Tamil Nadu
which is effected outside the State of Tamil Nadu will qualify for ITC
only when the said sale is made to a registered dealer. If it is to an
unregistered dealer, it would not be admissible. This classification is
B
based on intelligible differentia having a proper rationale. Insofar sales
to unregistered dealers are concerned, that too situated outside the State
of Tamil Nadu, the State would not have any mechanism to find out the
genuineness of these sales. In essence, the State is putting the condition
that ITC would be admissible when Form ‘C’ is given, which can be
given only in those cases where sale is to a registered dealer. Prescribing C
such a condition in order to ensure that there is no evasion, has a rationale
purpose and objective. Consideration of this aspect in the context of the
very nature of the ITC scheme, which is a concession and not a right,
would lead us to the conclusion that it was open to the Legislature to
make such a provision.
D
44. In view of the aforesaid discussion, we do not find any merit
in the contentions raised by Mr. Giri. The judgments cited by him would
have no application either.
45. One argument of Mr. Bagaria, however, needs little deeper
consideration. He has argued that the appellant represented in his case E
is making sales only to the State of Karnataka. In such a case, there
cannot be any apprehension about evasion of tax.
46. Section 2(15) defines the term ‘dealer’ and includes State
Government as well by means of Explanation II which reads as under:
“Explanation II: The Central Government or any State Government F
which, whether or not in the course of business, buy, sell, supply
or distribute goods, directly or otherwise, for cash, or for deferred
payment, or for commission, remuneration or other valuable
consideration, shall be deemed to be a dealer for the purposes of
this Act.” G
47. Thus, wherever the State Government buys, sells, supplies or
distribute goods, it shall be deemed to be the dealer for the purposes of
TNVAT Act. At the same time, TNVAT Act does not require registration
by the State Government inasmuch as Section 38 which deals with
registration of dealers explicitly provides, under sub-section (8) thereof,
H
998 SUPREME COURT REPORTS [2018] 13 S.C.R.

A that this provision shall not apply to any State Government or Central
Government. A conjoint reading of the aforesaid two provisions would
show that when a sale is made to the State of Karnataka, it is made to a
dealer but that dealer is under no obligation to get itself registered under
the TNVAT Act. Because of this exemption, no State Government does
that and since it is not a registered dealer, it would not be in a position to
B
issue any Form C. But for that, the genuineness of sales made to a
State Government cannot be doubted. This situation puts those dealers
who are making sales to the State Government in disadvantageous
position, even when it is clear that there is no possibility of tax evasion as
there cannot be any such apprehension in case of sales to the State
C Government. We may point out here that benefit of ITC is given
whenever sale is made to a dealer outside State of Tamil Nadu and the
said dealer is a registered dealer.
48. Having regard to the above, we are of the opinion that the
provisions of Section 19(5)(c) are to be read down by construing that
D those dealers who are making sales exclusively to the other State
Governments (i.e. outside the State of Tamil Nadu), the said States would
be deemed as registered dealers for the purposes of availing benefits of
ITC. Otherwise, in such a situation, it would be difficult to hold that test
of reasonable classification is met in this limited context. It becomes
unnecessary to deal with other contentions of Mr. Bagaria.
E
49. Result of the aforesaid discussion would be to uphold the
judgment of the High Court with one rider, namely, that in those cases
where a dealer makes sales exclusively to the other State Government(s),
benefit of ITC would be allowed without insisting on the furnishing of
Form ‘C’. However, in order to avail this benefit, a certificate from said
F the State Government to whom the supplies are made would be obtained
by the dealer claiming ITC and submitted to the VAT authorities.
50. As a consequence, we allow Civil Appeal arising out of
SLP(Civil) No. 9326 of 2015 to the extent indicated above and other
appeals are dismissed with cost.
G

Nidhi Jain Appeals disposed of.

H