Jayam & Co. Vs Assistant Commissioner (Madras High Court)
These batch of writ petitions challenged the constitutional validity of Section 19(20) of the Tamil Nadu Value Added Tax Act, 2006, inserted by the Tamil Nadu Value Added Tax (Second Amendment) Act, 2010 and given retrospective effect from 01.01.2007 by the Special Provision Act, 2010. Petitioners also sought to quash reassessment orders and show cause notices issued under Section 27 treating vendor discounts as taxable turnover and reversing input tax credit (ITC).
The lead petitioner, a dealer in electronic appliances, purchased goods from registered vendors on VAT invoices and availed ITC based on the tax charged in such invoices. Subsequently, vendors issued credit notes granting post-sale discounts without altering the tax component in the original invoice, in terms of Rule 10(6)(b)(ii)(C). Petitioners resold goods at prices determined after accounting for such discounts, resulting in situations where output tax was lower than input tax, thereby creating excess ITC. Petitioners contended that discounts reduced the effective purchase price and that Section 19(20), which mandates reversal of ITC where goods are sold below purchase price, was unconstitutional, arbitrary, confiscatory, beyond legislative competence under Entry 54 of List II, and violative of Articles 14 and 19(1)(g). They also challenged the retrospective operation.
