Delhi
HC holds Section 9(2)(g) of Delhi Value Added Tax, 2004 (“DVAT Act‟) to the
extent it disallows Input Tax Credit (ITC) to purchaser due to default of
selling dealer in depositing tax, as violative of Articles 14 and 19 (1) (g) of
the Constitution of India; Accepts assessee’s plea that expression “dealer or
class of dealers” occurring in Section 9(2)(g) should be read down as not
including a purchasing dealer who has entered into bona fide purchase
transactions with validly registered selling dealers who have issued tax
invoices in accordance with Section 50 where there is no mismatch of
transactions in Annexures 2A and 2B; States, a purchasing dealer cannot be
expected to keep track of whether selling dealer has in fact deposited tax or
adjusted it lawfully against output tax liability, and unless Commissioner has
placed information in the public domain, it is impossible for purchasing dealer
to ascertain selling dealer’s failure to make a correct disclosure of the sales
made in his return; Moreover, Department is not helpless if the selling dealer
commits a default as in view of Section 40A inserted w.e.f. November 16, 2005,
a purchasing dealer acting in connivance with a selling dealer can be proceeded
against; States, Cabinet note outlining purpose behind introducing Section
9(2)(g) in DVAT Act w.e.f. April 2009 strangely did not mention Section 40A and
also did not took note of practical difficulty that would be faced by the
purchasing dealer, which is a major omission of important factors having a bearing
on ITC claimed by a dealer; Remarks, Section 9(2)(g) gives a free hand to the
Department in deciding to proceed either against the purchasing dealer or
selling dealer, however, in the situation envisaged by said section, clearly
the defaulting party is the selling dealer for which the purchasing dealer is
expected to bear the consequence; Notes assessee’s submission that, there is a
distinction between those categories specified in Section 9(2)(a) to (f) of
DVAT Act which disentitle grant of ITC and one u/s 9(2)(g), whereas conditions
specified in clause (a) to (f) are within the control of and can be vouched for
by the purchasing dealer, the condition under Section 9 (2) (g) is not within
its control; Accordingly holds that, failure by Legislature to distinguish
between bona fide and non-bona fide purchasing dealers, results in Section
9(2)(g) applying equally to both the classes of purchasing dealers, which would
certainly be hit by Article 14 of Constitution; Relying on host of SC cases,
concludes that there was need to restrict denial of ITC only to the selling
dealers who had failed to deposit tax collected by them and not punish bona
fide purchasing dealers who cannot be expected to do the impossible;
Observes,“It is trite that a law that is not capable of honest compliance will
fail in achieving its objective. If it seeks to visit disobedience with
disproportionate consequences to a bona fide purchasing dealer, it will become
vulnerable to invalidation on the touchstone of Article 14 of the Constitution”;
Distinguishes, Bombay HC and Tamil Nadu HC decisions in Mahalaxmi Cotton
Ginning Pressing & Oil Industries and Jayam & Co, respectively : Delhi
HC
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