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M/s. TVS Motor Company Ltd. v. The State of Tamil Nadu and Others

Civil Appeal · 2018 INSC 965Decided 12 Oct 2018
Civil Appeal Nos. 10560-10564 of 2018
Justice A.K. Sikri · Justice Ashok Bhushan

Background

Under a 2005 national "White Paper" agreed among states' finance ministers, dealers were promised Input Tax Credit (ITC) set-off against tax on both intra-state and inter-state sales. However, Section 19(5)(c) of the Tamil Nadu VAT Act, 2006 and Rule 10(9)(a) of its Rules denied ITC on goods sold in inter-state trade unless the dealer produced a "Form C" declaration. The appellants (including TVS Motor Company), registered dealers under the Act, were issued show-cause notices around 2013 proposing to reverse ITC they had claimed because they had not filed Form C for certain inter-state sales, including sales made to other State Governments, who are not required to register as dealers and therefore cannot issue Form C at all. The appellants challenged Section 19(5)(c) and Rule 10(9)(a) as unconstitutional, but the Madras High Court upheld the provisions, leading to these appeals before the Supreme Court.

Decision Breakdown

The Supreme Court upheld the general validity of Section 19(5)(c) and Rule 10(9)(a), rejecting the broader constitutional challenge to conditioning ITC on inter-state sales on production of Form C. However, it carved out one specific rider: where a dealer's sales were made exclusively to other State Governments, who are statutorily exempt from registration and therefore structurally incapable of ever issuing Form C, even though there is no genuine risk of tax evasion in such government-to-government-linked sales, denying ITC for want of Form C would fail the test of reasonable classification under Article 14. The Court therefore read down Section 19(5)(c) to deem such State Governments as registered dealers for ITC purposes in this limited context, provided the dealer obtains and submits a certificate from the purchasing State Government confirming the sale. On this basis, the Court allowed the one appeal (arising from S.L.P.(C) No. 9326 of 2015) that specifically involved sales to State Governments, to that limited extent, while dismissing all the other connected appeals (including the lead TVS Motor Company appeal) with costs.

Lesson Learnt

A tax rule that conditions a benefit (like input tax credit) on producing a specific document can still be constitutionally valid in general, but courts will intervene narrowly where that documentary requirement is structurally impossible for a particular class of transactions to satisfy (here, sales to State Governments who cannot issue Form C) and there's no real risk the rule is meant to guard against.

Official source (sci.gov.in)View Judgment (PDF)

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