VAT Paid On Purchases Is Required To Be Excluded For Computing Taxable Turnover Of Purchases U/S 11(3)(b) Gujarat VAT Act: SC

The Supreme Court held that the Value Added Tax (VAT) paid on purchases is required to be excluded for computing taxable turnover of purchases under Section 11(3)(b) of the Gujarat Value Added Tax Act, 2003 (GVAT Act).

The Court held thus in civil appeals filed by the Gujarat State against M/s. Ambuja Cement Ltd., challenging the judgment of the High Court which had dismissed the appeal and affirmed the order of the Tribunal.

The two-Judge Bench comprising Justice Abhay S. Oka and Justice Augustine George Masih observed, “The cogent reading of sub-Section (18) of Section 2 which defines ‘purchase price’, sub Section 32 of Section 2 which defines ‘turnover of purchases’, and Section 11 of the GVAT Act which deals with entitlement to the tax credit, would lead to only one conclusion, that the purchase price would not include purchases on which no value added tax was claimed nor granted and the component of value added tax stood already paid on purchases. Accordingly, the taxable turnover of purchases would have to be calculated after deducting both the components as has been detailed aforesaid.”

The Bench clarified that the purchase price would be the determinative factor for calculating the turnover of purchases and the purchase price would be restrictive within the domain of Section 2(18) of GVAT Act.

Senior Advocate Archana Pathak Dave represented the appellant while Advocate Uchit Sheth represented the respondent. 

In this case, the respondent dealer calculated the taxable turnover of its purchases within the Gujarat State by excluding the amount representing VAT and value of purchases of which no credit was claimed. This was asserted to have been done under Section 11(3)(b) of GVAT Act. Accordingly, the taxable turnover was calculated and proportionately reduced by four per cent on the quantity of goods involved in the manufacturing of goods dispatched by way of branch transfer. The Deputy Commissioner during the process of audit assessment determined the taxable turnover of purchases within the State by including the tax amount i.e., VAT amount and value of purchases on which neither tax credit was claimed by the respondent nor proposed to be granted in the assessment.

Based on the aforesaid assessment, the aggrieved respondent approached the Joint Commissioner but its appeal was dismissed. Hence, second appeal was filed before the Tribunal and it partly allowed the same by holding that the tax and value purchases on which no tax was claimed and granted in the assessment could not be included in the aggregate of taxable turnover of purchases within the State for the purpose of reduction of tax credit. The State preferred an appeal before the High Court but the same was dismissed and the order of the Tribunal was affirmed. Hence, the State was before the Supreme Court.

The Apex Court after hearing the contentions of the counsel noted, “In the light of the above reproduced definition as provided for under Section 2(18) of the GVAT Act, it becomes obvious that the definition is enumerative and exhaustive. The use of the word “means” denote the intention of the legislature to restrict the scope of the “purchase price” to the categories enumerated in the definition itself. The purchase price, therefore, would be the amount of valuable consideration paid or payable for any purchase which would include amount of duties, levied or leviable under the two acts as has been provided for in this Section apart from the other charges as expounded therein. The scope has been limited to the two Acts mentioned in the Section itself.”

The Court added that the intention of the legislature was to exclude Value Added Tax from the ambit of purchase price as the same is not found mentioned in the categories of tax/duties enumerated thereunder.

“Therefore, the calculation of taxable turnover of the purchases and reduction value of purchases on which no tax credit was claimed nor granted, and component of value added tax already paid on purchases, was rightly excluded from the total turnover of the Respondent dealer while computing his tax liability under Section 11(3)(b) of the GVAT Act”, it said.

Accordingly, the Supreme Court dismissed the appeals and refused to interfere in the judgment of the High Court.

Cause Title- The State of Gujarat v. M/s. Ambuja Cement Ltd. (Neutral Citation: 2024 INSC 572)

Appearance:

Appellant: Senior Advocate Archana Pathak Dave, AORs Deepanwita Priyanka, Hrishikesh Baruah, Advocates Anurag Mishra, Rudraksh Kaushal, and Utkarsh Dwivedi.

Respondent: Advocate Uchit Sheth, AORs Santosh Krishnan, Purvish Jitendra Malkan, Advocates Sonam Anand, Deepshikha Sansanwal, Alok Kumar, Kush Goel, Neha Ambashtha, Nandini Chhabra, Suraj Pandey, and Ryan Singh. 

Click here to read/download the Judgment