1

CONSTITUTIONALITY OF SECTION - 8 OF UP
VAT ACT, 2008
By Abhai Chandra Retd. Dy.
Com.
Art.246(3) empowers the Legislature of any State to make
laws for such State or any part thereof with respect to any of the
matters enumerated in List II (State List) of Seventh Schedule.
Entry no. 54 of List II ,i.e., State List, gives a State the power to
make laws with respect to taxes on the sale or purchase of
goods other than newspaper subject to the provisions of entry 92A of List I. Art. 265 reads as Taxes not to be imposed save
by authority of lawNo tax shall be levied or collected except
by authority of law. Thus it is clear that under entry 54 a State
can, by authority of law, levy and collect tax only if there is sale
or purchase of goods . However, the words with respect to in
Art.246 also vest the legislature with the power to make laws on
incidental issues which would make the law enforceable. A tax
statute legislating for levy and collection of tax
may also
make the machinery provisions which would be necessary for the
implementation of such statute. Besides, provisions for levy and
collection, penal provisions against wrongdoers; compensatory
provisions for loss of revenue; recovery provisions against the
defaulters etc. are also within the permissible limits of the
Constitution, provided that such ancillary or auxiliary machinery
provisions do not fail the Constitutional ordeal. Therefore, it
necessitates to peruse the nature of liability such ancillary
legislation tends to create.
Section 8 of UP VAT Act, 2008 creates, notwithstanding
any contrary provision of the Act and without interfering the
provisions of section 54 , liability on fraudulent issuance and
procurement of tax invoice or sale invoice without making
actual sale of goods shown in such invoice. According to this

section on issuance of such invoice ---the selling DEALER and

the purchasing DEALER who has received such invoice, jointly
and severally, be liable for payment of an amount equal to the
amount of tax SHOWN to have been charged in such invoice.
It is settled law that there must be strict interpretation of a
penal or a tax statute. Honble S.C., in M/S Saraf Trading
Corporation etc. Vs. State of Kerala VSTI 2011(Vol.10) B-74, held
It is settled principle of interpretation of statute that when the
meaning and language is clear and unambiguous, nothing could
be added to the language and words of the statute.
In the light of the law laid down by Honble Supreme Court,
significant salient features of section 8 may be summed up as
follows :
1- Even if there be any contrary provision in the Act, section 8
shall have the overriding effect over all other provisions of
the Act.
2- The phrase without prejudice to the provisions of
sections of section 54 used in S/8 allows S/ 8 and S/ 54
to run in parallel, i.e., action may be taken in both the
sections simultaneously. But S/8 does not refer to S/48 or
other penal provisions.
3- S/8 is applicable against a purchaser ONLY when the
purchaser is a dealer.
4- S/8 is applicable even in cases where tax or sale invoice has
been issued without actual sale of GOODS SHOWN IN SUCH
INVOICE, i.e., for different goods action may be taken under
this section. Action once taken in S/8 will bar the operation of
S/48(5) because S/8 works without prejudice to S/54 ONLY
and none other .
5- Liability is JOINTLY AND SEVERALLY not JOINTLY OR
SEVERALLY . In several liabilities EACH wrongdoer shall be
equally liable and total liability shall go beyond the amount
of tax shown in invoice .

6- Liability for each wrongdoer is equal to amount of tax

SHOWN to have been charged in such invoice. However, if
no amount of tax is SHOWN in invoice, no liability under S/8
can be created.
7- The words --be liable for payment of an amount equal
to amount of tax-
used in S/8 is suggestive of the fact
that S/8 itself creates liability as if it were created under S/3
and is not discretionary. Once it is found that a wrong
under S/8 has been done, liability suo motu stands created.
Proviso to S/8 requiring opportunity of being heard to be
given is for finding out that such issuance of invoice is
fraudulent.
8- Word FRAUDULENT means doing something with intent to
defraud. Defraud involves two conceptions, viz., deceit and
injury. Injury may not necessarily involve deprivation of
property.
A comparative study of S/8 with resembling provision of
UPTT Act is needed .There was no provision in the erstwhile Act
which had the corresponding language of S/8 . From May
26,2014 a newly inserted section 8-A has identical provision of
section 3-B of UPTT Act.
According to section 3-B --- without
prejudice to the provisions of sections 14 and 15-A, a person,
who issues a false or wrong certificate or declaration,
prescribed under any provision of this Act or the Rules framed
thereunder, to another person by reason of which a tax leviable
under this Act on the transaction of purchase or sale made with
or by such other person ceases to be leviable or becomes
leviable at a concessional rate, shall be liable to pay on such
transaction an amount which would have been payable as
tax on such transaction had such certificate or declaration not
been issued.
In the case of Commissioner Trade Tax Vs. Kalptaru
Udyog Ghaziabad, 2004 UPTC 44 Honble Allahabad High

Court held Action taken under section 3-B is not penal action. It
is compensatory in nature.
In Commissioner Trade Tax Vs. Zerox Ltd. Rampur
(2006) 3 VL J 425 Honble Allahabad High Court held Orders
passed under this section is not an order of assessment and
therefore, no time limit is applicable to the action to be taken
under this section.
Thus it is amply clear that liability engraved in section 3-B
was neither penal nor that of tax and it ran without prejudice
to(penal) provisions of section 14 and 15-A of UPTT Act. Section
3-B made the person issuing false certificates or declaration
prescribed under the Act or Rules ( did not cover invoices, bills
etc. or other certificates not prescribed under the Act or Rules)
compensate the actual loss of amount which was payable as tax
(not more) and which the State suffered in tax by reason of such
issuance.
W.e.f. 26-05-2014, section 3-B of UPTT Act has reincarnated
as a new Section 8-A in UP VAT Act with exactly the same
language. Sub-section (2) of section 8-A, which was not in
erstwhile Act, bars the claim of credit of input tax against the
amount deposited under section 8-A, perhaps for the reason that
section 8-A does not create any tax liability.
Coming back on to section 8 forces me to think over the
nature of liability
created under S/8. Liability created under
S/8 is without prejudice to the provisions of section 54. Relevant
part of section 54(1)11.(ii)&(iv) can be summed up as below:
The assessing authority, if he is satisfied that any dealer
or other person, as the case may be, issues a tax invoice or
sale invoice without actual sale of goods; or receives a tax
invoice or sale invoice without actual purchase of goods, it
may, direct that such dealer or person shall, in addition to tax,
pay by way of penalty a sum (equal to) 50% of value of goods.

The difference between the WRONG described in section 8

and in section
54(1)11.(ii)&(iv) is this that section 54 covers
cases where issuance and procurement of tax invoice or sale
invoice is without making actual sale or purchase of goods;
whereas section 8 also covers the cases where sale or tax invoice
is issued without making actual sale of goods SHOWN IN SUCH
INVOICE.
2nd difference is
that S/8 applies where the seller and the purchaser, both, are
dealers, registered or unregistered, but S/54 may apply to any
person.
In view of the facts mentioned hereinbefore the following
points arise for consideration:
1- In the absence of actual sale or purchase no loss of tax
on sale or purchase can be ascertained, hence, liability
envisaged under section-8 cannot be held to be
compensatory in nature. The dealer fraudulently issuing
tax / sale invoice without making sale of goods normally
deposits tax.
2- The WRONG or the OFFENCE described in section 8 and in
section 54(1)11.(ii)&(iv), barring few exceptions, is the
same. If action taken under section 8 is penal in nature,
then, whether one wrong may be made punishable
twice under two different provisions of one statute, i.e.,
under section 8 and section 54(1)11.(ii)&(iv) of UP VAT
Act ?
In State of Rajasthan Vs. Bhagvan Das Agrawal &
Ors Honble Supreme Court, in order dt.17-12-2013,
has held that if there are two distinct and separate
offence with different ingredients under two different
enactments, double punishment is not barred, BUT
where the same evidence suffice to prove both
crimes, they are the same for double jeopardy
purposes .

3 - If section 8 tends to create tax liability , then, State

cannot
legislate for imposition of tax without sale or
purchase of goods.
Constitutionality of this section is one aspect. The other
facet of section 8 is its implementability. Few instances are
being presented herein below where this section shall not work
harmoniously.
(i)

A, a dealer registered in circle 2 of Lucknow , without

making actual sale, issues a tax invoice to B, a dealer
registered in the same circle. The assessing authority,
with a view to creating JOINT liability under this section,
issues show cause notices to A and B. A, due to illness,
fails to appear but B submits a reply. The assessing
authority, by passing an order, holds A and B JOINTLY
liable for payment of an amount equal to amount of
tax shown to have been charged in such invoice .
The probable questions that may arise regarding such
order and liabilities U/S 8 are:
What will be the fate of an application given by A
under S/32 against ex-parte order treating this order
to be an order of penalty, inasmuch as Bs reply
cannot be said to be a reply on behalf of A?
Whether, besides this JOINT order, A and B, each,
can severally be held liable again for payment of an
amount equal to amount of tax SHOWN in invoice ?
The phrase used in this section is jointly AND
severally.
Whether, by making separate orders for seller and
purchaser, total liability may be created for an
amount twice or more than the amount what is
EQUAL to amount of tax SHOWN to have charged in
such invoice ?
If
liability
created
under
this
section
is
COMPENSATORY in nature , then, whether liability
may go beyond the actual loss ( and to what extent,)

in cases of fake transactions where there is no sale or

purchase and no loss of tax can be ascertained in
such transactions?

(ii)

In the above case if B is an unregistered dealer of

different circle or district and A issues to B, a sale
invoice inclusive of tax. The language of the section is
unambiguous and clear and it holds the wrongdoers
liable only for an amount equal to amount of tax
SHOWN to have been CHARGED in such invoice.
If no amount of tax is SHOWN to have been CHARGED
in such invoice, no liability may be created. However, if
amount of tax is shown then action may be taken
against A and B severally by their respective
assessing authorities despite Bs being unregistered.
(iii) If B is not a dealer but a Department which procures
sale invoice without purchase of goods then only A
shall be liable irrespective of the fact that amount of
tax is shown in such invoice.
(iv) If A issues a tax invoice in which he shows KAJU but
actually sells BADAM. S/8 will apply because the
invoice has been issued without making actual sale
of goods SHOWN in such invoice. In a case of
different goods like this, provisions of S/48 also apply
and provisions of S/54 shall not apply. Once, if action
has been taken under S/8, whether action under S/48
may be taken?
(v) Whether issuance of sale invoice for a fake inter-State
sale against Form-C showing tax @2% therein without
actual sale of goods shown (different goods or no
goods ) may be charged under this section?
In view of the above discussions, it seems the liability that
section 8 tends to create is beyond the permissible limits of the
Constitution of India. Action taken under this section in different

cases with similar facts

discriminatory.

may

vary and may also be

Abhai Chandra

Mob: 9415770060

1/171

Vishesh

Khand

Gomtinagar,Lucknow
E-mail
abhai.chandra4@gmail.com