Punjab Value Added Tax Act, 2005 (“Punjab VAT Act”) – First proviso to s.13(1) – Amended with effect from 01.04.2014 – Punjab Value Added Tax Rules, 2005 (“Punjab VAT Rules”) – Rule 21(8) introduced and Schedule E amended with effect from 01.02.2014 – As a result, the ITC already paid for goods kept as stock in trade could only be availed at a reduced rate – Held, no statutory sanction prior to 01.04.2014 to allow applicability of Rule 21(8) on the stock in trade already purchased at a higher rate of tax – Impugned judgment of High Court upheld – Appeals dismissed:
Held: Amendment dated 25.01.2024 which inserted sub-rule (8) in Rule 21 of VAT Rules whereby a taxable person’s entitlement to get ITC on concerned goods (iron and steel) was reduced based on reduction in input tax on such goods was unjustified in the absence of there being an enabling provision to do so in the VAT Act which was the parent statute – It was held that any change in the ITC scheme by amending VAT Rules could have been done only after 01.04.2024 when first proviso to Section 13(1) of VAT Act was amended, which dealt with ITC. [Paras 31-35] Comparison between pre and post amendment scenario regarding first proviso to Section 13(1) of VAT Act prejudicial and unfair:
Held: Court observed that pre-amendment, the first proviso entitled taxable persons to receive ITC in respect of goods which were for sale/use in manufacture etc., but post amendment, such persons were not entitled to receive ITC unless such goods were sold/used in the manufacture etc – Thus essentially, post amendment, the benefit of ITC became available from the date of further sale/use/manufacture etc and therefore goods which were “stock in trade” would not attract the benefit of ITC – Additionally, as per sub-rule
(8) of Rule 21 of VAT Rules, the ITC already earned i.e., @4% was now available at the reduced rate i.e., @2% w.e.f. 25.01.2014 on sale of such goods – Held, it would be prejudicial and unfair to a taxable person who had stock in trade as on 25.01.2014 or as on 01.02.2014 (when amended rule came into effect) by paying higher rate of tax on purchase of iron and steel goods but would later on be entitled to reduced ITC due to reduction in the rate of tax on such goods on a subsequent date – Rule 21(8) could come into effect only on and from 01.04.2024 i.e., when amended the Punjab VAT Act, s.13(1) came into force. [Paras 36, 41, 41.1]
Right accrued to the assessee on date of purchase of goods immutable till such goods meet the objective of their purchase or continue to exists:
Held: Court relied on Eicher Motors Limited Vs. Union of India, (1999) 2 SCC 361 which concerned ITC and held that a right accrued to the assessee on the date when he pays the tax on the raw material or the input would continue until the facility available thereto gets worked out or until those goods existed. [Para 37] Statutory amendments amounting to change in law to not have retrospective application:
Held: Court relied on Sedco Forex International Drill INC.Vs. Commissioner of Income Tax, Dehradun, (2005) 12 SCC 717 which stated the general principle of tax law that if any statutory amendment is clarificatory in nature, it could be read into the main provision from the date when such provision became effective however if any such amendment amounts to a change in law, then it cannot be presumed to have retrospective application – Court also relied on Commissioner of Central Excise, Patna Vs. New Swadeshi Sugar Mills (2016) 1 SCC 614 which dealt with CENVAT Credit Rules, 2002 and held that CENVAT credit already earned by the assessee could not be changed by a statutory amendment that did away with it and such amendment would have only prospective effect. [Paras 38-39]
Reliance placed on Jayam and Company Vs. Assistant Commissioner (2016) 15 SCC 125 wherein the court that the said amendment being detrimental to the ITC entitlement of taxable persons would not have retrospective application. [Para 40] Impact on reverse ITC obligation under Section 13(9): Held: That if Petitioner’s contention were to be accepted, it would require reversing of ITC in terms of Section 13(9) at reduced rate of tax on the goods in question if such goods were not used for the purposes specified in Section 13(1) or which remained as “stock in trade” at the time of closure of business which effectively will lead to revenue loss to State exchequer. [Para 41.2]
As published in the Supreme Court Reports, Supreme Court of India. Headnotes prepared by: Niti Richhariya, Hony. Associate Editor (Verified by: Shibani Ghosh, Adv.). Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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