2008 (11) TMI 615 - HC - VAT and Sales Tax

Rule 21(1) (2) of the Punjab Value Added Tax Rules 2005 - whether ultra vires? Held that - For claiming input-tax credit there has to be liability to pay output tax. If goods which have been purchased are not available and output tax is not attracted there could be no deduction of input tax in respect of such goods. Provision in rule 21 making input-tax credit inadmissible where goods are lost or destroyed or damaged cannot be held to be contrary to the Scheme of the Act. Even though alternative remedy may not be an absolute bar and this court may in its discretion entertain a writ petition in certain situations we do not think that this is a case of such an exceptional nature where the petitioner could not take alternative remedy or the issue raised should be considered in a writ petition. We do not find any merit in challenge to vires of the rule. Applicability of the rule or claim of the assessee can be gone into before departmental authorities. Appeal dismissed.

Summary

Issues Involved:
Challenge to the validity of rule 21(1), (2) of the Punjab Value Added Tax Rules, 2005, and related notices regarding input-tax credit on petrol/diesel, and penalty imposition.

Analysis:
The petitioner, engaged in refining crude oil and marketing petroleum products, sought to quash rule 21 of the Rules, disallowing input-tax credit for evaporated products, and related notices. The petitioner claimed entitlement to input-tax credit on the purchase value of evaporated products, despite not being available for sale. The assessing officer disallowed this credit, prompting the challenge. The petitioner also contested the rule's validity, arguing it contradicted the Act's scheme.

The State raised a preliminary objection, citing the availability of an appeal as an alternative remedy. It argued that input-tax credit is only admissible when goods are sold, thus disallowing credit for lost or damaged goods. The court acknowledged the discretion to entertain a writ petition despite the remedy but found no exceptional circumstances here. It rejected the challenge to the rule's validity, stating that input-tax credit is contingent on liability to pay output tax, which does not apply if goods are unavailable for sale.

The court discussed the Act's scheme, which allows tax credit on inputs to prevent cascading effects and tax evasion. It highlighted sections providing for tax liability, input-tax credit, and conditions for claiming such credit. The court emphasized that input-tax credit is only available when goods are for sale, in line with the Act's objectives. It concluded that rule 21, disallowing credit for lost or damaged goods, aligns with the Act's scheme, dismissing the petition without prejudice to alternative remedies.

In summary, the court upheld the validity of rule 21, emphasizing the Act's provisions on input-tax credit and the conditions for claiming it. The judgment highlighted the purpose of the VAT regime to prevent double taxation and evasion, supporting the rule's alignment with the Act's objectives. The petitioner's challenge was dismissed, with the court emphasizing the availability of alternative remedies in accordance with the law.