2012 (7) TMI 868 - HC - VAT and Sales Tax

Purchase of goods from exempted dealer - unjust enrichment - Held that - The fact remains that a purchasing dealer will only be entitled to input-tax credit when he adds value to the input and then sells the same. While purchasing the input, he is required to pay tax thereon. While selling the value added input he is also required to pay tax thereon. Suppose, the input worth ₹ 100 was to be taxed at the rate of 10 per cent, the value of the input purchased would be ₹ 110 and suppose on that input a value addition to the tune of ₹ 10 has been made, the value of the product available for sale would be ₹ 120. Suppose the product is also sold at ₹ 120 and suppose the same will also attract tax at the rate of 10 per cent, then the tax liability of the seller would be ₹ 12. Because the dealer has paid tax of ₹ 10 on the input, he will be entitled to input-tax credit of ₹ 10 and, accordingly, would be liable to pay tax of ₹ 2. In the instant case, the dealer, from whom purchase has been made, did not pay any tax, as he was exempted from paying the same. The amount of tax payable, which has been exempted, would also be ₹ 10 and the same would also be reduced from ₹ 12 exposing the liability of the seller to ₹ 12. The fact remains, the exemption has been given to the seller, from whom the purchase has been made. That is a conscious action; by reason thereof the purchase value of the input has been permitted to be reduced. In the circumstances, there is no unjust enrichment on the part of the purchaser of input from the exempted dealer, while he is permitted input tax credit to the extent, as certified by the exempted dealer in the invoice. Appeal dismissed.

Summary

Issues:
1. Condonation of delay in preferring appeals.
2. Interpretation of section 76(6)(c) of the Uttaranchal Value Added Tax Act, 2005 regarding input-tax credit.
3. Impact of circular issued by the Commissioner, Commercial Tax, Dehradun on input-tax credit.
4. Argument of unjust enrichment on the part of the purchasing dealer.
5. Assessment of the liability of the seller and the entitlement of the purchasing dealer to input-tax credit.

Condonation of Delay:
The court considered applications for condonation of delay in preferring the appeals due to some delay, and after reviewing the objections filed, found sufficient grounds for the delay. The delay was condoned, allowing the court to proceed with the appeals.

Interpretation of Section 76(6)(c):
The case involved a change in section 76(6)(c) of the Act, affecting input-tax credit for dealers purchasing goods from exempted dealers. The amendment required the purchasing dealer to pay tax to the seller to avail input-tax credit. The court analyzed the impact of the amendment, emphasizing that input-tax credit is now available only to the extent of tax charged/payable by the purchasing dealer, not the aggregate amount as previously allowed. The amendment aimed to prevent confusion and ensure that input-tax credit corresponds to the tax liability of the purchasing dealer.

Impact of Circular on Input-Tax Credit:
A circular issued by the Commissioner restricted input-tax credit to cases where the purchasing dealer actually paid tax to the seller. This led to the Deputy Commissioner denying input-tax credits on purchases from exempted dealers. The court found this action questionable and allowed the writ petitions challenging the circular, citing just and sufficient reasons.

Argument of Unjust Enrichment:
The Chief Standing Counsel argued against unjust enrichment on the part of purchasing dealers, claiming that the previous provision allowed for benefits not entitled to in law. The court disagreed, explaining that the exemption granted to the seller reduced the purchase value, aligning with the tax liability of the seller. Therefore, there was no unjust enrichment as the input-tax credit was limited to the tax amount certified by the exempted dealer in the invoice.

Assessment of Liability and Entitlement:
The court clarified that a purchasing dealer is entitled to input-tax credit only when adding value to purchased items and paying tax on the input. The liability of the seller is determined based on the exemption granted, which reduces the tax payable. Through an illustrative example, the court demonstrated how the exemption for the seller does not lead to unjust enrichment for the purchasing dealer. Consequently, the appeals were dismissed as there was no reason for interference.

This detailed analysis of the judgment addresses the issues raised in the case comprehensively, providing a clear understanding of the court's decision and reasoning.