2015 (4) TMI 1119 - HC - VAT and Sales Tax

Entitlement for input tax credit (ITC) on Packing material - finished goods were stock transferred to other states - Assessing Authority ignored the Circular No. 46 dated 28.06.2008 - Held that - while interpreting the Statute, ordinarily, this Court neither should add nor should omit any word in the language of Statute. Since transfer of stock to other States, other than by way of sale, is not being treated as inter-State sale in the State of Uttarakhand and petitioner company was never asked to pay Central Tax thereon, therefore, petitioner company cannot claim ITC, as a matter of right on stock transfer, other than by way of sale. Petitioner does not dispute that after issuance of subsequent Circular dated 23.01.2013, cases of other dealers, who were earlier granted benefit of ITC on packing material on stock transfer outside the State other than by sale, in the light of earlier Circular dated 28.06.2008, are now subject matter of re-assessment. Therefore, subsequent Circular dated 23.01.2013 seems to be in consonance with the correct mandate / interpretation of Section 6 of the Act and after issuance of subsequent Circular dated 23.01.2013 earlier Circular dated 28.06.2008 ceases to have any force. Whether proviso to sub Section (3) of Section (6) of the Act is hit by Articles 301 and 304 of the Constitution of India - Held that - in the present case, State of Uttarakhand has not imposed any tax on the goods imported from outside the State rather Legislature, at its wisdom, has given extra benefit of ITC over 2% on the raw materials purchased, in the event of transfer of stock other than by way of sale. Therefore, giving extra benefit in favour of registered trader does not amount to violation of Articles 301 and 304 of the Constitution of India. - Decided against the petitioner

Summary

Issues:
Interpretation of Uttarakhand VAT Act regarding Input Tax Credit (ITC) on packing material for stock transfers to other states. Validity of Circulars issued by Commissioner, Commercial Tax, Uttarakhand. Constitutionality of proviso to Section 6(3) of the Act in light of Articles 301 and 304 of the Constitution of India.

Interpretation of Uttarakhand VAT Act Regarding ITC on Packing Material for Stock Transfers:
The petitions involved identical issues of whether a company is entitled to Input Tax Credit (ITC) on packing material for stock transfers to other states under the Uttarakhand VAT Act. The petitioner argued that Circular No. 46 dated 28.06.2008 mandated ITC on packing material for stock transfers, emphasizing the importance of packing for goods like soaps and detergents. However, the Assessing Authority denied ITC on packing material for stock transfers, citing subsequent Circular No. 4411 dated 23.01.2013. The court analyzed Section 6 of the Act, noting that stock transfers to other states were not considered inter-State sales, thus ITC on such transfers was not automatic.

Validity of Circulars Issued by Commissioner, Commercial Tax, Uttarakhand:
The petitioner contended that Circular No. 46 dated 28.06.2008 should prevail over Circular No. 4411 dated 23.01.2013, which seemingly superseded the former. The court examined the statutory force of Circulars and their alignment with the Act. It concluded that the subsequent Circular was in line with the correct interpretation of Section 6, rendering the earlier Circular ineffective. The court emphasized that the literal rule of interpretation must be followed, and stock transfers without sale did not entitle automatic ITC, as clarified by the subsequent Circular.

Constitutionality of Proviso to Section 6(3) of the Act in Light of Articles 301 and 304:
The petitioner argued that the proviso to Section 6(3) of the Act violated Articles 301 and 304 of the Constitution of India by allegedly discriminating against goods imported from outside the state. The court referred to a Supreme Court judgment highlighting that states cannot discriminate between locally produced and imported goods. However, in this case, the State of Uttarakhand did not impose tax on imported goods but provided additional ITC on raw materials for stock transfers, which the court deemed not violative of constitutional provisions. Consequently, the petitions were dismissed, upholding the constitutionality of the proviso and the State's VAT regulations.

This detailed analysis of the judgment provides insights into the interpretation of the Uttarakhand VAT Act, the significance of Circulars issued by the tax authorities, and the constitutional validity of the provisions in question.