2014 (3) TMI 271 - HC - VAT and Sales Tax

Input-tax credit - Reduction of tax credit by 4% on goods purchased under circumstances specified in three sub-clauses of clause (b) of sub-section (3) of section 11- Assessee purchasing furnace oil, natural gas and light diesel oil for manufacturing activity and transferring manufactured goods to branches outside state - Gujarat value added tax act, 2003 (1 of 2005), s. 11(3)(b)(i), (ii),(iii) - Held that - reduction of tax credit under section 11(3)(b) would in no case exceed four per cent If the interpretation put forth by the State is accepted, a dealer who has availed of tax credit of four per cent would end up surrendering credit by 8 per cent or may be in a given case by 12 per cent. Surely, the Legislature could never have intended the reduction to exceed the tax credit itself. In the present case, this is precisely what would happen if the interpretation of the State is accepted. We have noticed that the furnace oil invites tax at the rate of four per cent. The tax credit thus available to the respondent as a dealer would be limited to such amount. If such tax credit available to the respondent is reduced by eight per cent, it would bring about a situation where credit available is four per cent and what is reduced is eight per cent. Surely, the Legislature never envisaged any such situation while framing section 11(3)(b) of the VAT Act - Following decision in the case of Reliance Industries Limited 2014 (2) TMI 815 - GUJARAT HIGH COURT - Decided against Revenue.

Summary

Issues:
Interpretation of section 11(3) of the Gujarat Value Added Tax Act, 2003.

Analysis:
The appellant, the State, challenged the judgment and order of the Gujarat Value Added Tax Tribunal in Second Appeal No.728 of 2011. The key question for consideration was whether the Tribunal correctly interpreted section 11(3) of the Gujarat Value Added Tax Act, 2003. The appellant was represented by Mr. Jaimin Gandhi, while Mr. Manish K. Kaji appeared for the respondent. The Tribunal had based its decision on a previous case involving Reliance Industries Ltd, which was later appealed to the High Court. The Division Bench of the High Court, in the case of State of Gujarat v. Reliance Industries Ltd., upheld the Tribunal's decision, emphasizing the legislative intent behind section 11(3)(b) of the VAT Act. The court clarified that the reduction of tax credit should not exceed four percent, as doing so would go against the legislative purpose. Therefore, following the precedent set in the Reliance Industries case, the High Court found no error in the Tribunal's decision and dismissed the appeal.

The Division Bench's interpretation of the law highlighted the importance of not exceeding the specified tax credit limit of four percent under section 11(3)(b) of the VAT Act. The court emphasized that any reduction in tax credit beyond the prescribed limit would contradict the legislative intent. By applying the principles established in the Reliance Industries case, the High Court concluded that the Tribunal had not erred in its decision regarding the interpretation of section 11(3) of the VAT Act. Consequently, the High Court dismissed the appeal filed by the State and affirmed the Tribunal's judgment.

In light of the Division Bench's ruling and the absence of any legal error in the Tribunal's decision, the High Court found no substantial question of law to address in the appeal. The court determined that the appeal lacked merit and, therefore, deserved to be dismissed. Additionally, the High Court decided that any connected applications, such as O.J.C.A. No.720 of 2013, should also be dismissed in line with the main Tax Appeal's outcome. The comprehensive analysis of the legal issues involved in the interpretation of section 11(3) of the Gujarat Value Added Tax Act, 2003, as exemplified by the Reliance Industries case, led to the dismissal of the appeal and related applications by the High Court.