2014 (6) TMI 761 - HC - VAT and Sales Tax

Input tax credit - validity of circular dated April 17, 2008 - Whether the petitioner is entitled for input-tax credit under section 76(6)(c) of the Act on the purchase value of the raw material which the assessee had purchased from a dealer who is exempted from payment of tax under section 4A of the Act - Held that - liability to pay tax chargeable under section 3 of the Act is different from quantification of the tax payable on assessment. The liability to pay tax and actual payment of tax are conceptually different and if there was an exemption, the dealer would be required to pay the tax in terms of section 3 of the Act. In the light of the aforesaid, the petitioner was liable to pay tax under the Act but for the exemption. Section 76(6)(c) clearly provides that a purchasing dealer would be entitled to input-tax credit of the amount of tax charged and this provision relating to exemption has to be liberally construed. It is not necessary that a purchasing dealer would be entitled to input-tax credit only if he has paid the tax charged in the sale invoice. The purchasing dealer would be entitled for input-tax credit if the said amount is adjusted or set off, as the case may be. The circular of the Commissioner, Commercial Tax, dated April 17, 2008 insofar as it interprets section 76(6)(c) to the effect that benefit would only be given to those purchasing dealers who have actually paid the tax to the seller, is patently erroneous and against the provision of section 76(6)(c) of the Act. - Consequently, the circular dated April 17, 2008 of the Commissioner, Commercial Tax, insofar as it interprets section 76(6)(c), is patently erroneous and to that extent is quashed. Since the notice dated March 3, 2009 was issued on the basis of the said circular, the same is wholly illegal and without any basis and is also quashed. - Decided in favour of assessee.

Issues Involved:
1. Applicability of input-tax credit under section 76(6)(c) of the Uttaranchal Value Added Tax Act, 2005.
2. Interpretation of the term "tax charged" in the context of input-tax credit.
3. Validity of the circular dated April 17, 2008, issued by the Commissioner, Commercial Tax.
4. Legality of the notice dated March 3, 2009, issued by the Deputy Commissioner (Assessment), Commercial Tax.

Detailed Analysis:

1. Applicability of Input-Tax Credit under Section 76(6)(c)
The core issue revolves around whether the petitioner is entitled to input-tax credit on the purchase value of raw materials from a dealer exempted under section 4A of the U.P. Trade Tax Act. The court examined Section 76(6)(c) of the Uttaranchal Value Added Tax Act, 2005, which provides that a purchasing dealer is entitled to input-tax credit of the aggregate amount of tax charged in the sale invoice of the selling dealer, even if the selling dealer is exempt from payment of tax. The court noted that the provision aims to ensure that the benefit of exemption under the eligibility certificate reaches the ultimate purchaser.

2. Interpretation of "Tax Charged"
The term "tax charged" was scrutinized to determine its meaning within the context of input-tax credit. The court referred to multiple definitions and concluded that "tax charged" does not necessarily mean tax actually paid by the purchasing dealer. It refers to a liability that has been ascertained or quantified and is reflected in the sale invoice. The court emphasized that the payment of tax could be done through various means, including adjustment or set-off, and there is no prohibition in the Act against such methods.

3. Validity of the Circular Dated April 17, 2008
The circular issued by the Commissioner, Commercial Tax, stated that input-tax credit could only be availed if the purchasing dealer actually paid the tax to the seller. The court found this interpretation to be erroneous and against the provisions of Section 76(6)(c). The court cited previous judgments, such as Commissioner, Trade Tax, U.P. v. Shri Mahaveer Rolling Mills (P) Ltd. and Associated Cement Companies Ltd. v. State of Bihar, to support the view that tax liability could be adjusted without actual payment. Consequently, the circular was quashed as it misinterpreted the statutory provision.

4. Legality of the Notice Dated March 3, 2009
The notice issued by the Deputy Commissioner (Assessment), Commercial Tax, denied the petitioner input-tax credit on the ground that the petitioner had not actually paid the tax to the selling dealer. The court deemed this notice to be illegal and without basis, as it was founded on the erroneous circular. The court reiterated that the purchasing dealer is entitled to input-tax credit if the tax amount is adjusted or set off.

Conclusion
The court allowed the writ petitions, quashing both the circular dated April 17, 2008, and the notice dated March 3, 2009. It also invalidated the provisional assessment orders made on the basis of the circular. The judgment clarified that input-tax credit under Section 76(6)(c) could be availed through adjustment or set-off, aligning with the broader objective of the tax exemption provisions. No order as to costs was made.

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