2014 (7) TMI 783 - HC - VAT and Sales Tax

Eligibility to input tax credit - goods destroyed in flood - Compensation already granted by Insurance company - no Out Put Tax liability is created for the same goods - whether on the goods destroyed in flood, a dealer shall be entitled to input tax credit or not - Held that- due to the act of God, the flood and the entire goods being destroyed, it was impossible for the respondent - dealer to comply with the conditions for availing input tax credit on the goods destroyed in flood i.e. it was impossible for the respondent - dealer to sell, resell or to use the same in manufacture of goods. When it was impossible for the respondent - dealer to comply with all the conditions stipulated for input tax credit due to act of God and it was beyond the control of the respondent - dealer to fulfil the conditions for availment of the input tax credit due to the act of God - in the present case, the flood, which can be said to be valid excuse for not fulfilling the conditions stipulated for availing input tax credit on the goods destroyed in flood and therefore, interpreting the provisions for availing input tax credit, it is hereby held that the respondent herein - dealer shall be entitled to input tax credit on the goods destroyed in flood. However, subject to rider that if such dealer is compensated by the Insurance Company with respect to loss sustained i.e. with respect to the goods destroyed, the same can be given credit, meaning thereby, to that extent the respondent - dealer shall not be entitled to input tax credit, otherwise, it will be giving a double benefit to the respondent - dealer. - as such no error has been committed by the learned tribunal in allowing the appeal preferred by the respondent - dealer and holding that the respondent herein - dealer shall be entitled to input tax credit on the goods destroyed in flood. No question of law much less substantial question of law arises - Decided against Revenue.

Summary

Issues:
1. Interpretation of sections 11(3), 11(5), and 11(8) of the Gujarat Value Added Tax Act, 2003.
2. Eligibility for Input Tax Credit on goods destroyed in flood when compensation is awarded by an Insurance Company.

Issue 1: Interpretation of Sections 11(3), 11(5), and 11(8) of the Gujarat Value Added Tax Act, 2003:

The case involved a dispute over the interpretation of sections 11(3), 11(5), and 11(8) of the Gujarat Value Added Tax Act, 2003. The appellant, the State of Gujarat, challenged the decision of the Tribunal allowing Input Tax Credit to a dealer for goods destroyed in a flood. The appellant argued that unless conditions specified in section 11 of the VAT Act are met, the dealer cannot claim Input Tax Credit. Specifically, the appellant contended that since the goods destroyed by the flood were not sold by the dealer, Input Tax Credit should not be available. The appellant also disputed the reliance on a previous court decision by the Tribunal.

Issue 2: Eligibility for Input Tax Credit on Goods Destroyed in Flood with Compensation from an Insurance Company:

The second issue revolved around whether the respondent dealer was eligible for Input Tax Credit on goods destroyed in a flood, given that compensation was received from an Insurance Company. The appellant argued that if the dealer was compensated for the loss, Input Tax Credit should not be allowed, as it would result in a double benefit for the dealer. The court analyzed a previous case where it was held that a person cannot be compelled to do something impossible, and circumstances beyond their control could be a valid excuse for non-compliance. Applying this principle to the present case, the court concluded that due to the act of God (the flood), it was impossible for the dealer to fulfill the conditions for Input Tax Credit. Therefore, the dealer was entitled to Input Tax Credit on the goods destroyed in the flood, subject to the condition that if compensated by the Insurance Company, the credit would be restricted accordingly.

In conclusion, the High Court of Gujarat dismissed the appeal by the State of Gujarat, upholding the decision of the Tribunal to allow Input Tax Credit to the dealer for goods destroyed in a flood. The court held that no error was committed by the Tribunal in granting the credit, considering the circumstances of the case and the impossibility for the dealer to fulfill the conditions due to the act of God.