2015 (8) TMI 63 - HC - VAT and Sales Tax

Denial of Input tax credit - Held that - Value added tax paid at the rate in force on the date of purchase of goods from a taxable person, becomes input tax credit on the date of purchase, if the purchased goods are for resale etc., in the manner prescribed, thereby providing that input tax credit earned by a taxable person on the date of purchase of taxable goods, at the rate of taxation in force, during a particular tax period would be his input tax credit provided the goods are for resale/sale etc. in the State of Punjab or for inter-state trade or commerce or in the course of export or for use in the manufacture, processing or packing of taxable goods for sale within the State or inter State transaction and in the course of export etc. The respondents do not deny that members of the petitioners-association purchased goods for resale/sale and manufacture etc., in the State of Punjab and had already earned input tax credit, regarding the goods lying in stock, on 21.01.2014. The dispute is confined to Rule 21(8) of the Rules. A perusal of the Act reveals that on 21.01.2014 there was no provision in the Statute that empowered the State to enact a rule to provide that input tax credit already earned on goods lying in stock shall now be availed and calculated by reference to the reduced rate of taxation prevalent on the date of their sale. The amendment conferring such a power by amending the first proviso to Section 13 of the Act, admittedly, came into force on 01.04.2014 by deleting the words are for sale etc. and replacing them with the words unless such goods are sold etc., thereby for the first time linking the availing of input tax credit to the rate prevalent on the date of the sale of goods etc. to the rate of taxation in force on the date of sale. The amendment in the first proviso to Section 13 of the Act introducing the words are sold etc. came into effect on 01.04.2014. The State of Punjab was, therefore, empowered in the exercise of its power of delegated legislation to notify a rule linking the availing of input tax credit already earned, to their sale, on 01.04.2014. Rule 21(8) of the Rules which resonates the first proviso to Section 13 of the Act by linking the availing of input tax credit to goods sold and thereby to the reduced rate of taxation, came into effect on 21.01.2014 on which date there was no statutory provision enabling the State, in the exercise of its power of delegated legislation, to notify a rule that input tax credit would be availed on the sale of goods lying in stock or their manufacture etc. by reference to the reduced rate of taxation, prevalent at the time of sale/manufacture etc. of goods that had already earned a determinate amount of input tax credit. The State may be well within its power to alter the terms & conditions of availing input tax credit by a piece of subordinate legislation but as subordinate legislation may only be notified if it is relatable to statutory power enabling the State to notify such a rule, but the absence of such a provision in the statute, empowering the State to notify such a rule, between 21.01.2014 and 01.04.2014, in our considered opinion, did not empower the State, in the exercise of its power of delegated legislation to notify Rule 21(8) of the Rules on 21.01.2014. - on the date of introduction of sub Rule (8) of Rule 21 of the Rules, the State did not possess any power, emanating from the Act, to confine the availing of input tax credit to the reduced rate of tax on stock in trade i.e. transactions that had concluded with the dealer already earning input tax credit. A further perusal of the amendment in the first proviso to Section 13 of the Act reveals that it is not retrospective but applies to transactions after 21.01.2014. The amendment in the rule, which came into effect prior to the amendment the Act could, therefore, not be enforced, by the respondents before 01.04.2014 to take away a vested right already determined without statutory sanction. - Decided in favour of assessee.

Issues Involved:
1. Validity of Rule 21(8) of the Punjab Value Added Tax Rules, 2005.
2. Applicability of Rule 21(8) to input tax credit already earned.
3. Legislative competence of the State to notify Rule 21(8) before the amendment of Section 13 of the Punjab Value Added Tax Act, 2005.

Detailed Analysis:

1. Validity of Rule 21(8) of the Punjab Value Added Tax Rules, 2005:

The petitioner-association requested a writ of certiorari to declare Rule 21(8) of the Punjab Value Added Tax Rules, 2005, ultra vires and inapplicable to input tax credit already earned. The core contention was that the rule was notified without statutory backing as the enabling provision in the Act came into effect only on 01.04.2014, while Rule 21(8) was notified on 21.01.2014. The court examined whether the State had the authority to enact this rule on the said date.

2. Applicability of Rule 21(8) to Input Tax Credit Already Earned:

The petitioner argued that input tax credit was earned at the time of purchase of goods and crystallized into a tangible right, provided the goods were for resale, sale, or manufacture within the State. The State of Punjab reduced the tax rate on iron and steel goods from 4% to 2% effective 25.01.2014 and simultaneously notified Rule 21(8) to apply this reduced rate to goods lying in stock. The court had to determine if this rule could retroactively affect input tax credit already earned at the higher rate.

3. Legislative Competence of the State to Notify Rule 21(8) Before the Amendment of Section 13 of the Act:

The court noted that on 21.01.2014, there was no provision in the Act empowering the State to notify a rule that would reduce input tax credit already earned by reference to a reduced rate of tax prevalent at the time of sale. The amendment to Section 13, which enabled such a rule, came into effect on 01.04.2014. Therefore, the court had to decide whether the State had the legislative competence to notify Rule 21(8) before this date.

Judgment:

The court held that on 21.01.2014, the State did not possess any statutory power to notify Rule 21(8) of the Rules. The amendment to Section 13 of the Act, which provided the necessary statutory backing, came into effect only on 01.04.2014. Consequently, Rule 21(8) could not be enforced before 01.04.2014 to reduce input tax credit already earned at the higher rate.

The court allowed the writ petitions, declaring that Rule 21(8) would come into effect only from 01.04.2014. However, the court granted the State the liberty to roll back the lowered tax rates for the period between 21.01.2014 to 31.03.2014 if the public exchequer was adversely affected due to the court's decision.

The judgment comprehensively addressed the issues of legislative competence, the applicability of the rule to previously earned input tax credit, and the timing of the statutory amendments, ensuring that the legal principles and significant phrases from the original text were preserved.

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