2017 (4) TMI 365 - HC - VAT and Sales Tax

Vires of Rule 20 of the Punjab Value Added Tax Rules, 2005 - rule prescribes the time limit of 90 days for claiming back the Input Tax Credit (ITC) reversed for the goods which have been sent on job work - The Tribunal noted that although the bullion was not received within 90 days of it having been sent to the job workers, it was received in the subsequent year. It was also contended on behalf of the petitioner that penalty in any event ought not to be charged inter-alia as the petitioner had no intention to evade or avoid the tax and had also disclosed all the facts Held that - Section 13(1) deals with a taxable person s entitlement to ITC. It provides that a taxable person would be entitled to ITC subject to such conditions as may be prescribed. The legislature is, therefore, entitled to prescribe the conditions subject to which the taxable person shall be entitled to ITC. When a party fulfills the conditions, as may be prescribed, his entitlement to ITC is crystallized and vested in him. The reason for prescribing a time limit albeit directory as we will shortly indicate is evident. It is to ensure that the goods returned by the job workers after processing are the same as the goods that were sent by the taxable person for further processing on job work basis. The importance of the identity of the goods is obvious for the ITC was claimed in respect of those goods. If the goods returned by the job workers after processing are different from and less in value, than the goods sent for processing on job work basis, the taxable person would in effect be availing the ITC of a higher value than it was entitled to. Prescribing a time limit only makes it easier for the Department to ascertain whether the goods returned by the job workers after processing are the same as the goods that were sent by the taxable persons to the job workers for processing/further processing. Rule 20 is, therefore, not ultra-vires Section 13(3) or otherwise invalid. The period of 90 days prescribed in Rule 20 is only directory and not mandatory - Once it is held that the period of 90 days is only directory, the authorities must not consider themselves bound by any rigid time-frame or any specific period. There is no warrant for holding that the goods sent must be returned by the job workers during the same assessment year. That is not contemplated by Rule 20. The period of 90 days is not confined to the same assessment year. Indeed it cannot be. If for instance the goods are sent during the last few days of the assessment year or even on the last date of the assessment year, they cannot be expected to be returned by the job workers during the same assessment year. That is not even contemplated by the Rule - there is no reason to restrict the right to claim a reversal of the debit under sub section 3 only if the goods are returned within a few days. They must be returned within a reasonable time. The challenge to Rule 20 insofar as it prescribes the time limit of 90 days is rejected. It is, however, held that the same is directory and not mandatory. The Tribunal, therefore, applied the wrong test in determining whether the goods were returned in a reasonable time or not. It would be necessary, therefore, for the Tribunal to decide the question afresh in accordance with this judgment - appeal allowed by way of remand.

Summary

Issues Involved:
1. Validity of Rule 20 of the Punjab Value Added Tax Rules, 2005.
2. Legality of the time limit of 90 days for claiming back Input Tax Credit (ITC) reversed for goods sent on job work.
3. Assessment of tax, interest, and penalty for the assessment year 2008-09.
4. Interpretation of Rule 20 in relation to Section 13(3) of the Punjab Value Added Tax Act, 2005.
5. Determination of whether the 90-day period is mandatory or directory.

Detailed Analysis:

1. Validity of Rule 20 of the Punjab Value Added Tax Rules, 2005:
The petitioner challenged Rule 20, which stipulates that ITC shall be allowed if goods sent for job work are received back within 90 days. The petitioner argued that this rule is ultra-vires Section 13(3) of the Act, which does not prescribe any time limit for restoring the ITC debited when goods are sent for job work.

2. Legality of the time limit of 90 days for claiming back ITC:
The court examined whether the 90-day time limit prescribed in Rule 20 is consistent with Section 13(3) of the Act. Section 13(3) requires the taxable person to debit the ITC by 4% when goods are sent for job work and allows restoration of the ITC when the goods are received back, without specifying a time limit. The court concluded that Rule 20 is not ultra-vires Section 13(3) and is valid as it ensures that the goods returned are the same as those sent for job work, thus preventing misuse of ITC.

3. Assessment of tax, interest, and penalty for the assessment year 2008-09:
The petitioner faced a notice from the respondents for rejecting ITC on purchases amounting to ?8.23 crores, as the goods were not received back within 90 days. The assessment order imposed tax, penalty, and interest totaling ?25,80,541/-. The First Appellate Authority and the Value Added Tax Tribunal upheld this order. The Tribunal noted that the goods were received back in subsequent years and not within the stipulated period of 90 days, leading to the reversal of ITC.

4. Interpretation of Rule 20 in relation to Section 13(3) of the Act:
The court analyzed the provisions of Section 13(3) and Rule 20. It observed that Section 13(1) entitles a taxable person to ITC subject to prescribed conditions, while Section 13(3) deals with the situation where goods are sent for job work and requires debiting ITC by 4%. The restoration of ITC is contingent upon the goods being received back after processing. The court emphasized that the absence of a time limit in Section 13(3) does not preclude the legislature from prescribing one through rules.

5. Determination of whether the 90-day period is mandatory or directory:
The court held that the 90-day period in Rule 20 is directory and not mandatory. This conclusion is supported by an order under Section 85 of the Act, which treated Rule 20 as directory, allowing ITC restoration even if goods are received back after 90 days, provided proper documentation is submitted. The court noted that the Tribunal also treated the 90-day period as directory, observing that the goods were not returned within a reasonable time or the same assessment year.

Conclusion:
The court rejected the challenge to Rule 20's 90-day time limit but held that it is directory, not mandatory. The Tribunal must reassess whether the goods were returned within a reasonable time, considering the ability to verify that the returned goods are the same as those sent for job work. The petition was disposed of by quashing the impugned order and remanding the matter to the Tribunal for fresh determination, keeping all contentions on merits open.