2017 (11) TMI 927 - HC - VAT and Sales Tax

Input tax credit - whether the petitioner is entitled to input tax credit on the tax amount shown in the invoices issued by the sellers who have availed benefit of remission under SRO 91 dated 16.03.2006 issued under Section 79 of the Jammu and Kashmir Value Added Tax, 2005? Held that - It is well settled in law that circular/clarification cannot be contrary to the provisions of the Act and the Rules and by issuing subsequent circular, the department cannot incorporate new condition or restrict the scope of a notification granting exemption or whittle it down. Some purpose and policy decision is behind the notification issued by the State Government in exercise of statutory powers and therefore such benefit has to be provided to the investor/manufacturer which cannot be defeated by interpreting the notification in a different way - It is equally well settled legal proposition that once tax is paid, the assessee gets a vested right to avail the exemption/ refund as per the statutory provisions. Section 21(9)(X) restricts the benefit of input tax credit to a registered dealer who gets the benefit of tax remission. The tax remission is available under SRO 91 dated 16.03.2006 to the Industrial units that is the seller from whom petitioner has made purchases and not to the petitioner. Therefore, the restriction contained in Section 21(9)(X) does not apply to the case of the petitioner. The input tax liability of the petitioner has exceeded its tax liability, therefore, under Section 22 of the Act, the petitioner is entitled to refund of the input tax credit. The clarification dated 10.12.2007 insofar as it provides that there is no scope for allowing the refund by way of input tax credit because the benefit of remission also passes on from the manufacturer to the purchaser as he pays the tax notionally to the manufacturer by price adjustment is quashed, being contrary to the provisions of the Act - The orders of assessment passed by the assessing authority as well as the demand notices are hereby quashed - petition allowed - decided in favor of petitioner.

Summary

Issues Involved:
1. Entitlement to input tax credit on tax amount shown in invoices by sellers availing remission under SRO 91 dated 16.03.2006.
2. Validity of the clarification issued by the Commissioner of Commercial Taxes.
3. Alternative remedy of appeal under Section 72 of the Act.

Detailed Analysis:

1. Entitlement to Input Tax Credit:
The petitioner, a manufacturer of Air compressors registered under the Jammu and Kashmir Value Added Tax, 2005 (the Act), sought input tax credit on local purchases from sellers availing tax remission under SRO 91 dated 16.03.2006. The petitioner argued that the restriction in Section 21(9)(X) of the Act did not apply to them as they had paid the tax reflected in the invoices per Rule 63 of the J&K Value Added Tax Rules, 2005. The petitioner’s input tax credit exceeded their output liability, leading to a claim for refund. The court noted that Section 21(9)(X) restricts input tax credit for dealers benefiting from tax remission, but this restriction applies to the seller, not the petitioner. Therefore, the petitioner was entitled to the refund under Section 22 of the Act.

2. Validity of the Clarification by the Commissioner of Commercial Taxes:
The Commissioner issued a clarification on 10.12.2007, stating that no input tax credit should be claimed by dealers benefiting from tax remission, as the benefit passes from the manufacturer to the purchaser through price adjustment. The assessing authority disallowed the petitioner’s input tax credit claims based on this clarification. The court held that circulars or clarifications cannot contradict the Act and Rules, nor can they impose new conditions or restrict notifications granting exemptions. The court found that the Commissioner misinterpreted Section 21(9)(X) and that the clarification was contrary to Sections 21 and 22 of the Act. Consequently, the orders and demand notices based on this clarification were quashed.

3. Alternative Remedy of Appeal:
The Additional Advocate General argued that the petitioner should have appealed under Section 72 of the Act. The court rejected this argument for two reasons: (i) the Commissioner’s circular was binding on authorities, making an appeal futile; (ii) the writ petition had been admitted and pending since 2008 and 2010, and it is well-settled that admitted writ petitions should be decided on merits. The court cited precedents supporting this view, emphasizing that relegating the petitioner to an alternative remedy at this stage would be ineffective.

Conclusion:
The court quashed the clarification dated 10.12.2007 and the related assessment orders and demand notices. It directed the refund of any amounts deposited by the petitioner with interest within two weeks. The writ petitions were allowed.