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2020 (3) TMI 142 - HC - VAT and Sales TaxReduction of Input Tax Credit - purchases of hides and skins resold in the course of inter-State trade and commerce - denial of reimbursement as per section 15(b) of the CST Act - Gujarat VAT Act - HELD THAT - While section 15(b) of the CST Act provides for reimbursement of the tax levied under the State law in case such goods are sold during the course of inter-State trade or commerce, in the manner and subject to the conditions provided in the State law; since under the GVAT Act, no rules have been prescribed for the manner and conditions subject to which such reimbursement shall be made, the dealers are given input tax credit in lieu of reimbursement. The question that arises for consideration is whether the State Government can reduce the input tax credit which amounts to reduction of the reimbursement to be made to the dealers. Reliance can be placed in the case of KADWANI FORGE LTD. VERSUS STATE OF GUJARAT 2014 (12) TMI 909 - GUJARAT HIGH COURT - on reading of the said judgement, it appears that while the submissions made by the learned counsel for the petitioners therein, even regarding declared goods have been considered, they appear to have been considered in the context of the declared goods having been used in the manufacture of other goods which resulted in new and different goods being sold and not in the context of both purchase and sale of declared goods. Moreover, reading the findings recorded by the Division Bench in their entirety, it is evident that there is no discussion in the context of section 15(b) of the CST Act. While the court in the above decision has recorded the submissions advanced on behalf of the petitioners therein in respect of declared goods also, from the submissions advanced by the learned Advocate General it appears that in the facts of those cases, the petitioners had manufactured and sold, new and different goods and the vital condition for reimbursement under section 15 of the CST Act, viz. the purchased as well as sold goods both should be declared goods , was not satisfied; whereas in the facts of the present case, the petitioners are traders who have purchased declared goods and sold such declared goods in the course of inter-State trade and commerce. Moreover, as noted hereinabove, the aspect of section 15(b) of the CST Act has not been gone into in the above decision. Clause (3) of article 286 of the Constitution of India provides that any State law, insofar as it imposes or authorises the imposition of a tax on sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce shall be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of tax as Parliament may by law Specify. Thus, the imposition of tax on sale or purchase of declared goods is subject to the restrictions and conditions specified by the Parliament by law. The Parliament has enacted the law namely, section 15(b) of the CST Act, which in clear and unambiguous terms provides for reimbursement of the tax levied under the State law when such goods are sold in the course of inter-State trade or commerce. In the light of the provisions of article 286(3) of the Constitution read with section 15(b) of the CST Act, the State is bound to reimburse the State tax levied on declared goods. The impugned notification, to the extent it curtails the entitlement to input tax credit on sales or purchases of declared goods made during the course of inter-State trade or commerce, therefore falls foul of the above provisions of the Constitution and the CST Act which is the Central Act - Keeping in mind the fact that the impugned notification does not relate only to declared goods, the entire notification cannot be struck down. However, the notification has to be read down to mean that the non-entitlement to input tax credit provided thereunder shall not be applicable to goods which are both purchased and sold as declared goods. Thus, the impugned notification shall not be applicable to purchases of hides and skins resold in the course of inter-State trade or commerce. The respondents are, therefore, not justified in denying reimbursement of the whole of the State tax paid by the petitioners on the declared goods purchased in the State and sold in the course of inter-State trade and commerce - petition allowed - decided in favor of petitioner.
Issues Involved:
1. Validity of Notification No. (GHN-14) VAT-2010-S.11(6)(2)-TH dated 29th June, 2010. 2. Compliance with Article 286(3) of the Constitution of India. 3. Interpretation of Section 15(b) of the Central Sales Tax Act, 1956 (CST Act). 4. Entitlement to input tax credit or reimbursement under the Gujarat Value Added Tax Act, 2003 (GVAT Act). Issue-wise Detailed Analysis: 1. Validity of Notification No. (GHN-14) VAT-2010-S.11(6)(2)-TH dated 29th June, 2010: The petitioners challenged the notification issued by the Government of Gujarat, which required a reduction of input tax credit for purchases of hides and skins resold in inter-State trade and commerce. The petitioners argued that this notification was violative of Article 286(3) of the Constitution of India and Section 15(b) of the CST Act. The court examined whether the notification could legally curtail the input tax credit for declared goods, which are subject to special conditions under the CST Act. 2. Compliance with Article 286(3) of the Constitution of India: Article 286(3) stipulates that any State law imposing tax on declared goods must comply with restrictions and conditions specified by Parliament. The court noted that hides and skins are declared goods under Section 14 of the CST Act. Therefore, any State law or notification affecting the tax on such goods must adhere to the restrictions imposed by the CST Act, specifically Section 15(b), which mandates reimbursement of local tax paid on declared goods sold in inter-State trade. 3. Interpretation of Section 15(b) of the CST Act: Section 15(b) of the CST Act requires that local tax levied on declared goods must be reimbursed to the dealer if such goods are sold in inter-State trade. The court emphasized that the term "reimbursement" means the full refund of the tax paid. The court rejected the State's argument that it could impose conditions reducing the reimbursement amount, holding that Section 15(b) does not permit the State to reduce the amount of tax to be reimbursed. 4. Entitlement to Input Tax Credit or Reimbursement under the GVAT Act: The court examined the provisions of the GVAT Act, particularly Section 11(6), which allows the State to specify goods or classes of dealers not entitled to full or partial tax credit. The court held that while the State can determine the manner and conditions for reimbursement, it cannot reduce the amount of reimbursement mandated by Section 15(b) of the CST Act. The court concluded that the notification, to the extent it reduced input tax credit for declared goods, was inconsistent with the CST Act and thus invalid. Conclusion: The court allowed the petition, holding that the impugned notification was not applicable to declared goods. The State was directed to grant full input tax credit for the tax paid on purchases of hides and skins resold in inter-State trade, in compliance with Article 286(3) of the Constitution and Section 15(b) of the CST Act. The notification was read down to exclude its application to declared goods, ensuring that the petitioners received the full reimbursement as required by law.
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