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2025 (3) TMI 1240 - HC - VAT / Sales TaxEntitlement for the benefit of ITC as claimed under the provisions of U.P. Value Added Tax Act read with the corresponding provisions of Section 16 as well as Section 140(1) of the GST Act read with Rule 21(1)(y) of the Value Added Tax Rules - entitlement to the benefit of I.T.C. to the dealer when the business has been discontinued by the dealer on 30.06.2017. Whether after introduction of new GST Act from 01.07.2017 the registered dealers were entitled for the benefit of unutilized ITC accrued under the UP VAT Act though having closing stock? HELD THAT - Under the VAT Act the food-grains were exempted on its purchase subject to certain conditions and the same were liable to be taxed on its sale. The benefit of ITC can only be availed on fulfillment of certain conditions as contemplated under section 13(1)(a) of the VAT Act. The unutilized ITC has to be debited or carried forward as per the sub-sections of section 13 of the VAT Act. Similar view has been expressed under rule 21(1) of the Rules. Perusal of section 13(1)(a) of the VAT Act clearly demonstrates that the earned ITC can be utilized on the sale subject to the conditions as mentioned in the table. The ITC can only be claimed on fulfillment of certain conditions as contemplated herein-above. Section 13(6) of the VAT Act and rule 21(1)(y) of the UP VAT Rules contemplate that in the event ITC is unutilized and the registered dealer discontinued its business and the closing stock is there then the dealer has to debit the unutilized ITC. The registered dealer cannot be permitted to utilize earned ITC for the said period. The case in hand it is admitted between the parties that the opposite party has not sold the purchased goods and there was closing stock. Until unless the last tax period of the assessment year during which business has been discontinued after adjustment of the tax liability by-passing the assessment order for such assessment year if any excess amount of ITC is left then only section 15(5) of the VAT Act will come into play and not otherwise - By plain reading of section 15 of the VAT Act it is clear that the available ITC can only be refunded after passing of the assessment order for that assessment period in which the business was discontinued after adjustment of tax liability. Once the opposite party registered dealers by operation of law discontinued its business it was the duty cast upon the opposite party dealer to debit their ITC as contemplated under section 13(6) of the VAT Act. The Tribunal has failed in its duty while allowing the appeal of the opposite party by overlooking the provision of section 13(6) of the VAT Act. Conclusion - The Tribunal erred in allowing ITC benefits without adhering to the VAT Act s provisions particularly section 13(6) and that the business was deemed discontinued by law requiring ITC debiting. The impugned judgements are set aside - All the revisions are allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered in this judgment were: 1. Whether the Commercial Tax Tribunal was justified in allowing the benefit of Input Tax Credit (ITC) to the dealer under the U.P. Value Added Tax Act and the GST Act, given the transition to the GST Act on 01.07.2017. 2. Whether the Tribunal was justified in allowing ITC benefits when the business was purportedly discontinued on 30.06.2017. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Entitlement to ITC under VAT and GST Acts Relevant legal framework and precedents: The legal framework involves the U.P. Value Added Tax Act, particularly sections 13 and 15, and the GST Act, specifically section 140. The VAT Act required dealers to debit unutilized ITC upon discontinuation of business. The GST Act allowed for transitional arrangements for ITC. Court's interpretation and reasoning: The Court interpreted that the introduction of the GST Act implied discontinuation of business under the VAT Act by operation of law. Consequently, dealers were required to debit unutilized ITC as per section 13(6) of the VAT Act. Key evidence and findings: The Court noted the absence of evidence that the opposite party had filed the GST TRANS-1 form, which would have facilitated the transition of ITC from the VAT regime to the GST regime. Application of law to facts: The Court applied section 13(6) of the VAT Act, which mandates debiting of unutilized ITC upon business discontinuation. The Tribunal's decision to allow ITC without considering this provision was deemed erroneous. Treatment of competing arguments: The opposite party argued that the ITC should be available under the GST Act's transitional provisions. However, the Court emphasized compliance with section 13(6) of the VAT Act and the necessity of debiting unutilized ITC. Conclusions: The Court concluded that the Tribunal erred in allowing ITC benefits without adhering to the statutory requirements of the VAT Act, particularly section 13(6). Issue 2: Discontinuation of Business and ITC Claims Relevant legal framework and precedents: The Court referenced the precedent set in M/s Farooq Agencies, which established that business discontinuation occurs by operation of law upon the introduction of a new tax regime. Court's interpretation and reasoning: The Court reasoned that the business under the VAT Act was deemed discontinued as of 30.06.2017, necessitating the debiting of ITC. Key evidence and findings: The Court found that the opposite party had not sold the purchased goods and maintained a closing stock, which required debiting of ITC as per section 13(6). Application of law to facts: The Court applied the legal principle from M/s Farooq Agencies, determining that the business was discontinued by law, thus requiring ITC debiting. Treatment of competing arguments: The opposite party's reliance on judgments allowing ITC transition was dismissed due to non-compliance with section 13(6) and lack of evidence of TRANS-1 form submission. Conclusions: The Court concluded that the Tribunal's decision was incorrect due to the failure to recognize the legal discontinuation of business and the statutory requirement to debit ITC. 3. SIGNIFICANT HOLDINGS Verbatim quotes of crucial legal reasoning: "The Tribunal miserably failed in not following the legal binding precedent given by this Court in the case of M/s Farooq Agencies (supra)." Core principles established: The Court reaffirmed the principle that business under an old tax regime is considered discontinued by the operation of law upon the introduction of a new regime, necessitating compliance with statutory ITC debiting requirements. Final determinations on each issue: The Court set aside the Tribunal's decision, ruling in favor of the Revenue. It concluded that the Tribunal erred in allowing ITC benefits without adhering to the VAT Act's provisions, particularly section 13(6), and that the business was deemed discontinued by law, requiring ITC debiting.
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