Input Tax Credit (ITC) is a vested right or concession - Can government impose conditions or restrictions for availing ITC?

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Earlier there were lot of confusions and contradictory judgements on availability of Input Tax Credit (ITC) as vested right to the assessee.

Finally, the issues with reference to erstwhile VAT laws has been decided by the Apex Court in following terms:

JAYAM & CO. VERSUS ASSISTANT COMMISSIONER & ANR. [2016 (9) TMI 408 - SUPREME COURT]

“12. It is a trite law that whenever concession is given by statute or notification etc. the conditions thereof are to be strictly complied with in order to avail such concession. Thus, it is not the right of the 'dealers' to get the benefit of ITC but its a concession granted by virtue of Section 19. As a fortiorari, conditions specified in Section 10 must be fulfilled.”

STATE OF GUJARAT VERSUS RELIANCE INDUSTRIES LIMITED [2017 (9) TMI 1307 - SUPREME COURT]

“18…………..This VAT is payable on the price at which such goods are sold, costing whereof is done keeping in view the expenses involved in the manufacture of such goods plus the profits which the manufacturer intends to earn. Insofar as costing is concerned, element of expenses incurred on raw material would be included. In this manner, when the final product is sold and the VAT paid, component of raw material would be included again. Keeping in view this objective, the Legislature has intended to give tax credit to some extent. However, how much tax credit is to be given and under what circumstances, is the domain of the Legislature and the courts are not to tinker with the same.”

ALD AUTOMOTIVE PVT. LTD. VERSUS THE COMMERCIAL TAX OFFICER NOW UPGRADED AS THE ASSISTANT COMMISSIONER (CT) & ORS. [2018 (10) TMI 814 - SUPREME COURT]

“38…………..The conditions under which Input Tax Credit is to be given are all enumerated in Section 19 as noticed above. The condition under which the concession and benefit is given is always to be strictly construed. In event, it is accepted that there is no time period for claiming Input Tax Credit as contained in Section 19(11), the provision become too flexible and give rise to large number of difficulties including difficulty in verification of claim of Input Credit. Taxing Statutes contains selfcontained scheme of levy, computation and collection of tax. The time under which a return is to be filed for purpose of assessment of the tax cannot be dependent on the will of a dealer. The use of word ‘shall’ in Section 19(11) does not admit to any other interpretation except that the submission of Input claimed cannot be beyond the time prescribed.”

Therefore, in view of the above decisions of the Apex Court, it is very much clear that assessee cannot claim the benefit of Input Tax Credit as vested right. Input Tax Credit (ITC) is concession given by the legislature for which it is within the domain of the legislature to put such restrictions or conditions as it may deem fit.

Putting Fresh Restrictions and / or Conditions with retrospective effect:

However, the position may be different, where the right, as per the prevailing provisions of law, has already been arisen and legislature / department attempt to deny that right with retrospect effect.

In the same Judgement as discussed supra wherein the Apex Court has decided the issue of vested right in favor of Revenue, has decided the issue of retrospectivity in favor of assessee.

JAYAM & CO. VERSUS ASSISTANT COMMISSIONER & ANR. [2016 (9) TMI 408 - SUPREME COURT]

“18………….as can be seen, sub-section (20) of Section 19 is altogether new provision introduced for determining the input tax in specified situation, i.e., where goods are sold at a lesser price than the purchase price of goods. The manner of calculation of the ITC was entirely different before this amendment. In the example, which has been given by us in the earlier part of the judgment, 'dealer' was entitled to ITC of ₹ 10/- on re-sale, which was paid by the dealer as VAT while purchasing the goods from the vendors. However, in view of Section 19(20) inserted by way of amendment, he would now be entitled to ITC of ₹ 9.50. This is clearly a provision which is made for the first time to the detriment of the dealers. Such a provision, therefore, cannot have retrospective effect, more so, when vested right had accrued in favour of these dealers in respect of purchases and sales made between January 01, 2007 to August 19, 2010. Thus, while upholding the vires of sub-section (20) of Section 19, we set aside and strike down Amendment Act 22 of 2010 whereby this amendment was given retrospective effect from January 01, 2007.”

Conclusion:

When law is clear and puts certain conditions / restrictions on availability of Input Tax Credit (ITC) an assessee has be comply with those requirements.