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TMI Blog2025 (2) TMI 675X X X X Extracts X X X X X X X X Extracts X X X X ..... State of Punjab vs Jalandhar Iron and Steel Merchants Association (Regd.). 3. Since parties have advanced their arguments in Civil Appeal No. 2212 of 2024 (State of Punjab Vs. Trishala Alloys Pvt. Ltd.), the same is taken as the lead appeal and for the sake of convenience, facts stated in the said appeal would be referred to hereunder. 4. This appeal by special leave is directed against the order dated 20.05.2015 passed by the High Court of Punjab and Haryana at Chandigarh (briefly 'the High Court' hereinafter) in CWP No. 7951/2014 (Trishala Alloys Private Ltd. Vs. State of Punjab) whereby the High Court has allowed the writ petition filed by the respondent by following its judgment and order of even date passed in CWP No. 5625/2014 (Jalandhar Iron and Steel Merchants Association Vs. State of Punjab). 5. State of Punjab has filed the related petition for special leave to appeal (civil) No. 35263/2016 assailing the order dated 20.05.2015. 6. Question for consideration is whether Rule 21(8) of the Punjab Value Added Tax Rules, 2005 (Punjab VAT Rules) could have been introduced during the period between 25.01.2014 to 01.04.2014 when there was no enabling provision in the paren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e person within the State during the tax period if such goods are for further sale etc or for manufacture etc of taxable goods. 10.1. After amendment with effect from 01.04.2014, the mandate of the provision undergoes a change in that input tax credit would be available only if the goods are sold or are used in manufacture etc. 11. In exercise of the powers conferred by sub-section (1) of Section 70 of the Punjab VAT Act, the Punjab VAT Rules have been framed. 11.1. Rule 18 deals with conditions for input tax credit whereas input tax credit on capital goods is dealt with in Rule 19. 11.2. Rule 21 is relevant. It provides for inadmissibility of input tax credit in certain cases, such as, no input tax credit shall be admissible to a person for tax paid on purchase of goods if such goods are lost or destroyed or damaged beyond repair etc. Calculation of input tax credit is dealt with in Rule 22. 12. Government of Punjab in the Department of Excise and Taxation issued notification bearing No.G.S.R.5/P.A.8/ 2005/S.70/Amd.(53)/2014 dated 25.01.2014 making the Punjab Value Added Tax (First Amendment) Rules, 2014 ('First Amendment Rules' hereinafter) to further amend the Punjab VAT Ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t petition holding that on the date of introduction of sub-rule (8) in Rule 21 of the Punjab VAT Rules, the State did not possess any power traceable to the Punjab VAT Act to confine the rate of input tax credit to the reduced rate of tax on the stock in trade i.e. on those concluded transactions where the taxable person had already earned input tax credit at the previous higher rate of tax. 17. Aggrieved thereby, the State is in appeal. 18. Learned counsel for the appellant submits that the High Court was not at all justified in allowing the writ petition filed by the respondent holding that on the date of introduction of sub-rule (8) in Rule 21 of the Punjab VAT Rules, the State did not possess any power to confine availing of input tax credit (ITC) to the reduced rate of tax on the stock in trade i.e. in respect of transactions that stood concluded with the taxable person already earning input tax credit at the previous higher rate of tax. Judicial intervention in such a case was not warranted. 18.1. Referring to Section 2(o) of the Punjab VAT Act, he submits that input tax is the tax paid or payable in the course of business on the purchase of any goods made from a registere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e impugned provision may be examined from that perspective also. 19. Per contra, learned counsel for the respondent submits that the High Court had rightly observed that on the date of introduction of sub-rule (8) in Rule 21, the State did not possess any power emanating from the Punjab VAT Act to confine the availing of input tax credit (ITC) to the reduced rate of tax on the stock in trade i.e. on the transaction which stood concluded with the dealer already earning input tax credit at the previous higher rate of tax. He submits that a perusal of the amendment in the first proviso to Section 13(1) of the Punjab VAT Act would reveal that the said provision is not retrospective but applies to transactions after 01.04.2014. The amendment in the said Rule which came into effect prior to the amendment in the Punjab VAT Act could therefore not be enforced by the appellant before 01.04.2014 to take away a vested right already determined and accrued to the respondent without any statutory sanction. 19.1. Based on the above submission, learned counsel for the respondent contends that the limited issue in this appeal is whether Rule 21(8) of the Punjab VAT Rules could have been introduce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e due consideration of the Court. 21. At the outset, let us refer to and analyse the relevant statutory provisions. Section 2 of the Punjab VAT Act is the definition section. Section 2(o) deals with input tax. It says that input tax in relation to a taxable person means the value added tax (VAT), paid or payable under the Punjab VAT Act, by a person on the purchase of taxable goods for resale or for use by the taxable person in the manufacture or processing or packing of taxable goods in the State. Input tax credit has been defined in Section 2(p) to mean the credit of input tax (ITC) available to a taxable person under the Punjab VAT Act. On the other hand, output tax as defined in Section 2(s) in relation to a taxable person means the tax charged or chargeable or payable in respect of sale and/or purchase of goods, as the case may be. Reverse input tax credit as per Section 2(ze) means the amount of input tax credit (ITC) which is required to be reversed by a taxable person on account of the four situations enumerated thereunder including one where credit note for output tax is received from the seller of goods on purchase in respect of which input tax credit is claimed. While t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est. 25. While Rule 18 of the Punjab VAT Rules mentions the conditions for input tax credit, Rule 19 on the other hand deals with input tax credit on capital goods. 26. Rule 21 deals with inadmissibility of input tax credit in certain cases. At the relevant point of time, Rule 21 had six sub rules, sub-rule (7) having been omitted. Input tax credit would not be admissible to a person for the tax paid on purchase of goods if such goods are lost or destroyed or damaged beyond repair etc. 27. By notification dated 25.01.2014, Government of Punjab made the Punjab VAT (First Amendment) Rules, 2014 declaring that the amended provisions would come into force with effect from 01.02.2014. By the First Amendment Rules, Rule 21 of the Punjab VAT Rules was amended in the sense that after sub-rule (6), sub-rules (7) and (8) were added. 28. We have already extracted sub-rule (8) of Rule 21. It says that where some goods as input or output are lying in the stock of a taxable person and where the rate of tax on such goods is reduced from a particular date, then from that date, input tax credit shall be admissible to the taxable person on the sale of goods lying in stock or on using the said g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he State or in the course of inter-state trade or commerce or in the course of export. Post amendment, the first proviso says that input tax shall not be available as input tax credit unless such goods are sold within the State or in the course of interstate trade or commerce or in the course of export or are used in the manufacture, processing or packing of taxable goods for sale within the State or in the course of inter-state trade or commerce or in the course of export. 33. The difference in language in the said provision as it stood prior to amendment and post amendment is unmistakable. Prior to amendment, the first proviso permitted availing of input tax credit in respect of goods which are for sale etc. or are for use in manufacture etc. Post amendment, the requirement is that input tax would not be available as a credit unless the goods are sold within the State etc. or are used in the manufacture etc. of taxable goods. Post amendment, it is clear that no input tax would be available unless the goods are sold etc. or used in the manufacture etc. In other words, input tax credit would be available on and from the date of further sale or use in manufacture. 34. As we have a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit already earned on goods lying in stock by reference to the reduced rate of tax prevalent on the date of their sale etc. 35.1. However, High Court noted that as on 25.01.2014, there was no provision in the statute that empowered the State to enact a rule to provide that input tax credit already earned on goods lying in stock could now be availed at the reduced rate as the rate of tax on the goods in question stood reduced in the interregnum. Such a power came to be conferred only after the first proviso to Section 13(1) was amended on and from 01.04.2014. It was in that context, High Court held as follows : The amendment in the first proviso to Section 13 of the Act introducing the words "are sold" etc. came into effect on 01.04.2014. The State of Punjab was, therefore, empowered in the exercise of its power of delegated legislation to notify a rule linking the availing of input tax credit already earned to their sale on 01.04.2014. Rule 21(8) of the Rules which resonates the first proviso to Section 13 of the Act by linking the availing of input tax credit to goods sold and thereby to the reduced rate of taxation, came into effect on 25.01.2014 on which date there was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serious prejudice and loss if his entitlement to input tax credit are reduced by virtue of lowering of the rate of tax on such goods on a subsequent date. High Court has noted that the enabling provision in the statute came into effect on and from 01.04.2014 and, therefore, Rule 21(8) of the Punjab VAT Rules which permits application of the reduced rate of tax cannot be given effect to transactions which already stood concluded prior thereto. It could only be applied to transactions on and from 01.04.2014. 37. In Eicher Motors Limited Vs. Union of India (1999) 2 SCC 361, a three- Judge Bench of this Court examined the challenge to the validity and application of the scheme as modified by way of introduction to Rule 57(F) of the Central Excise Rules, 1944 under which credit which was lying unutilised as on 16.03.1995 with the manufacturers stood lapsed in the manner set out therein. While examining the above issue, this Court held that if on the inputs, the assessee had already paid the taxes on the basis that when the goods are utilised in the manufacture of further products as inputs thereto then the tax on these goods gets adjusted which are sold subsequently. Thus, a right accr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fulfil the purpose of clearing up an ambiguity in the main provision or an Explanation can add to and widen the scope of the main section (See Sonia Bhatia Vs. State of U.P. (1981) 2 SCC 585). If it is in its nature clarificatory then the Explanation must be read into the main provision with effect from the time that the main provision came into force ( See Shyam Sunder Vs. Ram Kumar (2001) 8 SCC 24, Brij Mohan Das Laxman Das Vs. CIT (1997) 1 SCC 352 and CIT Vs. Podar Cement (P) Ltd. ( 1997 ) 5 SCC 482 ). But if it changes the law, it is not presumed to be retrospective, irrespective of the fact that the phrases used are "it is declared" or "for the removal of doubts". 39. This Court in Commissioner of Central Excise, Patna Vs. New Swadeshi Sugar Mills ( 2016 ) 1 SCC 614 , agreed with the interpretation given by the Customs Excise and Service Tax Appellate Tribunal to Rule 6 of the CENVAT Credit Rules, 2002 by holding that CENVAT credit which was already earned by the assessee could not have been taken away if the rigors of Rule 6 would be having only prospective effect. 40. Again in the case of Jayam and Company Vs. Assistant Commissioner ( 2016 ) 15 SCC 125 , this Court in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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