9911796707
TMI Blog2025 (2) TMI 675X X X X Extracts X X X X X X X X Extracts X X X X ..... ment Act deals with amendment to Section 13 of the Punjab VAT Act. A taxable person who had stock in trade as on 25.01.2014 or as on 01.02.2014 had already paid the tax while making the purchase of such goods. In this case, the purchase was made by paying higher rate of tax on iron and steel goods to be used as input for the purpose of manufacture etc. of taxable goods. The taxable person who is otherwise entitled to avail input tax credit on the goods already purchased and lying in stock would suffer 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. In Eicher Motors Limited Vs. Union of India [1999 (1) TMI 34 - SUPREME COURT], a three- Judge Bench of this Court examined the challenge to the validity and application of the sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch remained as part of the stock in trade at the time of closure of business. Such an interpretation besides being fallacious, would also lead to revenue loss for the State exchequer.
Conclusion - The interpretation given by the High Court to the applicability of Rule 21(8) of the Punjab VAT Rules read with the amended first proviso to sub-section (1) of Section 13 of the Punjab VAT Act is legally sound and warrants no interference.
There are no merit in the appeal which is accordingly dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... tput tax 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, under the Punjab VAT Act. 9. A taxable person shall be entitled to input tax credit in such manner and subject to such conditions as may be prescribed in respect of input tax on taxable goods including on capital goods purchased by him from a taxable person within the State during the tax period. However, such goods must be for sale in the State of Punjab or in the course of inter-state trade, commerce or in the course of export or for use in the manufacture, processing or packing of taxable goods for sale within the State of Punjab or in the course of inter-state trade or commerce or in the course of export. 9.1. Taxable person has been defined to mean a person who is registered for the purpose of paying value added tax under the Punjab VAT Act and tax period means the period for which a person is required to pay tax under the Punjab VAT Act or the rules framed thereunder. 10. Section 13(1) of the Punjab VAT Act read with the first proviso thereto, as it stood prior to amendment, provided that a taxable person shall be entitled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was further clarified that the new tax regime would come into effect from 01.02.2014. 14. Punjab Government in the Department of Excise and Taxation also issued notification bearing No. S.O.9/P.A.8./2005/ S.8/2014 dated 25.01.2014 making amendment in Schedule 'E' appended to the Punjab VAT Act mentioning that the same was being done in exercise of the powers conferred by sub-section (3) of Section 8 of the Punjab VAT Act dispensing with the condition of previous notice. As per the amendment, serial No.21 was added to Schedule E whereby iron and steel goods as enumerated in Clause IV of Section 14 of the Central Sales Tax Act, 1956 except non-cenvat paid iron and steel scrap would attract tax at 2.5 per cent whereas non-cenvat paid iron and steel scrap would attract tax at 1 per cent. 15. Respondent filed CWP No. 7951 of 2014 before the High Court for a declaration that Rule 21 (8) of the Punjab VAT Rules as inserted vide the notification dated 25.01.2014 was ultra vires the Constitution and the Punjab VAT Act. Contention of the respondent was that credit for the tax already paid by the taxable person on goods kept as stock in trade would be reduced by virtue of Rule 21 (8) whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stage of sale and in certain cases, no ITC may be available. A dealer would be entitled to ITC on the stock in trade held as on 31.01.2014 equal to the new rate of tax plus surcharge effective from 01.02.2014. The goods purchased prior to 31.01.2014 and not sold or utilised till 31.01.2014 would be eligible to ITC at the new rate enforced till further sale. Thus, he would not be entitled to credit at the same rate of tax which was applicable at the time of procurement. 18.3. High Court has failed to appreciate that amendment to the Punjab VAT Rules applies only to the rate of tax prevailing on the date of sale of the stock in trade and, therefore, does not affect the rights of a dealer or the ITC on the transaction which stood concluded. 18.4. Learned counsel has referred to the rule making provision in the Punjab VAT Act i.e. Section 70. He submits that as per sub-section (2) of Section 70, the rules under the Punjab VAT Act may be made either with prospective effect or with retrospective effect. However, he concedes that as per the proviso thereto, the rules shall be made with retrospective effect only if the same are required to be made in public interest. 18.5. He finally s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... already sold or used in manufacture. This amendment therefore enabled the State to reduce the input tax credit already earned on the stock in trade by reference to the reduced rate of taxation. 19.3. State of Punjab introduced Rule 21(8) in the Punjab VAT Rules vide the notification dated 25.01.2014, the effect of which was that though the respondent would have paid tax at the existing higher rate on the purchase of raw material used as input, it would not be in a position to recover the whole of it from the customers because of subsequent reduction in the rate of tax. 19.4. Learned counsel vehemently argued that the State did not have the legislative competence to reduce the input tax credit already earned by inserting sub-rule (8) in Rule 21 before making amendment in the corresponding enactment i.e. Section 13 of the Punjab VAT Act. Amendment in the Punjab VAT Act having come into effect from 01.04.2014, the amendment in Rule 21(8) of the Punjab VAT Rules could not have come into force prior thereto. 19.5. Learned counsel for the respondent submits that there is no error or infirmity in the view taken by the High Court. Appeal filed by the State lacks merit and, therefore, sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of export. 23. The aforesaid provision says that a taxable person shall be entitled to ITC in respect of input tax on taxable goods, including capital goods, purchased by him from a taxable person within the State during the tax period. As per the unamended first proviso, such goods should be for sale in the State or in the course of inter-state trade or commerce or in the course of export or for use 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. 23.1. Sub-section (9) of Section 13 provides that a person shall reverse input tax credit availed by him on goods which could not be used for the purposes specified in sub-section (1) of Section 13 or which remained in stock at the time of closure of the business. 24. Section 70 is the rule making provision. While subsection (1) empowers the state government to make rules for carrying out the purposes of the Punjab VAT Act, sub-section (2) on the other hand provides that rules made under the Punjab VAT Act may be either with prospective effect or with retrospective effect. As per the proviso to sub-section (2), the rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 5 of the Second Amendment Act deals with amendment to Section 13 of the Punjab VAT Act. As per the amendment, the first proviso to subsection (1) of Section 13 was amended and post amendment, the said proviso reads as under: Provided that the input tax shall not be available as input tax credit unless such goods are sold within the State or in the course of inter-state 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. 32. As already noticed above, this provision came into the statute book on and with effect from 01.04.2014. Before proceeding further, it would be apposite to examine the said provision as it existed prior to the amendment and compare the same post amendment. Prior to amendment, the first proviso mentioned that a taxable person would be entitled to input tax credit in respect of input tax on taxable goods purchased by him from a taxable person within the State during the tax period if such goods are for sale in the State or in the course of inter-state trade or commerce or in the course of ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date of their sale. As referred to above, the rate of taxation was reduced from 4% to 2% from 25.01.2014. The input tax credit already earned would, therefore, be available with respect to goods lying in stock at 2%. The petitioner-members, as is apparent from the facts, had paid tax @ 4% while purchasing the goods and had earned input tax credit @ 4%.The goods having been purchased for resale within the State of Punjab, the right to avail input tax credit @ 4% per annum stood crystalised as a determinate right subject to availing this right during the return period or by carrying it forward. The State, however, by enacting Rule 21(8) of the Rules, has reduced the admissible amount of input tax credit already earned from 4% to 2%.We cannot possibly dispute the legislative competence of the State in the exercise of its power of delegated legislation to enact such a rule but the question, as we have also noticed, is not the legislative competence of the State but is whether on 25.01.2014 there was any provision in the statute that empowered the State of Punjab to notify Rule 21(8) of the Rules to provide that goods that have already earned input tax credit would avail input tax credi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the reduced rate of tax on the stock in trade i.e. transactions that had concluded with the dealer already earning input tax credit. A further perusal of the amendment in the first proviso to Section 13 of the Act reveals that it is not retrospective but applies to transactions after 25.01.2014. The amendment in the rule, which came into effect prior to the amendment of the Act could, therefore, not be enforced by the respondents before 01.04.2014 to take away a vested right already determined without statutory sanction. We, therefore, allow the writ petitions and hold that in the absence of any provision in the statute enabling the State of Punjab to notify Rule 21(8) of the Rules w.e.f. 25.01.2014, the said provision would come into effect from 01.04.2014. 36. According to us, view taken by the High Court is logical and correct. A taxable person who had stock in trade as on 25.01.2014 or as on 01.02.2014 had already paid the tax while making the purchase of such goods. In this case, the purchase was made by paying higher rate of tax on iron and steel goods to be used as input for the purpose of manufacture etc. of taxable goods. The taxable person who is otherwise entitl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we may have no hesitation to hold that the Rule cannot be applied to the goods manufactured prior to 16.03.1995 on which duty had been paid and credit facility thereto has been availed of for the purpose of manufacture of further goods. 38. Sedco Forex International Drill INC.Vs. Commissioner of Income Tax, Dehradun (2005) 12 SCC 717, is a case where this Court reiterated the well settled principle of tax law that the law to be applied is that which is in force in the relevant assessment year unless otherwise provided expressly or by necessary implication. In so far an explanation to a statutory provision is concerned if it is clarificatory in nature then the explanation must be read into the main provision with effect from the time the main provision came into force. But if it changes the law, it is not to be presumed to be retrospective. Para 17 of the aforesaid decision reads as follows: 17. As was affirmed by this Court in CIT Vs. Goslino Mario (2000) 10 SCC 165, a cardinal principle of the tax law is that the law to be applied is that which is in force in the relevant assessment year unless otherwise provided expressly or by necessary implication. (See also Reliance Jute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ab VAT Act which permitted availing of input tax credit at the lower rate of tax on the existing stock in trade though the purchase of such input was already made at a higher rate of tax thereby reducing the quantum of credit. The enabling provision in the statute i.e. first proviso to Section 13(1) of the Punjab VAT Act came into force with effect from 01.04.2014. 41.1. The benefit of input tax credit is traceable to the statute. If the same has to be reduced, which will have an adverse civil consequence upon the beneficiary, it must have the requisite statutory sanction. In this case, the statutory sanction came on and from 01.04.2014 with the amendment of the first proviso to Section 13(1) of the Punjab VAT Act. Therefore, the High Court was justified in holding that prior to 01.04.2014, there was no statutory sanction to allow applicability of Rule 21(8) on the stock in trade i.e. on inputs already purchased for which transactions stood concluded at a higher rate of tax. 41.2. This issue can also be looked at from another angle. As we have seen, under sub-section (9) of section 13, a person is under a mandate to reverse input tax credit availed by him on goods which could not ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
