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TMI Blog2025 (3) TMI 561X X X X Extracts X X X X X X X X Extracts X X X X ..... eriod otherwise has expired.
Whether a claim for ITC can be rectified under Section 39 of the 2003 Act even if it is disadvantageous to the State Exchequer? - HELD THAT:- If the Assessee during the course of reassessment proceedings makes a claim for Input Tax Credit, the same cannot be disallowed only on the ground that the claim of the Assessee is disadvantageous to the State Exchequer - If the reassessed tax is more than what is payable, then the same has to be recovered from the Assessee along with admissible interest/penalty; as a corollary of this, what is paid is more than what is payable on reassessment, then the claim for Input Tax Credit has to be favoured if that is made before the conclusion of reassessment proceedings.
Conclusion - Claims for ITC rectification must be made before reassessment proceedings conclude or the limitation period expires.
Petition dismissed. X X X X Extracts X X X X X X X X Extracts X X X X ..... y, pursuant to Assessee's rectification application filed under section 69 for the tax periods April 2008 to March 2009, the earlier order rejecting the additional claim of Input Tax Credit was set right and eventually, the claim came to be allowed. For the tax periods April 2009 to March 2010 however, the Assessing Authority allowed the claim in the assessment proceedings under section 39 itself, by noting that a dealer cannot be denied the benefit provided by the statute i.e., section 14 of the Act. (d) The Joint Commissioner of Commercial Taxes initiated suo moto Revision Proceedings under section 63- A of the Act and passed an order setting aside those passed by the Assessing Authority under sections 39(1) and 69 and thereby disallowed additional claim of ITC for the subject periods, on the ground that more than what was claimed as ITC in the Return is not admissible, in the absence of a Revised Return. Aggrieved by this, Assessee preferred appeals and the Tribunal allowed the same by setting aside the orders of JCCT principally following the Coordinate decision of this Court in the Assessee 's own case for the previous tax period 2007-08 in TRACTOR AND FARM EQUIPMENT LTD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be rewarded; compliance with the conditions is a must; there is a statutory limitation for making the claim for Input Tax Credit; after all, Input Tax Credit being a concession, cannot be claimed as a matter of right. (B) Learned Sr. Advocate appearing for the Assessee per contra contended that: one of the avowed objects of 2003 Act is to grant benefit of Input Tax Credit; substantive provisions are enacted in that direction; delayed refund of Input Tax Credit attracts interest; in the scheme of Article 265 of the Constitution of India, State cannot retain money belonging to subjects; Input Tax Credit is not something like gratis, but partakes the character of State liability; therefore, Input Tax Credit is a concession, is misconceived; machinery provisions of a statute cannot override its substantive provisions; Act does not say that unless claim for Input Tax Credit is made in the Return, it cannot be allowed; after all, Assessee's case is not the one of not making the claim in the Return, but its one of rectification of what is claimed in the Return, that too relatable to the extant rates of tax; Act provides for self-assessment; virtually there is no limitation for claimi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability in any civilized society, such liability cannot be created except by a statute. When tax is due to the government, under a statute, subject has to remit it. A great Indian poet Kalidasa (500 CE) in his epic poem "Raghuvamsham" (1-18) states: "King Dilip collects from his subjects only 1/6th of their income as tax for the welfare of State, indeed like the sun taking earthly water drops, only to indemnify her with multiples of raindrops..." Chanakya in his acclaimed work "Arthashaastra" advises the Rulers: "Collect taxes from the citizens as honeybees collect nectar from the flowers, gently and without inflicting pain..."; (B) A BRIEF DESCRIPTION OF RELEVANT PROVISIONS OF 2003 ACT: (a) 2003 Act enacts Value Added Taxation replacing the conventional Sales Tax system. In its Statements of Objects and Reasons, it is inter alia stated: "(v) Tax paid on inputs purchased within the State is provided to be rebated against goods sold within the State, in the course of inter- State trade; (vi) Provides limited rebating of tax paid in excess of 4% to input used in the goods sent out of the State on stock or consignment;" Section 2(15) of the Act defines 'goods' and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... admits no interpretation. (c) We are at this point reverting to some provisions of section 10 again. Sub-section (4) contemplates evidentiary aspect of input tax for the purpose of working out net tax payable. What is very significant is sub-section (5) which has the following text: "Subject to input tax restrictions specified in Sections 11, 12, 14, 17, 18 and 19, where under sub-section (3) the input tax deductible by a dealer exceeds the output tax payable by him, the excess amount shall be adjusted or refunded together with interest, as may be prescribed." In essence, it provides for the adjustment or refund of input tax when it exceeds the output tax payable by a dealer. Very significantly, it awards interest on such excess amount payable to dealer. The underlying principle of this provision is that when what is exacted is more than what was liable, the excess has to be refunded, that too with interest. This is consistent with the constitutional obligation of a Welfare State, whose taxing power is regulated under Article 265. (C) AS TO THE NATURE OF CLAIM FOR INPUT TAX CREDIT: (a) There was a heated debate at the Bar as to the nature of Input Tax Credit: learned AGA Mr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Such conditions may be as to the form, limitation period or the like, is beside the point. (C) AS TO HOW THE COURTS VIEWED THE CONCEPT OF INPUT TAX CREDIT: (a) Learned AGA in support of his submission that Input Tax Credit is only a concession, cited GODREJ & BOYCE MFG. CO. PVT LTD vs. COMMISSIONER OF SALES TAX (1992) 3 SCC 624. This case essentially related to Bombay Sales Tax Act, 1959. At paragraph 9, the following observations occur: "In law (apart from Rules 41 and 41A) the appellant has no legal right to claim set-off of the purchase tax paid by him on his purchases within the State from out of the sales tax payable by him on the sale of the goods manufactured by him. It is only by virtue of the said Rules - which, as stated above, are conceived mainly in the interest of public - that he is entitled to such set-off. It is really a concession and an indulgence... We fail to understand how a valid grievance can be made in respect of such deduction when the very extension of the benefit of set-off is itself a boon or a concession." (b) The second decision cited by AGA is JAYARAM AND COMPANY vs. ASSISTANT COMMISSIONER (2016) 15 SCC 125. The Apex Court was examining certai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 21, it is observed: "...the said argument has no validity for the reason, firstly the ITC is a mere concession/rebate/benefit but not a statutory or constitutional right... That, by nature ITC is a concession/rebate/benefit but not a statutory right has been reiterated in a thicket of decisions.' (e) Learned Sr. Advocate appearing for the Assessee pressed into service a decision of a learned Single Judge of this Court in KIRLOSKAR ELECTRIC COMPANY LIMITED vs. STATE OF KARNATAKA 2018 SCC OnLine Kar 2301. The court was construing inter alia the provisions of section 10(3) of 2003 Act while examining as to whether the department was justified in negativing the claim for Input Tax Credit on the ground that it did not pertain to the same tax period. While faltering the stand of department, the said Judge at paragraph 29 observed: "Thus the claim of credit of input tax is indefeasible as was the case of CENVAT under Excise law and such credit of ITC under VAT law which is equivalent to tax paid in the chain of sales of the same goods, cannot be denied on the anvil of machinery provisions or even provisions relating to time frame which is law of limitation only bars the remedy rat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Twelfth Edition Fitzgerald as to what 'right' means: "...that in the strict sense, a duty is something owed by one person to another. Correspondingly, the latter has a right against the former... To ascribe a right to one person is to imply that some other person is under a corresponding duty. But the term 'right' like 'duty' can be used in a wider sense. To say that a man has a right to something is roughly to say that it is right for him to obtain it. That may entail that others ought to provide him with it, or that they ought not to prevent him from getting it, or merely that it would not be wrong for him to get it. What exactly is being claimed by the assertion that he has a right is not always clear..." Hohfeld Fundamental legal conceptions, pg.510, 7th Edition points out that the genesis of 'right (stricto sensu)' lies in the 'corresponding duty'. R.W.M.Dias Jurisprudence, 5th Edition, Pg.24 asserts that every claim (his equivalent for 'right') implies the existence of a correlative duty since it has no content apart from the duty. Salmond Supra, pg.232 drives home the point with a touch of an artist when he says 'there can be no right without a corresponding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y with some requirements which are directory in nature, the noncompliance of which would not affect the essence or substance of the notification granting exemption." From a holistic reading of all these cases, we gather an impression that meaning of the word 'concession' is not static, and it oscillates between gratis on the one extreme and right in the other, leaning more towards the latter, depending upon the text, context, subject matter and intent of the statute, wherein it occurs. When the courts said that Input Tax Credit is a concession, certainly they did not mean that it is a gratis, in the sense that its denial is absolutely non-justiciable. True it is, there are some observations: "Input Tax Credit is not a statutory right but only a concession." To us, this appears to be on one side of the spectrum. A learned Single Judge in KIRLOSKAR supra observed '...the claim of credit of input tax is indefeasible...'. At its core, this is merely another instance of hyperbole, albeit one that manifests on the other side of the spectrum. Truth oscillates between these two and where the pendulum stop depends upon the text, context & policy content of the statute concerned. (e) In o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exceptions/conditions enlisted inter alia in sections 11 to 18 of 2003 Act; therefore, section 35 read with Rule 38 of 2005 Rules being machinery provisions cannot override the substantive ones. As a broad proposition, this is attractive. Learned AGA in his inimitable style contended in variance. He tells that Input Tax Credit being only a concession, avails to a dealer as an exception and subject to compliance with conditions like format & limitation period. Let us examine these provisions. (b) In the light of our above observation, Input Tax Credit is not a gratis, it is a kind of concession in a limited sense and that it would avail if all the conditions prescribed for that are strictly complied with. Section 35 of the Act was heavily banked upon by the learned AGA to resist the claim of Input Tax Credit. Sub-sections (1), (3) & (4) of this section being relevant are reproduced: "(1) Subject to sub-sections (2) to (4), every registered dealer, and the Central Government, a State Government, a statutory body and a local authority liable to pay tax collected under sub-section (2) of Section 9, shall furnish a return in such form and manner, including electronic methods, and sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Authority to assess the correct tax liability and collect it. When there is a mistake, whether the dealer has furnished Revised Return or not, the authority has to rectify the same, though it works detrimental to the State Exchequer. Learned AGA per contra stressed literal interpretation of sub-section (2)(e) of section 39 to contend that the duty to rectify mistake arises only when it proves advantageous to the State Exchequer. This literal interpretation of learned AGA is difficult to countenance. As already mentioned above, if the Assessing Authority while undertaking the re-assessment, discovers deductions or exemptions that are wrongly allowed, he has to rectify the same even if it enures to the benefit of the dealer. Such a duty becomes more onerous when a representation is given by the dealer. There is no escape from this duty when deductions & exemptions have to be worked out on the basis of statutory notifications that have the character of subordinate legislation. A sectarian interpretation cannot be placed on a provision like this on the ground that whatever amount otherwise due to a dealer, lying at the hands of the State would be used for the public at large. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment of such tax. Subsection (4) of Section 35 provides for filing of a revised return if the assessee discovers any omission or incorrect statement in the returns filed under Section 35(1) of the Act. At the relevant point of time such a revised return had to be filed within 6 months from the end of the relevant tax period. Therefore, the statute provides for filing of a return, claiming input tax rebate within the period prescribed in law. If in the return filed there is any omission or incorrect statement, a provision is made for filing of a revised return within the time prescribed. If the returns are not filed within the said period, then the assessee would not be entitled to the benefit of setting off output tax against the input tax." (ii) In NANDI CONSTRUCTIONS vs. STATE OF KARNATAKA 2015 SCC OnLine Kar 9757, paras 6 & 7, another Coordinate Bench has observed: "The main issue to be decided by this Court is as to whether the petitioner can be granted benefit over and above that what has been claimed in the returns filed by the assessee for the relevant tax periods. Admittedly, the claim of the petitioner, in its returns filed for the relevant tax periods, was at 45% t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... read with Form VAT 100 requires that in order to claim Input Tax Credit, it should be stated in the Return or at least in Revised Return. We have already reproduced Rule 38 and relevant part of Form VAT 100. Now, let us see another important provision namely Rule 130A of 2005 Rules introduced w.e.f. 1.4.2007. It provides for certain benefits by way of refund or deduction of tax to dealers inter alia having units of business in Special Economic Zones. Sub-Rule (3) being relevant is reproduced: "The registered dealer claiming refund or deduction under this rule shall, claim refund or seek adjustment of tax paid on the goods purchased by him towards any output tax payable by him, in the return made under Rule 38 along with a statement giving the details of each purchase made by him and the purpose for which it was purchased." The text of this Rule is markedly different from that of Rule 38 in providing that the claim for refund or adjustment of tax paid, has to be stated in the Return itself. If Rule 38 as sought to be interpreted by the learned AGA requires claim for Input Tax Credit to be made in the Return itself, then where was the need for introducing Rule 130A (3) by way of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied with . In other words, wrongful denial of Input Tax Credit is justiciable. [2] We answer the second question conditionally as under: (i) Ordinarily, the claim for Input Tax Credit has to be made in the Return or Revised Return only. A claim otherwise is an exception and bona fide of the same has to be demonstrated. (ii) However, when underclaim is made in the Return/Revised Return due to bona fide mistake of adopting inapplicable rates of tax only, it is permissible to seek rectification by making a representation provided that the foundational fact matrix is already available in the Return/Revised Return. (iii) Further, no rectification whatsoever can be sought for, once the assessment/reassessment proceedings are concluded or that the limitation period otherwise has expired. [3] We answer the third question as to the invocability of section 39 of 2003 Act as under: (i) If the Assessee during the course of reassessment proceedings makes a claim for Input Tax Credit, the same cannot be disallowed only on the ground that the claim of the Assessee is disadvantageous to the State Exchequer. (ii) If the reassessed tax is more than what is payable, then the same has to b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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