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2025 (5) TMI 1522 - HC - VAT / Sales TaxSale turnover - Input tax credit in exempted sales - Applicability of exemption provisions under Section 7(c) and the restrictions under Section 13(7) of the Act - HELD THAT - The Court is of the opinion that the issue in hand is squarely covered by the judgment of Neha Enterprises 2025 (4) TMI 564 - SUPREME COURT In the result the impugned order cannot be sustained in the eyes of law and the same is hereby quashed. The revision is allowed .
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court in this revision petition are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Entitlement to Input Tax Credit when Sales are Exempt under Section 7(c) of the Act Relevant legal framework and precedents: The Court examined the provisions of the Commercial Tax Act, focusing on Section 7(c) which exempts certain classes of dealers or goods from the levy of tax, as specified by notification. Section 13 governs the input tax credit mechanism, with Section 13(1) allowing credit to dealers to the extent prescribed, and Section 13(7) explicitly prohibiting input tax credit where the sale of goods is exempt under Section 7(c). The Court relied heavily on the binding precedent set by the Apex Court in the case of Neha Enterprises, which dealt with identical issues. The Apex Court's reasoning in paragraph 10 of its judgment was pivotal. Court's interpretation and reasoning: The Court interpreted Section 7(c) as providing an exemption from tax levy on certain goods or dealers, as notified by the State Government. However, this exemption does not automatically entitle the dealer to claim input tax credit under Section 13. The Court emphasized the distinct and separate concepts of taxable persons, taxable goods, and taxable events within tax jurisprudence, highlighting that input tax credit is a benefit granted only in respect of taxable transactions. Section 13(7) was held to be a statutory bar against allowing input tax credit for purchases of goods whose sale is exempt under Section 7(c). The Court noted that this prohibition is mandatory and cannot be overridden by any policy or intention inferred from the exemption notifications. Key evidence and findings: The Court considered the admitted facts that the turnover in question fell under the exemption notification issued under Section 7(c). The revisionist's claim for input tax credit was in direct conflict with the statutory bar under Section 13(7). Application of law to facts: Applying the statutory provisions and the Apex Court's authoritative interpretation, the Court found that the revisionist was not entitled to the input tax credit claimed. The exemption from tax under Section 7(c) precluded the availability of input tax credit as per Section 13(7). Treatment of competing arguments: The revisionist argued, based on policy considerations and the intention behind the exemption notifications, that input tax credit should be allowed. However, the Court rejected this argument, holding that the clear statutory language in Section 13(7) prevails over any such policy considerations. The Court underscored that the dealer availing exemption under Section 7(c) is aware of the limitations on input tax credit. Conclusions: The Court concluded that the input tax credit cannot be allowed where the sale turnover is exempt under Section 7(c), and the impugned order permitting such credit was legally unsustainable. Issue 2: Binding Effect of the Apex Court Judgment Relevant legal framework and precedents: The Court considered the principle of stare decisis and the binding nature of Apex Court decisions on High Courts. The Apex Court's judgment in Neha Enterprises was directly on point and had been affirmed in Civil Appeal No. 6553 of 2016. Court's interpretation and reasoning: The Court noted that the Apex Court had clearly interpreted the provisions of Sections 7(c) and 13(7) and dismissed the appeal, thereby setting a binding precedent. The Court found no reason to deviate from this authoritative interpretation. Application of law to facts: The Court applied the Apex Court's ruling to the facts of the present case, which were substantially similar, and concluded that the impugned order was contrary to the binding precedent. Treatment of competing arguments: No competing precedent or legal principle was advanced that would justify departing from the Apex Court's decision. Conclusions: The Court held that the judgment of the Apex Court in Neha Enterprises is binding and dispositive of the issue, mandating the quashing of the impugned order. 3. SIGNIFICANT HOLDINGS The Court upheld the following crucial legal principles and determinations: Verbatim excerpt from Apex Court judgment relied upon: "Plainly interpreting and applying section 7(c) provides that no tax under the Act shall be levied and paid on the turnover of sale or purchase of such goods by such class of dealers as may be specified in the notification. The said exemption applies to the goods and also to the class of dealers who satisfy the conditions and fall within the notification issued under section 7(c) of the Act. ... Section 13(7) also sets out that no facility for input tax credit shall be allowed to a dealer with respect to the purchase of any goods where the sale of such goods by the dealer is exempt from tax under Section 7(c) of the Act. The prohibition from allowing input tax credit is a statutory mandate, and the view taken by the orders impugned, in the facts and circumstances of this case, is available and correct." The Court conclusively determined that:
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