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2020 (3) TMI 142 - HC - VAT and Sales TaxReduction of Input Tax Credit - purchases of hides and skins resold in the course of inter-State trade and commerce - denial of reimbursement as per section 15(b) of the CST Act - Gujarat VAT Act - HELD THAT:- While section 15(b) of the CST Act provides for reimbursement of the tax levied under the State law in case such goods are sold during the course of inter-State trade or commerce, in the manner and subject to the conditions provided in the State law; since under the GVAT Act, no rules have been prescribed for the manner and conditions subject to which such reimbursement shall be made, the dealers are given input tax credit in lieu of reimbursement. The question that arises for consideration is whether the State Government can reduce the input tax credit which amounts to reduction of the reimbursement to be made to the dealers. Reliance can be placed in the case of KADWANI FORGE LTD. VERSUS STATE OF GUJARAT [2014 (12) TMI 909 - GUJARAT HIGH COURT] - on reading of the said judgement, it appears that while the submissions made by the learned counsel for the petitioners therein, even regarding declared goods have been considered, they appear to have been considered in the context of the declared goods having been used in the manufacture of other goods which resulted in new and different goods being sold and not in the context of both purchase and sale of declared goods. Moreover, reading the findings recorded by the Division Bench in their entirety, it is evident that there is no discussion in the context of section 15(b) of the CST Act. While the court in the above decision has recorded the submissions advanced on behalf of the petitioners therein in respect of declared goods also, from the submissions advanced by the learned Advocate General it appears that in the facts of those cases, the petitioners had manufactured and sold, new and different goods and the vital condition for reimbursement under section 15 of the CST Act, viz. the purchased as well as sold goods both should be “declared goods”, was not satisfied; whereas in the facts of the present case, the petitioners are traders who have purchased declared goods and sold such declared goods in the course of inter-State trade and commerce. Moreover, as noted hereinabove, the aspect of section 15(b) of the CST Act has not been gone into in the above decision. Clause (3) of article 286 of the Constitution of India provides that any State law, insofar as it imposes or authorises the imposition of a tax on sale or purchase of goods declared by Parliament by law to be of special importance in inter-State trade or commerce shall be subject to such restrictions and conditions in regard to the system of levy, rates and other incidents of tax as Parliament may by law Specify. Thus, the imposition of tax on sale or purchase of declared goods is subject to the restrictions and conditions specified by the Parliament by law. The Parliament has enacted the law namely, section 15(b) of the CST Act, which in clear and unambiguous terms provides for reimbursement of the tax levied under the State law when such goods are sold in the course of inter-State trade or commerce. In the light of the provisions of article 286(3) of the Constitution read with section 15(b) of the CST Act, the State is bound to reimburse the State tax levied on declared goods. The impugned notification, to the extent it curtails the entitlement to input tax credit on sales or purchases of declared goods made during the course of inter-State trade or commerce, therefore falls foul of the above provisions of the Constitution and the CST Act which is the Central Act - Keeping in mind the fact that the impugned notification does not relate only to declared goods, the entire notification cannot be struck down. However, the notification has to be read down to mean that the non-entitlement to input tax credit provided thereunder shall not be applicable to goods which are both purchased and sold as declared goods. Thus, the impugned notification shall not be applicable to purchases of hides and skins resold in the course of inter-State trade or commerce. The respondents are, therefore, not justified in denying reimbursement of the whole of the State tax paid by the petitioners on the declared goods purchased in the State and sold in the course of inter-State trade and commerce - petition allowed - decided in favor of petitioner.
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