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2015 (8) TMI 63 - PUNJAB & HARYANA HIGH COURT

2015 (8) TMI 63 - PUNJAB & HARYANA HIGH COURT - [2015] 82 VST 472 (P&H) - Denial of Input tax credit - Held that:- Value added tax paid at the rate in force on the date of purchase of goods from a taxable person, becomes input tax credit on the date of purchase, if the purchased goods are for resale etc., in the manner prescribed, thereby providing that input tax credit earned by a taxable person on the date of purchase of taxable goods, at the rate of taxation in force, during a particular tax .....

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t tax credit, regarding the goods lying in stock, on 21.01.2014. The dispute is confined to Rule 21(8) of the Rules.

A perusal of the Act reveals that on 21.01.2014 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 shall now be availed and calculated by reference to the reduced rate of taxation prevalent on the date of their sale. The amendment conferring such a power by amending the f .....

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ct 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 21.01.2014 on which date there was no statutory provision enabling the S .....

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but as subordinate legislation may only be notified if it is relatable to statutory power enabling the State to notify such a rule, but the absence of such a provision in the statute, empowering the State to notify such a rule, between 21.01.2014 and 01.04.2014, in our considered opinion, did not empower the State, in the exercise of its power of delegated legislation to notify Rule 21(8) of the Rules on 21.01.2014. - on the date of introduction of sub Rule (8) of Rule 21 of the Rules, the State .....

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forced, by the respondents before 01.04.2014 to take away a vested right already determined without statutory sanction. - Decided in favour of assessee. - C. W. P. Nos. 5625, 6042, 6046, 6221, 6222, 6251, 7907, 7951, 8025, 8141, 9229, 26767 of 2014 C. W. P. Nos. 322, C. W. P. Nos. 371 of 2015 - Dated:- 20-5-2015 - Rajive Bhalla And Amol Rattan Singh,JJ. For the Appellant : Mr Sandeep Goyal, Adv. and Mr J S Bedi, Adv For the Respondents : Mr Piyush Kant Jain, Addl. A.G JUDGMENT Rajive Bhalla,J. B .....

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certiorari, declaring Rule 21(8) of the Punjab Value Added Tax Rules, 2005 (hereinafter referred to as the 'Rules') and clarification, Annexure P-4, ultra vires and/or inapplicable to the input tax credit already earned. Counsel for the petitioner submits that Section 13(1) of the Punjab Value Added Tax Act, 2005 (hereinafter referred to as the 'Act') provides that a taxable person i.e. a dealer, is entitled to input tax credit on purchases made during the tax period, subject ho .....

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uot;Net tax payable by a taxable person" provides that the net tax payable for the tax period shall be determined by deducting the amount of input tax credit available to such person and would include input tax credit carried forward from the preceding tax period, if any. The input tax credit was, therefore, earned by a taxable person on the date of purchase of taxable goods during a particular tax period and fructified into a tangible right on the date of purchase, provided the goods were .....

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he effect of this amendment is that goods that had already earned input tax credit, lying in stock with a dealer, at the time of purchase would be reduced by reference to the reduced rate of taxation, in force on the date of the sale. Counsel for the petitioner further submits that on the date of coming into force of Rule 21(8) there was no enabling provision in the Act, that empowered the State to reduce the rate of input tax credit already earned by reference to the sale of goods lying in stoc .....

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king power to reduce input tax credit already earned on stock in trade, by reference to the reduced rate of taxation in force on the date of sale. The amended proviso to Section 13 of the Act having come into effect from 01.04.2014, the amendment in Rule 21(8) of the Rules could not come into force before the amendment of the first proviso to Section 13 of the Act. The State of Punjab has, however, applied Rule 21(8) of the Rules, before the amendment of the proviso to Section 13 of the Act. Cou .....

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petuated by the amendment, a clarification has been issued which further complicates the matter. Counsel for the State of Punjab submits that input tax credit is available only when the dealer further sells the goods. This apart, Section 13 of the Act clearly postulates that input tax credit can be earned in such manner and subject to such conditions as may be prescribed. The State was, therefore, well within its power to notify Rule 21(8) of the Rules and prescribe further terms and conditions .....

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a and others Vs. Nitdip Textile Processors Private Limited and another (2012) 1 SCC 226 We have heard counsel for the parties and perused provisions of the Act and the Rules. The question that calls for an answer is whether on 21.01.2014, the Act empowered the State to notify Rule 21(8) of the Rules? The Punjab Value Added Tax Act, 2005, provided before the first proviso to Section 13 of the Act was amended, that a person who purchases goods from another taxable person would earn input tax and w .....

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follows: - "Section 2 (o) "input tax" in relation to a taxable person means value added tax (VAT), paid or payable under this Act by a person on the purchase of taxable goods for resale or for use by him in the manufacture or processing or packing of taxable goods in the State. (p) "input tax credit" means credit of input tax (in short referred to a ITC) available to a taxable person under this Act. (s) "output tax" in relation to a taxable person means the ta .....

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note for output tax received from the seller of goods on purchases in respect of which input tax credit is claimed; (ii) Goods, returned subsequent to availing the input tax credit; (iii) Goods, subsequently not used in accordance with the conditions prescribed for availing input tax credit; and (iv) Having availed the credit required to reverse the same in accordance with the provisions of sub sections (8) and (9) of section 13. (zm) "tax period" means a period for which a person is r .....

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de 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: Provided further that a taxable person shall be entitled to partial input tax credit in any other event, as may be provided in this section in such manner and subject to such conditions as may be prescribed: Provided further that if, purchases are used partially for the purposes spec .....

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id in the State exceeds four percent on purchase of goods - (a) sent outside the State other than by way of sale in the course of inter-State trade or commerce or in the course of export out of territory of India; and (b) used in manufacturing or in packing of taxable goods sent outside the State other than by way of sale in the course of inter- State trade or commerce or in the course of export out of the territory of India. (3) Where a taxable person sends any goods as such or after being part .....

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pentine oil, water methanol mixture, naphtha and lubricants, shall be allowed only to the extent by which the amount of tax paid in the State exceeds four per cent: Provided that these goods are used in production of taxable goods or captive generation of power. (5) A taxable person under this section, shall not qualify for input tax credit in respect of the tax paid on purchase of, - (a) automobiles including commercial vehicles, two wheelers, three wheelers and spare parts for the repair and m .....

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and fittings, unless the taxable person is in the business of such goods; (f) air-conditioning units, air circulators and refrigeration units, unless the taxable person is in the business of dealing in such goods or where air-conditioning, air circulating or refrigeration is essential for sale or storage of taxable goods or in the manufacturing process of taxable goods; (g) weigh bridge, except when installed inside the manufacturing premises for use in the manufacturing process of taxable goods .....

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and tobacco products; and (k) goods used for personal consumption or gifts. (6) A person, who was earlier registered for VAT and has subsequently got himself registered for TOT, shall reverse the input tax credit availed by him before such change of option, on the stock of goods held by him on the day, when he is registered as a registered person. (7) A person, who was earlier registered for TOT and has subsequently got himself registered for VAT, shall not be entitled for input tax credit on th .....

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) of this section or which remained in stock at the time of closure of the business. (10) Where the selling taxable person has made any modification in respect of a sale by issuance of debit or credit note on the invoice book, the purchasing taxable person shall make necessary adjustment of input tax credit availed. (11) Input tax credit shall be non-transferable, except where the ownership of the business of a person is entirely transferred. (12) Save as otherwise provided hereinafter, input ta .....

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he case may be, shall order for recovery of the whole or any part of such input tax credit, as the case may be, without prejudice to any action or penalty provided for in this Act. (15) The onus to prove that the VAT invoice on the basis of which, input tax credit is claimed, is bonafide and is issued by a taxable person, shall lie on the claimant. Section 2(o) of the Act defines "input tax" as the value added tax paid or payable on the purchase of taxable goods meant for resale or for .....

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the account of the taxable person shall be the "input tax credit" available to such a person. Section 2(s) defines the term "output tax". Section 2(zc) defines the word "return" and Section 2(zd) defines the words "return period". Section 2(zm) defines "tax period" to mean the period for which a person is required to pay tax under the Act or the Rules. Section 13 of the Act titled as "input tax credit" sets out the parameters for availi .....

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apply to the case in hand. A conjoint appraisal of these provisions reveals that value added tax paid at the rate in force on the date of purchase of goods from a taxable person, becomes input tax credit on the date of purchase, if the purchased goods are for resale etc., in the manner prescribed, thereby providing that input tax credit earned by a taxable person on the date of purchase of taxable goods, at the rate of taxation in force, during a particular tax period would be his input tax cre .....

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lying in stock, on 21.01.2014. The dispute is confined to Rule 21(8) of the Rules. The State of Punjab w.e.f. 21.01.2014 reduced the rate of taxation, on these goods (iron and steel) from 4% to 2% and simultaneously amended Rule 21 of the Rules to incorporate Rule 21 (8), which reads as follows: - "5. In the said rules, in rule 21, after sub-rule (6), the following sub-rule shall be added, namely: - (7) xxx xxx xxx (8) Where some goods as input or output are lying in the stock of a taxable .....

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their sale. As referred to above, the rate of taxation was reduced from 4% to 2% from 21.01.2014. The input tax credit already earned would, therefore, be availed 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 determin .....

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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 credit at the reduced rate of taxation applicable on the date of sale thereby reducing input tax credit already earned on goods lying in stock by reference to the reduced rate of tax prevalent on the date of their sale etc. A perusal of the Act reveals that on 21.01.2014 there was no provision in the Statute t .....

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reby for the first time linking the availing of input tax credit to the rate prevalent on the date of the "sale of goods" etc. to the rate of taxation in force on the date of sale. The amended proviso to Section 13 of the Act, reads as follows:- "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, pr .....

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) 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 21.01.2014 on which date there was no statutory provision enabling the State, in the exercise of its power of delegated legislation, to notify a rule that input tax credit would be "availed" on the sale of goods lying in stock or their manufacture etc. by reference to the reduced rate of taxa .....

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h a rule, between 21.01.2014 and 01.04.2014, in our considered opinion, did not empower the State, in the exercise of its power of delegated legislation to notify Rule 21(8) of the Rules on 21.01.2014. We, therefore, have no hesitation in holding that on the date of introduction of sub Rule (8) of Rule 21 of the Rules, the State did not possess any power, emanating from the Act, to confine the availing of input tax credit to the reduced rate of tax on stock in trade i.e. transactions that had co .....

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