Supreme Court of India· 17 February 2025
Does a right to input tax credit accrued on payment of tax on the input survive a later reduction in the rate of tax?
STATE OF PUNJAB & ORS. v. TRISHALA ALLOYS PVT. LTD.
2025 INSC 231 · CIVIL APPEAL NO. 2212 OF 2024
Coram: Abhay S. Oka; Ujjal Bhuyan
Answer
Yes. A right accrued to the assessee on the date when he paid the tax on the raw material or the input would continue until the facility available thereto gets worked out or until those goods existed. A taxable person otherwise entitled to avail input tax credit on goods already purchased and lying in stock would suffer serious prejudice and loss if his entitlement to input tax credit were reduced by virtue of lowering of the rate of tax on such goods on a subsequent date.
Headnote
Punjab Value Added Tax Act, 2005 — s. 13(1) — s. 70 — Punjab VAT Rules, 2005 — r. 21(8) — Input tax credit — Delegated legislation without an enabling provision — Vested right —
Punjab VAT Rules, 2005 — r. 21(8) — No enabling provision in the parent Act —
Held: On 25.01.2014, when Rule 21(8) was notified, no provision in the Punjab VAT Act empowered the State to confine input tax credit already earned to the reduced rate of tax on the stock in trade. (¶35)
Punjab VAT Act, 2005 — s. 13(1) — Statutory sanction required to reduce a benefit —
Held further: The benefit of input tax credit is traceable to the statute; if it is to be reduced, which will have an adverse civil consequence upon the beneficiary, it must have the requisite statutory sanction. (¶41)
Punjab VAT Act, 2005 — s. 13(1) — Right accrued on paying tax on the input —
Held further: A right accrued to the assessee on the date when he paid the tax on the raw material continues until the facility available thereto gets worked out; a subsequent lowering of the rate cannot reduce that entitlement. (¶36, 37)
Punjab VAT Rules, 2005 — r. 21(8) — Effective only from 01.04.2014 —
Held further: The statutory sanction came only with the amendment of the first proviso to Section 13(1) on 01.04.2014, so Rule 21(8) cannot be given effect to transactions which already stood concluded prior thereto. Appeals dismissed. (¶36, 42)
In the Court's own words
Paragraph 36According 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 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.
Paragraph 37In Eicher Motors Limited Vs. Union of India[^1], a three-Judge Bench of this Court examined the challenge to the validity and application of the scheme as modified by way of introduction to Rule 57(F) of the Central Excise Rules, 1944 under which credit which was lying unutilised as on 16.03.1995 with the manufacturers stood lapsed in the manner set out therein. While examining the above issue, this Court held that if on the inputs, the assessee had already paid the taxes on the basis that when the goods are utilised in the manufacture of further products as inputs thereto then the tax on these goods gets adjusted which are sold subsequently. Thus, a right accrued to the assessee on the date when he paid the tax on the raw material or the input would continue until the facility available thereto gets worked out or until those goods existed. The impugned rule cannot be applied to the goods manufactured prior to the date it came into force i.e. 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. This Court held as under: 6. We may look at the matter from another angle. If on the inputs, the assessee had already paid the taxes on the basis that when the goods are utilised in the manufacture of further products as inputs thereto then the tax on these goods gets adjusted which are finished subsequently. Thus a right accrued to the assessee on the date when they paid the tax on the raw materials or the inputs and that right would continue until the facility available thereto gets worked out or until those goods existed. Therefore, it becomes clear that Section 37 of the Act does not enable the authorities concerned to make a rule which is impugned herein and, therefore, 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.
Acts & Sections
r.21(8) Punjab Value Added Tax Rules, 2005s.13(1) Punjab Value Added Tax Act, 2005s.70 Punjab Value Added Tax Act, 2005s.2(o) Punjab Value Added Tax Act, 2005s.14 Central Sales Tax Act, 1956r.57(F) Central Excise Rules, 1944s.19(20) Tamil Nadu Value Added Tax Act, 2006One judgment a day. That's the whole habit.
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