Whether Rule 21(8) of the Punjab Value Added Tax Rules, 2005 could have been introduced during the period between 25.01.2014 to 01.04.2014 when there was no enabling provision in the parent statute?

Paragraph 35The question that the High Court posed for consideration was whether on 25.01.2024 when the notification was issued inserting sub-rule (8) in Rule 21, the Punjab VAT Act empowered the State to notify such a rule. High Court analysed the provision of Rule 21(8) of the Punjab VAT Rules in the following manner: A perusal of Rule 21(8) of the Rules reveals that with respect to goods lying in stock the input tax credit already earned shall be admissible at the reduced rate i.e. the rate of taxation prevalent on the date of their sale. As referred to above, the rate of taxation was reduced from 4% to 2% from 25.01.2014. The input tax credit already earned would, therefore, be available 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 determinate right subject to availing this right during the return period or by carrying it forward. The State, however, by enacting Rule 21(8) of the Rules, has reduced the admissible amount of input tax credit already earned from 4% to 2%.We cannot possibly dispute the legislative competence of the State in the exercise of its power of delegated legislation to enact such a rule but the question, as we have also noticed, is not the legislative competence of the State but is whether on 25.01.2014 there 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. 35.1. However, High Court noted that as on 25.01.2014, 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 could now be availed at the reduced rate as the rate of tax on the goods in question stood reduced in the interregnum. Such a power came to be conferred only after the first proviso to Section 13(1) was amended on and from 01.04.2014. It was in that context, High Court held as follows: The amendment in the first proviso to Section 13 of the Act introducing the words "are sold" etc. came into effect 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 25.01.2014 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 taxation prevalent at the time of "sale/manufacture" etc. of goods that had already earned a determinate amount of input tax credit. 35.2. Allowing the writ petition High Court held that in the absence of any provision in the statute enabling the State of Punjab to notify Rule 21 (8) with effect from 25.01.2014, the said provision would come into effect only from 01.04.2014 i.e. the date of coming into force of the amended provision of Section 13(1) along with the first proviso thereto. High Court further observed that the said provision i.e. amended first proviso to Section 13(1) was not retrospective and held as under: 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 the stock in trade i.e. transactions that had concluded with the dealer already earning input tax credit. A further perusal of the amendment in the first proviso to Section 13 of the Act reveals that it is not retrospective but applies to transactions after 25.01.2014. The amendment in the rule, which came into effect prior to the amendment of the Act could, therefore, not be enforced by the respondents before 01.04.2014 to take away a vested right already determined without statutory sanction. We, therefore, allow the writ petitions and hold that in the absence of any provision in the statute enabling the State of Punjab to notify Rule 21(8) of the Rules w.e.f. 25.01.2014, the said provision would come into effect from 01.04.2014.

Paragraph 41Applying the principles culled out from the above decisions to the facts of the present case, we find that respondent had earned input tax credit on purchase of iron and steel goods which it kept as its stock in trade to be used as inputs or raw materials in the manufacture etc. of taxable goods. State lowered the rate of tax with effect from 01.02.2014 on those goods. The related amendments in the rules i.e. Rule 21(8) of the Punjab VAT Rules were notified on 25.01.2014 to come into effect from 01.02.2014. There was however no corresponding provision in the parent statute i.e. Punjab VAT Act which permitted availing of input tax credit at the lower rate of tax on the existing stock in trade though the purchase of such input was already made at a higher rate of tax thereby reducing the quantum of credit. The enabling provision in the statute i.e. first proviso to Section 13(1) of the Punjab VAT Act came into force with effect from 01.04.2014. 41.1. The benefit of input tax credit is traceable to the statute. If the same has to be reduced, which will have an adverse civil consequence upon the beneficiary, it must have the requisite statutory sanction. In this case, the statutory sanction came on and from 01.04.2014 with the amendment of the first proviso to Section 13(1) of the Punjab VAT Act. Therefore, the High Court was justified in holding that prior to 01.04.2014, there was no statutory sanction to allow applicability of Rule 21(8) on the stock in trade i.e. on inputs already purchased for which transactions stood concluded at a higher rate of tax. 41.2. This issue can also be looked at from another angle. As we have seen, under sub-section (9) of section 13, a person is under a mandate to reverse input tax credit availed by him on goods which could not be used for the purposes specified in sub-section (1) of Section 13 of the Punjab VAT Act or which remained in stock at the time of closure of business. If the interpretation sought to be given to Rule 21(8) of the Punjab VAT Rules by the State is accepted, the natural corollary would be that reversal of input tax credit would be at the lower rate of tax on the goods in question when those goods could not be used for the purposes specified in Section 13(1) or which remained as part of the stock in trade at the time of closure of business. Such an interpretation besides being fallacious, would also lead to revenue loss for the State exchequer.