State of Uttarakhand and Others vs Gitanjali Associates

Barin Ghosh C.J.

Three writ petitions were filed questioning similar actions on the part of the appellants in these appeals. Those writ petitions have been decided by a common judgment and order. We have, accordingly, decided that we shall consider these appeals together. There has been some delay in preferring these appeals. Accordingly, applications have been filed for condonation of delay in preferring these appeals. To one of those applications, an objection has been filed, which is formal in nature. We have considered the averments made in applications for condonation of delay as well as in the objection thereto. We are satisfied that sufficient grounds have been made out for delay in preferring these appeals.

Heard learned counsel for the parties.

There is no dispute that input-tax credit is available under the Uttaranchal Value Added Tax Act, 2005 only to such dealers, who have added value to items purchased by them, while effecting sale of such value added items. There is also no dispute that the said Act recognizes grant of exemption to a dealer either wholly or partially from payment of value added tax. What will happen to a dealer, who shall purchase goods from such exempted dealers, was originally provided in section 76(6)(c) of the said Act, which is as follows.:

(6)(c) any taxable dealer purchasing goods from such dealer, holding eligibility certificate and who is exempt from tax, whether wholly or partially, shall be entitled to input-tax credit of the aggregate amount of tax charged in the sale invoice of the selling dealer and the amount of exemption from tax as per eligibility certificate, and for this purpose the selling dealer shall append a certificate in the sale invoice in the following pro forma--

Certificate

Certified that the dealer is entitled to exemption from tax at...% as per Eligibility Certificate No. .... dated...and the amount of exemption from tax in this sale, invoice comes to Rs. ....

On 31st March, 2008, the said provision was altered to the effect as follows: --

any taxable dealer purchasing goods from such dealer holding eligibility certificate and who is exempted from tax, whether wholly or partially, shall be entitled to input-tax credit of the amount of tax charged in the sale invoice of the selling dealer and for this purpose the selling, dealer shall append the following certificate in the sale invoice regarding--

Certificate

Certified that the dealer is entitled to exemption from tax at...% as per Eligibility Certificate No. .... dated...according to which the exemption amount in this invoice comes to Rs. ....

In view of alteration in section 76(6)(c) of the said Act, the Commissioner, Commercial Tax, Dehradun issued a circular dated April 17, 2008 indicating that in view of the amended provision of section 76(6)(c) of the Act, input-tax credit can only be availed of by the purchasing dealer, in the event, purchasing dealer actually paying tax to the seller. This circular led to refusal on the part of the Deputy Commissioner (Assessment), Commercial Tax to allow input-tax credits on the items purchased by the petitioners from exempted dealers. The said action was called in question in the writ petitions and by the judgment and order under appeal the writ petitions have been allowed for just and sufficient reasons, which according to us are not interoperable.

The learned Chief Standing Counsel appearing in support of the appeals submitted that the change of the words used in section 76(6)(c) of the said Act made a great difference and has imposed an obligation to pay tax actually in order to obtain input-tax credit. A look at the unamended section 76(6)(c) of the Act would make it amply clear that by reason thereof the dealer became entitled to input-tax credit of the aggregate amount of the tax charged in the sale invoice of the selling dealer and the amount of exemption from tax as per eligibility certificate. Therefore, it was possible to contend that in the event the amount of tax charged in the sale invoice of the selling dealer was Rs. 10 and the dealer in question was exempted from tax as per the eligibility certificate for the whole amount of tax then the purchasing dealer would be entitled to input-tax credit of the aggregate amount of tax and the exemption. Meaning thereby of Rs. 20, whereas in law, the purchasing dealer is entitled to input-tax credit to the extent of the tax charged/payable, i.e. only of Rs. 10. The said Act nowhere made any provision, which would show that the aim of the said Act was also to help such dealers, who would be purchasing their goods from exempted dealers. Therefore, section 76(6)(c) of the said Act, as stood before March 31, 2008, left a scope of creating confusion and, accordingly, the same required amendment. By reason of the amendment, input-tax credit is available to the purchasing dealer to the extent of the tax, he was liable to pay, but for the exemption granted to the dealer from whom he has purchased.

The learned Chief Standing Counsel submitted that by reason of the interpretation given there will be unjust enrichment on the part of the purchasing dealer. We think that before March 31, 2008, the purchasing dealer was getting something, which he was not entitled to otherwise in law. The fact remains that a purchasing dealer will only be entitled to input-tax credit when he adds value to the input and then sells the same. While purchasing the input, he is required to pay tax thereon. While selling the value added input he is also required to pay tax thereon. While he is liable to pay tax on the article to be sold by him, having regards to addition of value to the item, the value thereof would be much more than the value of the item purchased. If he has paid tax on the input, for that he will be entitled to input-tax credit. In the event he has not paid tax, because the selling dealer, from whom he has purchased, was exempted from tax, the situation will not be different. This can be explained by giving an example. Suppose, the input worth Rs. 100 was to be taxed at the rate of 10 percent, the value of the input purchased would be Rs. 110 and suppose on that input a value addition to the tune of Rs. 10 has been made, the value of the product available for sale would be Rs. 120. Suppose the product is also sold at Rs. 120 and suppose the same will also attract tax at the rate of 10 percent, then the tax liability of the seller would be Rs. 12. Because the dealer has paid tax of Rs. 10 on the input, he will be entitled to input-tax credit of Rs. 10 and, accordingly, would be liable to pay tax of Rs. 2. In the instant case, the dealer, from whom purchase has been made, did not pay any tax, as he was exempted from paying the same. The amount of tax payable, which has been exempted, would also be Rs. 10 and the same would also be reduced from Rs. 12 exposing the liability of the seller to Rs. 12. The fact remains, the exemption has been given to the seller, from whom the purchase has been made. That is a conscious action; by reason thereof the purchase value of the input has been permitted to be reduced. In the circumstances, there is no unjust enrichment on the part of the purchaser of input from the exempted dealer, while he is permitted input tax credit to the extent, as certified by the exempted dealer in the invoice. We, therefore, see no reason to interfere in the appeals; the same are dismissed.