No Input Tax Credit For Sales Exempt Under Section 7(c) UP VAT Act: Supreme Court
The Supreme Court had to determine whether a dealer was entitled to the input tax credit for purchase tax paid on sales turnover made to a manufacturer-exporter.
The Supreme Court held that no input tax credit can be claimed for sales exempt under Section 7(c) of the Uttar Pradesh Value Added Tax Act.
The Court had to determine whether a dealer is entitled to the input tax credit for purchase tax paid on sales turnover made to the manufacturer-exporter.
A Bench of Justice Pankaj Mithal and Justice SVN Bhatti held, “Section 13(7) outlines the circumstances under which such a benefit cannot be allowed. Section 13(7) also sets out that no facility for input tax credit shall be allowed to a dealer with respect to the purchase of any goods where the sale of such goods by the dealer is exempt from tax under Section 7(c) of the Act. The prohibition from allowing input tax credit is a statutory mandate, and the view taken by the orders impugned, in the facts and circumstances of this case, is available and correct.”
Advocate Udayan Jain represented the Appellant, while AOR Bhakti Vardhan Singh appeared for the Respondent.
Brief Facts
The Appellant, a registered dealer, filed turnover returns for the assessment year 2010-11, recording sales against the issuance of Form-E to a manufacturer-exporter and claimed an input tax credit. The Assessing Officer (AO) initially allowed the input tax credit but later disallowed it under Section 28 of the Uttar Pradesh Value Added Tax Act, 2008 (the Act).
The AO contended that the dealer was not entitled to input tax credit for the purchase tax paid on sales turnover in favor of the manufacturer-exporter, stating that the sales made against Form-E were accepted by the department and that notifications covered the procedure for dealing with the turnover under Section 7(c) of the Act, which provides input tax benefit as per section 13 of the Act.
The dealer's Appeal to the additional commissioner was dismissed. The Tribunal of Commercial Tax upheld this decision, stating that Section 13(1)(a) of the Act specified which traders were allowed input tax credit, and Section 13(7) explicitly disallowed input tax credit in certain instances, including sales exempted under Section 7(c).
Court’s Reasoning
“The argument of the dealer proceeds by falling on section 13(1) of the Act. The argument also attempts to give effect to the intention or policy of the State Government. Plainly interpreting and applying section 7(c) provides that no tax under the Act shall be levied and paid on the turnover of sale or purchase of such goods by such class of dealers as may be specified in the notification,” the Supreme Court noted.
However, the Bench emphasised the provisions of Section 7(c) of the Act, which exempted tax on the turnover of sales or purchases of goods as specified in the notifications, and Section 13(7), which prohibited input tax credit on goods exempt from tax under Section 7(c).
The Court explained that “the scheme of availing input tax credit is determined by section 13 of the Act. Section 13(1) provides for allowing credit of an amount as input tax credit to the extent provided by or under the relevant clause to which the applicable condition is attracted. If the purchased goods are resold in the course of exporting the goods out of India, then the full amount of input tax credit can be claimed.”
Consequently, the Court ordered, “In the teeth of clear expression in section 13(7) of the Act, we find it difficult to give effect to the intent or policy made known through notifications to grant input tax credit. The dealer availing section 7(c) of the Act knows the extent to which the input tax credit could be claimed. Hence, the Civil Appeal fails, and is accordingly dismissed. There shall be no order as to costs. Pending applications, if any, shall stand disposed of.”
Accordingly, the Supreme Court dismissed the Appeal.
Cause Title: Neha Enterprises v. Commissioner, Commercial Tax, Lucknow, Uttar Pradesh (Neutral Citation: 2025 INSC 480)
Appearance:
Appellant: AOR Sonal Jain; Advocates Udayan Jain, Kajal Sharma and Ranjan Mishra
Respondent: AOR Bhakti Vardhan Singh
