Rule 21(8) Punjab VAT Rules| A Provision Cannot Have Retrospective Effect When Vested Right Accrued In Respect Of Purchase & Sale Made Prior To Its Insertion: SC
The Supreme Court dismissed the State’s Appeal holding that Punjab VAT Rules could not have been introduced when there was no enabling provision in the Punjab Value Added Tax Act (parent statute).
The Supreme Court, with respect to Rule 21(8) of the Punjab VAT Rules, has held that a provision cannot have a retrospective effect when vested right accrued in respect of purchase and sale made prior to its insertion.
The Court dismissed the Appeal filed by the State of Punjab, upholding the judgment of the High Court of Punjab and Haryana, which had held that Rule 21(8) of the Punjab Value Added Tax (VAT) Rules, 2005 was enforced by the State without any statutory sanction. The Court had to determine whether Rule 21(8) of the Punjab VAT Rules could have been introduced when there was no enabling provision in the parent statute i.e. the Punjab Value Added Tax Act, 2005 (Punjab VAT Act).
A Bench of Justice Abhay S Oka and Justice Ujjal Bhuyan held, “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.”
DAG Vivek Jain and AOR Ranjeeta Rohatgi represented the Appellants, while Advocate Sandeep Goyal appeared for the Respondent.
Brief Facts
The case arose from the Appeals led by State of Punjab v. Trishala Alloys Pvt. Ltd., where the primary issue was whether Rule 21(8) of the Punjab VAT Rules could be introduced between January 25, 2014, and April 1, 2014, when there was no corresponding provision in the Punjab VAT Act, 2005. The High Court had ruled in favour of the Respondents, holding that input tax credit (ITC) already earned by taxable persons could not be retrospectively reduced.
Court’s Reasoning
The Bench noted that the High Court allowed the Writ Petition holding 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.
The Supreme Court held that Rule 21(8) of the Punjab VAT Rules could not be applied before April 1, 2014. It upheld the High Court’s decision that the State of Punjab could not have enforced the Rule before the amendment to the VAT Act. Consequently, all appeals filed by the State were dismissed, with no order as to costs.
The Court referred to its decision in Jayam and Company v. Assistant Commissioner (2016) wherein the Court in the context of Section 19(20) of the Tamil Nadu Value Added Tax Act, 2006, which was inserted in the statute vide the amendment brought about by the Amendment Act of 2010, held that the said provision was made for the first time to the detriment of the dealers lowering the rate of input tax credit on resale. "Such a provision therefore cannot have retrospective effect more so when vested right had accrued in favour of the dealers in respect of purchase and sale made prior to insertion of the aforesaid provision," the Court explained.
“According 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,” the Court held.
Consequently, the Court held that “we are of the unhesitant view that the interpretation given by the High Court to the applicability of Rule 21(8) of the Punjab VAT Rules read with the amended first proviso to sub-section (1) of Section 13 of the Punjab VAT Act is legally sound and warrants no interference.”
Accordingly, the Supreme Court dismissed the Appeal.
Cause Title: State of Punjab & Ors. v. Trishala Alloys Pvt. Ltd. (Neutral Citation: 2025 INSC 231)
Appearance:
Appellants: DAG Vivek Jain; AOR Ranjeeta Rohatgi and Karan Sharma
Respondent: AOR Pawanshree Agrawal and Mohit D. Ram; Advocates Sandeep Goyal, Monisha Handa, Rajul Shrivastav and Anubhav Sharma
