Case Details
Case Name: State of Punjab & Ors. vs. Trishala Alloys Pvt. Ltd.
Case Number: Civil Appeal No. 2212 of 2024
Date: February 17, 2025
Quorum: Justice Abhay S. Oka and Justice Ujjal Bhuyan
FACTS OF THE CASE
The issue was whether Rule 21(8) of the Punjab Value Added Tax Rules, 2005 (Punjab VAT Rules) was valid. The respondent, Trishala Alloys Pvt. Ltd., the producer of iron and steel products, objected to the State of Punjab’s action in restricting Input Tax Credit (ITC) on the basis of a revised rate of tax. The Punjab government had also modified the Punjab VAT Rules by a January 25, 2014, notification, which added Rule 21(8). This rule curtailed the ITC on goods in stock when the tax rate was lowered. The amendment came into force from February 1, 2014, although the enabling provision under the Punjab VAT Act was brought into effect only on April 1, 2014.The High Court of Punjab and Haryana held in favor of the respondent, holding that Rule 21(8) was ultra vires since it had no statutory support at the time of its enactment. The State of Punjab appealed this ruling to the Supreme Court.
ISSUES OF THE CASE
- Whether the addition of Rule 21(8) justified at a time when there was no parallel enabling provision in the Punjab VAT Act?
2. Whether the amendment retrospectively impact ITC already accrued to the taxpayer? - Whether the State could amend the ITC entitlement of a taxable individual once the acquisition was done?
4. Whether the High Court right in holding that Rule 21(8) could only be applied from April 1, 2014?
LEGAL PROVISIONS INVOLVED
- Punjab Value Added Tax Act, 2005 (Punjab VAT Act) The Section 13(1) declares ITC and its terms and the Section 70,Authorizes the state government to make rules under the Act.
• Further, Punjab VAT Rules, 2005 Rule 21(8) it Limits ITC to the lower rate of tax when goods already in stock are later on sold.
• Lastly, in Constitution of India Article 265 states “No tax shall be levied or collected except by the authority of law.”
ARGUMENTS BY THE APPELLANT (STATE OF PUNJAB)
The State can regulate ITC, and Rule 21(8) simply synchronizes ITC entitlement with the rate prevailing. ITC is a concession, and not a vested right, and can be amended by the government to avoid loss of revenue. The rule-making authority in Section 70 permits retrospective changes if they are in the public interest. The High Court erred in interpreting Rule 21(8) to have a retrospective effect when it only synchronized ITC with decreases in tax rates.
ARGUMENTS BY THE RESPONDENT (TRISHALA ALLOYS PVT. LTD.)
ITC is a statutory right, and any cut in ITC on goods already procured is unconstitutional. At the time when Rule 21(8) was enacted on January 25, 2014, no provision in the Punjab VAT Act legally allowed such restriction. The facilitating amendment to Section 13(1) was brought only on April 1, 2014, and hence Rule 21(8) could not be invoked prior to this date. The retroactive effect of Rule 21(8) unduly reduced ITC already accruing to firms.
ANALYSIS
The Supreme Court examined whether the State of Punjab was statutorily entitled to bring into force Rule 21(8) before amending the Punjab VAT Act. The Court stated that ITC is furnished by statutes and any reduction in ITC must be legislatively justified. The enabling amendment to Section 13(1) took effect from April 1, 2014, while Rule 21(8) was notified on January 25, 2014, and came into force with effect from February 1, 2014.
The Court derived support from such cases as Eicher Motors Ltd. vs. Union of India (1999) and Jayam & Company vs. Assistant Commissioner (2016), wherein it was held that tax relief can’t be taken back retrospectively unless authorised by statute. The Court further pointed out that taxation amendments in the nature of retrospective ones were required to be in the interest of the public, which wasn’t the case here.
JUDGMENT
The Supreme Court examined whether the State of Punjab was statutorily entitled to bring into force Rule 21(8) before amending the Punjab VAT Act. The Court stated that ITC is furnished by statutes and any reduction in ITC must be legislatively justified. The enabling amendment to Section 13(1) took effect from April 1, 2014, while Rule 21(8) was notified on January 25, 2014, and came into force with effect from February 1, 2014.The Court derived support from such cases as Eicher Motors Ltd. vs. Union of India (1999) and Jayam & Company vs. Assistant Commissioner (2016), wherein it was held that tax relief can’t be taken back retrospectively unless authorised by statute. The Court further pointed out that taxation amendments in the nature of retrospective ones were required to be in the interest of the public, which wasn’t the case here.
CONCLUSION
The Supreme Court reaffirmed that the law of taxation should have explicit statutory powers and cannot be applied retroactively unless specifically stated. The judgment saved companies from indiscriminate cuts in ITC and reaffirmed the principle that tax credits accrue on the basis of prevailing laws at the time of acquisition. The ruling enforces legal certainty in tax administration and avoids excessive hardship on taxpayers.
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WRITTEN BY SUBRAT ASHISH KHARE
