INTRODUCTION
On April 9, 2025, the Supreme Court of India took up a matter connected to Neha Enterprises, a dealer who’s Input Tax Credit (ITC) under the Uttar Pradesh Value Added Tax Act, 2008 (UPVAT) was denied. The essential point of consideration was whether a dealer making tax-free sales to a manufacturer-exporter under Section 7(c) of the Act could claim Input Tax Credit for the tax they paid on their purchases.
BACKGROUND
Neha Enterprises, the appellant and a registered dealer under the UPVAT Act, 2008, filed its turnover returns for the assessment year 2010-11. The dealer recorded sales amounting to Rs. 1,89,35,100/- against the issuance of Form-E to a manufacturer-exporter and claimed an input tax credit of Rs. 6,42,260/-. Initially the assessing officer allowed this Input Tax Credit but later rejected it and reasoned that dealer was not entitled to Input Tax Credit on the purchase tax paid for sales made to the manufacturer-exporter because the turnover fell under Section 7(c) of the Act, and the exception provided in Section 13(7) of the Act was applicable.
Section 7(c) of the Act states that no no tax shall be levied on the turnover of sales or purchase of goods by specified classes of dealers, as notified by the State Government. Notifications dated 24.02.2010 and 25.03.2010 outlined the procedure for dealing with turnover under Section 7(c). Specifically, the notification dated 24.02.2010 exempted direct sale of raw materials and spare parts to manufacturer-exporters from tax upon filing Form-E.
Section 13(1) of the Act allows for the Input tax credit for taxable goods purchased within the State. However, there is an exception under Section 13(7). This sub-section states that no input tax credit shall be allowed to a dealer on the purchase of any goods where the sale of such goods by the dealer is exempt from payment of tax under clause (c) of Section 7.
The First Appellate authority dismissed the dealer’s appeal. It noted that the notification dated 24.02.2010 exempted sales to manufacturer-exporters under Section 7(c) without granting input tax credits to sellers. The Tribunal of Commercial Tax, Meerut, Uttar Pradesh, upheld this decision. The Tribunal pointed out that input tax credit is barred by Section 13(7) in respect of cases where the notification under Section 7(c) has been issued.
KEY POINTS
The central issue in the appeal was the prohibition of input tax credit claimed by Neha Enterprises on sales made to a manufacturer-exporter against Form-E, which were exempt from tax under Section 7(c) of the UPVAT, 2008.
The Assessing Officer initially allowed the input tax credit but later disallowed it, citing Section 13(7).
The Act allows exemption from input tax on certain sales or purchases by the State Government under Section 7(c). Therefore, one of the notifications, dated 24.02.2010, exempts the direct sale of raw material and spare parts to manufacturer-exporters upon filing Form E.
Generally, Section 13(1) allows dealers to claim Income Tax Credit on purchases that are taxed. But Section 13(7) clearly says that Income Tax Credit is not allowed when the dealer’s sale is exempt from tax under Section 7(c).
The Assessing Officer, the First Appellate Authority, and the Tax Tribunal all ruled against Neha Enterprises. They pointed out that even though the sale was to an exporter, Income Tax Credit was not allowed since the sale itself was tax-exempt under Section 7(c).
RECENT DEVELOPMENTS
The appellant (Neha Enterprises) filed a revision in the High Court and the HC explicitly stated that, “bare reading of the provisions of Section 13(7) clearly reveals that the applicant was not entitled for the input tax credit with respect to the sale of goods exempted under Section 7(c) of the Act”. The HC upheld the decisions passed by the lower authorities and the Tribunal. And consequently, the appellant filed a appeal in the Supreme Court.
The Supreme Court in its decision dismissed the Civil appeal and the Apex Court affirmed the decisions of the lower authorities, holding that the prohibition of input tax credit in this scenario is a clear statutory mandate under Section 13(7) of the Act. The court said that Policy arguments (such as helping and encouraging manufacturer-exporters) cannot override the written law. The court noted that dealers availing the benefit of Section 7(c) are expected to be aware of the limitations on claiming Input Tax Credit.
CONCLUSION
The Supreme Court’s judgment in Neha Enterprises versus Commissioner, Commercial Tax, Lucknow, Uttar Pradesh, definitively clarifies the interplay between Section 7(c) and Section 13(7) of the UPVAT Act, 2008. The court upheld the disallowance of input tax credit to a dealer who made tax-exempt sales to a manufacturer-exporter under Section 7(c), explicitly stating that Section 13(7) acts as a statutory bar to claiming such credit. This judgment underscores the importance of adhering to the clear and unambiguous language of tax statutes, even when arguments are made based on the perceived intent or policy behind the legislation. The ruling reinforces that dealers availing tax exemptions under Section 7(c) are not entitled to input tax credit on the purchases related to those exempt sales.
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WRITTEN BY ABHINAV VERMA
