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2017 DIGILAW 803 (JK)

Hitachi Home & Life Solutions Ltd. v. State

2017-09-05

ALOK ARADHE, B.S.WALIA

body2017
JUDGMENT : Alok Aradhe, J. 1. In these writ petitions, the issue which arises for consideration is whether the petitioner is entitled to input tax credit on the tax amount shown in the invoices issued by the sellers who have availed benefit of remission under SRO 91 dated 16.03.2006 issued under Section 79 of the Jammu and Kashmir Value Added Tax, 2005 (hereinafter referred to as ‘the Act’). In order to answer the aforesaid issue, we set out the facts briefly, which are stated hereinunder. 2. The petitioner company is manufacturer of Air compressors and is registered with Department of Commercial Taxes in the State of J&K under the Act and the Central Sales Tax Act, 1956. The petitioner has set up a factory in the State, taking note of various incentives under Industrial Policy of the State Government as also the benefits available under the Act. The petitioner is entitled to benefit of input tax credit on the local purchases made by it in terms of Section 21 of the Act. The input tax credit is adjusted against the output liability as per Sections 21 and 22 of the Act. Some purchases were made by the petitioner from the units availing benefit of remission under the scheme framed vide SRO 91 dated 16.03.2006 issued by the State Government under Section 79-A of the Act. The petitioner has no claim under the said remission scheme issued under Section 79-A of the Act and has discharged its tax liability, as per provisions of the Act. The input tax credit of the petitioner was higher than the output liability, therefore, the petitioner carried excess input tax credit in the books. 3. The Commissioner of Commercial Taxes, Government of Jammu and Kashmir issued a clarification dated 10.12.2007, in view of doubt expressed by the assessing authorities with regard to the admissibility of the claim of refund of input tax credit in excess of 4% tax to the local registered dealers on the sales of goods in the course of inter state trade and commerce which they have purchased locally from industrial units availing tax remissions. It was stated in the aforesaid clarification that in view of embargo contained in Clause (X) of Sub section 9 of Section 21 of the Act, no input tax credit shall be claimed by a registered dealer who gets benefit of tax remission and there is no scope of allowing such refund because benefit of remission also passes on from the manufacturer to the purchaser as he pays the tax notionally to the manufacturer by price adjustment. Based on the aforesaid clarification, the assessing authority in exercise of powers under Section 39(5) of the Act, disallowed the claims of the petitioner for input tax credit on the ground there is no actual payment of tax, in respect of assessment years 2005-2006 and 2006-2007 and issued demand notices which are subject matter of challenge in the instant writ petitions. 4. Learned counsel for the petitioner submitted that the view taken by the Commissioner of Commercial Taxes as well as the assessing authority is untenable as the restriction contained in Section 21(9)(X) of the Act does not apply to the case of the petitioner. It is submitted that the petitioner has paid the tax reflected in the tax invoices issued in terms of Rule 63 of the J&K Valued Added Tax Rules, 2005 and therefore, the petitioner is entitled to refund of input tax credit. It is submitted that the case of the respondents that it has not received tax on goods is incorrect and is contrary to record. It is argued that in view of policy decision taken by the State government to grant the incentive to the industry, the refund of input tax credit cannot be denied to the petitioner on the ground that no tax has been received by the State. It is also urged that goods remain tax paid goods and the availment of credit is a substantive right which cannot be curtailed by subsequent circulars/clarifications. It is also urged that goods remain tax paid goods and the availment of credit is a substantive right which cannot be curtailed by subsequent circulars/clarifications. In support of aforesaid submissions, learned counsel for the petitioner has placed reliance on the decisions in the cases of Delhi Chartered Accountant Society vs. Union of India, 29 STR 461 (Del), Commissioner of Central Excise vs Ratan Melting, (2008) 231 ELT 22 (SC), Commissioner of Central Excise, Bhopal vs Minwool Rock fibres Ltd., 2012 (278) ELT 581 (SC), Union of India vs Inter Continental (India), 2008 (226) ELT 16(SC), Tata Teleservices vs Commissioner of Cus., 2006 (194) ELT 11 (SC), Eicher Motors vs Union of India, 1999 (106) ELT 3 (SC), Commissioner of Central Excise, Pune vs Dai Ichi Kakaria Ltd., 1999 (112) ELT 353 (SC), Union of India vs Suksha International & Nutan Gem & Anr., 1089 (39) ELT 503 (SC), CCE vs. Himalayan Co-op Milk Product Union 2000 (122) ELT 327 (SC), Comm. Taxes Officer v. A Insrastructure Limited (2015) 15 SCC 98 , Comm. Taxes Officer v Jyoti Electronics 2016 (336) ELT 517 (Raj.), Steel Strips Ltd v. CESTAT, New Delhi, 2010 (262) ELT 129 (P&H). 5. On the other hand, learned Additional Advocate General submitted that the petitioner has not deposited any amount by way of input credit and therefore is not entitled to refund of input credit. It is further submitted that against an order passed by the assessing authority, an appeal ought to have been filed by the petitioner under Section 72 of the Act. 6. We have considered the rival submissions made by learned counsel for the parties and have perused the record. It is well settled in law that circular/clarification cannot be contrary to the provisions of the Act and the Rules and by issuing subsequent circular, the department cannot incorporate new condition or restrict the scope of a notification granting exemption or whittle it down. Some purpose and policy decision is behind the notification issued by the State Government in exercise of statutory powers and therefore such benefit has to be provided to the investor/manufacturer which cannot be defeated by interpreting the notification in a different way. [See: Narinder S. Chadha vs. Municipal Corporation of Greater Mumbai, (2014) 15 SCC 689)]. Some purpose and policy decision is behind the notification issued by the State Government in exercise of statutory powers and therefore such benefit has to be provided to the investor/manufacturer which cannot be defeated by interpreting the notification in a different way. [See: Narinder S. Chadha vs. Municipal Corporation of Greater Mumbai, (2014) 15 SCC 689)]. It is equally well settled legal proposition that once tax is paid, the assessee gets a vested right to avail the exemption/ refund as per the statutory provisions (See: DGFT vs. Kanak Exports (2016) 2 SCC 226 ). 7. Before proceeding further, it is apposite to take note of relevant statutory provisions. STATUTORY PROVISIONS: The relevant extract of Section 21 of the Act reads as under: Section 21: Input Tax Credit. (1) Subject to the provisions of the Act, for the purpose of calculating the net tax payable by a registered dealer for any tax period after being registered, an input tax credit as determined under this section shall be allowed to such registered dealer for the tax paid or payable in respect of all taxable sales other than the sales as may be prescribed, or purchases under section 14 during that period. (2) ………… (9) No input tax credit under sub section (1) shall be claimed or be allowed to a registered dealer. (2) ………… (9) No input tax credit under sub section (1) shall be claimed or be allowed to a registered dealer. (i) in respect of any taxable goods under the Act purchased by him from another registered dealer for resale but given away by way of free sample or gift; (ii) who is liable to turnover tax at a percentage of the turnover of sales, in lieu of tax, as provided under Section 25; (iii) in respect of capital goods as specified in Schedule ‘E’ (iv) in respect of goods brought from outside the State against the tax paid in other States; (v) in respect of stock of goods remaining unsold at the time of closure of business; (vi) in respect of goods purchased on payment of tax, if such goods are not sold because of any theft or if such goods get destroyed; (vii) where the tax invoice is not available with the dealer, or there is evidence that the same has not been issued by the selling dealer from whom the goods are purported to have been purchased; (viii) in respect of goods purchased by him for the period his certificate of registration is under suspension; (ix) in respect of sale of goods exempt from tax as specified in Schedule ‘A’; and (x) who gets the benefit of tax remission; Section 22 reads as under: Section 22: Input Tax Credit exceeding tax liability. (1) If the input tax credit of a registered dealer other than an exporter selling goods outside the territory of India determined under section 21 for a tax period exceeds the tax liability for that period, the excess credit shall be set off against any outstanding tax, penalty or interest under the Act or the Central Sales Tax Act, 1956. (2) The excess input tax credit remaining after adjustment under sub-section (1) may be carried over as an input tax credit to the subsequent tax period or periods but not beyond the end of the second financial year. (3) In case where input tax credit is carried forward, an annual credit statement may be forwarded to the dealer concerned and the claims reconciled accordingly. (4) The refund of excess input tax credit shall be allowed only after the end of the second financial year. (3) In case where input tax credit is carried forward, an annual credit statement may be forwarded to the dealer concerned and the claims reconciled accordingly. (4) The refund of excess input tax credit shall be allowed only after the end of the second financial year. The relevant extract of SRO 91 dated 31.03.2010 reads as under: In order that transparency is maintained in the transactions, every sale invoice shall invariably mention the amount of price adjustment made in the selling price. In case no price adjustment is made the industrial unit shall not be entitled to any tax remission. Further in case of partial price adjustment being made, the industrial unit shall be entitled to tax remission to the extent the price adjustment has been made and rest of the tax amount shall have to be deposited with the Government. The descriptive sale invoice for industrial units claiming tax remission shall be as per Annexure IV-A or IV-B as the case may be and the formula for working out the price adjustment shall be as per Annexure V to this Notification. Sub-Joined Schedule. “Whereas the industry in the state is still in a formative stage it is necessary to continue with the tax incentives provided to the industry so that competitiveness of the local industries does not suffer and at the same time sufficient employment opportunity is provided to the unemployed youth of the State. It therefore becomes imperative that for the larger public interest Government patronage is provided to the industry allowing it to sustain also to attract investment in this fast growing sector so important for the economic prosperity of the State. Now, therefore, it is the considered opinion of the Government that there is a need to provide tax incentive to the industry in the shape of tax remission under the Value Added Tax regime in a manner as does not break the VAT chain.” 8. Thus, from conjoint reading of the relevant statutory provisions, it is axiomatic that Section 21(9)(X) restricts the benefit of input tax credit to a registered dealer who gets the benefit of tax remission. The tax remission is available under SRO 91 dated 16.03.2006 to the Industrial units that is the seller from whom petitioner has made purchases and not to the petitioner. Therefore, the restriction contained in Section 21(9)(X) does not apply to the case of the petitioner. The tax remission is available under SRO 91 dated 16.03.2006 to the Industrial units that is the seller from whom petitioner has made purchases and not to the petitioner. Therefore, the restriction contained in Section 21(9)(X) does not apply to the case of the petitioner. The input tax liability of the petitioner has exceeded its tax liability, therefore, under Section 22 of the Act, the petitioner is entitled to refund of the input tax credit. The aforesaid view is also fortified from the sub-joined Schedule to the notification dated 16.03.2006 which in unequivocal terms states that in the considered opinion of the government, there is a need to provide tax incentive to the industry in the shape of tax remission under the Value Added Tax regime in a manner as does not break the Valued Added Tax chain. The petitioner only gets the benefit of price adjustment. The petitioner has paid the tax which is reflected from the tax invoices issued under Rule 63 of the J&K Value Added Tax Rules, 2005. Thus, the Commissioner of Commercial Taxes has misinterpreted the scope of Section 21(9)(X) of the Act and the clarification issued by him is in contravention of Sections 21 and 22 of the Act. Accordingly, the orders passed by the assessing authority and the consequent demand notices which are based upon the clarification issued by the Commissioner of Commercial Taxes cannot be sustained in the eye of the law. 9. Reverting to the submissions made by learned Additional Advocate General that the petitioner should be relegated to the alternative remedy of appeal under Section 72 of the Act, we are not inclined to accept the aforesaid submission for two reasons, namely, (i) the circular has been issued by the Commissioner of Sales Tax which is binding on the authorities, therefore relegating the petitioner to the alternative remedy would be a mere exercise in futility; (ii) Besides that, the writ petition has already been admitted for hearing by a bench of this court vide order dated 29.07.2013 and are pending before this court since 2008 and 2010, respectively. It is well settled in law that once the writ petition is admitted for hearing, normally the same should be decided on merits. It is well settled in law that once the writ petition is admitted for hearing, normally the same should be decided on merits. (See: Collector of Monghayr and others vs. Keshav Prasad Goenaka and others AIR 1962 SC 1694 , L. Hirday Narian vs. Income Tax Officer Bareilly AIR 1971 SC 33 , Smt. Kanak vs. U.P. Avas Evam Vikas Parishad, AIR 2003 SC 3894 ]. At this point of time, when the writ petitions are pending before this court since 2008 and 2010, we are not inclined to relegate the petitioner to the alternative remedy which even otherwise is an exercise in futility, as the clarification issued by the Commissioner is binding on the appellate authority. (See: CIT vs. Chhabil Dass Agarwal, (2014) 1 SCC 603 ). 10. In view of preceding analysis, the clarification dated 10.12.2007 insofar as it provides that there is no scope for allowing the refund by way of input tax credit because the benefit of remission also passes on from the manufacturer to the purchaser as he pays the tax notionally to the manufacturer by price adjustment is quashed, being contrary to the provisions of the Act. The orders of assessment passed by the assessing authority as well as the demand notices are hereby quashed. In view of order dated 25.02.2009, passed in OWP No.958/2008, the petitioner had deposited the amount mentioned in the demand notices with the Registrar Judicial of this court who was directed to keep the same in an interest bearing account. The amount deposited by the petitioner in compliance of the interim order dated 25.02.2009, if any, be refunded to the petitioner along with the interest by the Registrar Judicial within a period of two weeks from today. In the result, the writ petitions are allowed.