Safiya Malik

The Supreme Court of India, in a Civil Appeal arising from a taxation dispute, has upheld the decision to deny input tax credit to a registered dealer under the Uttar Pradesh Value Added Tax Act, 2008. The judgement was delivered by a Division Bench comprising Justice Pankaj Mithal and Justice S.V.N. Bhatti. The judgment affirms the decisions of the assessing authority, first appellate authority, Tribunal, and High Court in rejecting the dealer's claim for input tax credit for the assessment year 2010-11.

The Court held that transactions falling within the scope of Section 7(c) of the Act, supported by the relevant notifications, are not entitled to input tax credit under Section 13(7). The appeal filed by the dealer was dismissed with no order as to costs.

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The appellant, a registered dealer under the Uttar Pradesh Value Added Tax Act, 2008, had recorded sales worth Rs. 1,89,35,100/- against Form-E to a manufacturer-exporter and claimed input tax credit of Rs. 6,42,260/-. Initially, the assessing officer allowed the claim, but the same was later disallowed through an order dated 22.02.2013 under Section 28 of the Act.

The assessing authority issued notice to the dealer, stating that the dealer was not entitled to claim input tax credit for sales made to manufacturer-exporters under Form-E. It was asserted that though the turnover falls within Section 7(c) of the Act, Section 13(7) barred the claim of input tax credit in such cases.

The dealer argued that their claim was valid under Section 13(1) and that the proviso under Section 13(7) was not attracted. However, the assessing authority, citing notifications dated 24.02.2010 and 25.03.2010, determined that such sales to manufacturer-exporters were exempted under Section 7(c), and thus, no input tax credit could be availed.

On appeal, the Additional Commissioner (first appellate authority) dismissed the appeal by order dated 22.07.2013. It was held that the relevant notification clearly exempted the direct sale of raw materials to manufacturer-exporters and that such transactions were not entitled to input tax credit as per Section 13(7).

The Tribunal of Commercial Tax, Meerut, upheld this order on 10.09.2013. The Tribunal reasoned that Section 13(7) provided an explicit embargo on input tax credit for sales exempted under Section 7(c). The Tribunal recorded that input tax credit could only be granted under Section 13(1)(a) subject to the restrictions in Section 13(7). Notifications No. 247 dated 24.02.2010 and the Commissioner's circular dated 25.03.2010, along with the order under Section 59 dated 30.04.2010, all confirmed that no input tax credit was admissible for such exempt sales.

Subsequently, the dealer filed a revision before the High Court. The High Court, by its order dated 24.11.2014, dismissed the revision petition. The High Court stated:

"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. Tribunal has considered the facts of the case and held that in view of the provisions of Section 13(7) of the Act, the applicant was not entitled for input tax credit. Under the facts and circumstances of the present case, the input tax credit was lawfully reversed by the Assessing Authority. I find no infirmity in the impugned order of the Tribunal. Question of law is answered in favour of the revenue and against the assessee.”

Learned Counsel Mr. Udayan Jain, appearing for the appellant, contended that denial of input tax credit was unjustified and inconsistent with the intent of the government’s policy to promote manufacturer-exporters. He submitted that Section 13(7) should be interpreted in light of Section 13(1) and the overall objective of incentivising export-oriented industries. He argued that the denial of credit was counterproductive to the purpose of the tax exemption.

On the other hand, Mr. Bhakti Vardhan Singh, representing the respondent, stated that the dealer’s transactions clearly fell under Section 7(c) as read with the notifications. He asserted that the denial of input tax credit was mandated by Section 13(7), and that in taxation statutes, the language of the law prevails over policy intent. He maintained that there was no legal ambiguity and that the decisions of the authorities and lower courts were justified.

The Supreme Court examined the statutory provisions and the facts of the case. It observed:

*"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 Court clarified that the exemption under Section 7(c) was not in dispute, and that the notifications issued under it were valid. The key issue was whether such exemption precluded input tax credit under Section 13(7).

"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 Court held that the statutory language of Section 13(7) constituted a clear prohibition against input tax credit for exempted transactions.

"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.”

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Rejecting the appellant’s argument based on policy intent, the Court held: "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 Court found that the dealer was aware of the statutory limitations when opting to avail the benefit of Section 7(c) exemption.

"The dealer availing section 7(c) of the Act knows the extent to which the input tax credit could be claimed.”

The Court dismissed the Civil Appeal, stating: "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.”

Advocates Representing the Parties

For the Appellant: Mr. Udayan Jain

For the Respondent: Mr. Bhakti Vardhan Singh

Case Title: Neha Enterprises v. Commissioner, Commercial Tax, Lucknow, Uttar Pradesh

Neutral Citation: 2025 INSC 476

Case Number: Civil Appeal No. 6553 of 2016

Bench: Justice Pankaj Mithal, Justice S.V.N. Bhatti

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