2025 INSC 231 REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2212 OF 2024

STATE OF PUNJAB & ORS. APPELLANT(S)

Versus

TRISHALA ALLOYS PVT. LTD. RESPONDENT(S)

With

CIVIL APPEAL NO. 2213 OF 2024

With

CIVIL APPEAL NOS. 2214-2216 OF 2024

With

CIVIL APPEAL NO. 2217 OF 2024

With

CIVIL APPEAL NO. 2218 OF 2024

And

CIVIL APPEAL NO. 2219 OF 2024

J U D G M E N T

UJJAL BHUYAN, J.

This judgment and order will dispose of Civil Appeal

Nos. 2212, 2213, 2214-2216, 2217, 2218 and 2219 of 2024.

2. Details of the Civil Appeals are as under:

Sl.

No.

Civil Appeal

No(s).

SLP (C) No(s). Cause Title

1. 2212 of 2024 35263 of 2015 State of Punjab & Ors. Vs.

Trishala Alloys Pvt. Ltd.

2

2. 2213 of 2024 35269 of 2015 State of Punjab Vs. Prime

Steel Processors.

3. 2214-2216 of

2024

35265-35267

of 2015

State of Punjab Vs. JREW

Engineering Ltd. Etc. Etc.

4. 2217 of 2024 35790 of 2015 State of Punjab Vs. District

Taxation Bar Association

(Sales Tax), Ludhiana.

5. 2218 of 2024 904 of 2016 State of Punjab Vs. LSR

Forge Pvt. Ltd.

6. 2219 of 2024 2407 of 2016 State of Punjab vs Jalandhar

Iron and Steel Merchants

Association (Regd.).

3. Since parties have advanced their arguments in Civil

Appeal No. 2212 of 2024 (State of Punjab Vs. Trishala Alloys Pvt.

Ltd.), the same is taken as the lead appeal and for the sake of

convenience, facts stated in the said appeal would be referred to

hereunder.

4. This appeal by special leave is directed against the

order dated 20.05.2015 passed by the High Court of Punjab and

Haryana at Chandigarh (briefly ‘the High Court’ hereinafter) in

CWP No. 7951/2014 ( Trishala Alloys Private Ltd. Vs. State of

Punjab) whereby the High Court has allowed the writ petition

filed by the respondent by following its judgment and order of

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even date passed in CWP No. 5625/2014 ( Jalandhar Iron and

Steel Merchants Association Vs. State of Punjab).

5. State of Punjab has filed the related petition for special

leave to appeal (civil) No. 35263/2016 assailing the order dated

20.05.2015.

6. Question for consideration is whether Rule 21(8) of the

Punjab Value Added Tax Rules, 2005 (Punjab VAT Rules) could

have been introduced during the period between 25.01.2014 to

01.04.2014 when there was no enabling provision in the parent

statute i.e. the Punjab Value Added Tax Act, 2005 (Punjab VAT

Act)? The above issue has arisen in the following factual

backdrop.

7. Respondent is a manufacturer of iron and steel goods.

For manufacturing such goods, it purchases raw material of iron

and steel from within the State of Punjab as well as from outside

the State of Punjab.

8. Punjab VAT Act came into force from 01.04.2005. As

per the scheme of Punjab VAT Act, value added tax (VAT) paid or

payable under the said Act by a taxable person on the purchase

of taxable goods for resale or for use by him in the manufacture

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or processing or packing of taxable goods in the State of Punjab

would be termed as input tax. The credit of input tax available to

a taxable person under the Punjab VAT Act is referred to as input

tax credit (ITC). There is a concept called reverse input tax credit

which means the amount of input tax credit which is required to

be reversed by a taxable person on account of credit note for

output tax received from the previous seller of goods on purchase

in respect of which input tax credit (ITC) is claimed etc. Output

tax in relation to a taxable person means the tax charged or

chargeable or payable in respect of sale and/or purchase of

goods, as the case may be, under the Punjab VAT Act.

9. A taxable person shall be entitled to input tax credit in

such manner and subject to such conditions as may be

prescribed in respect of input tax on taxable goods including on

capital goods purchased by him from a taxable person within the

State during the tax period. However, such goods must be for

sale in the State of Punjab or in the course of inter-state trade,

commerce or in the course of export or for use in the

manufacture, processing or packing of taxable goods for sale

within the State of Punjab or in the course of inter-state trade or

commerce or in the course of export.

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9.1. Taxable person has been defined to mean a person

who is registered for the purpose of paying value added tax under

the Punjab VAT Act and tax period means the period for which a

person is required to pay tax under the Punjab VAT Act or the

rules framed thereunder.

10. Section 13(1) of the Punjab VAT Act read with the first

proviso thereto, as it stood prior to amendment, provided that a

taxable person shall be entitled to input tax credit in respect of

input tax on taxable goods purchased by him from a taxable

person within the State during the tax period if such goods are

for further sale etc or for manufacture etc of taxable goods.

10.1. After amendment with effect from 01.04.2014, the

mandate of the provision undergoes a change in that input tax

credit would be available only if the goods are sold or are used in

manufacture etc.

11. In exercise of the powers conferred by sub-section (1)

of Section 70 of the Punjab VAT Act, the Punjab VAT Rules have

been framed.

11.1. Rule 18 deals with conditions for input tax credit

whereas input tax credit on capital goods is dealt with in Rule 19.

6

11.2. Rule 21 is relevant. It provides for inadmissibility of

input tax credit in certain cases, such as, no input tax credit

shall be admissible to a person for tax paid on purchase of goods

if such goods are lost or destroyed or damaged beyond repair etc.

Calculation of input tax credit is dealt with in Rule 22.

12. Government of Punjab in the Department of Excise

and Taxation issued notification bearing No.G.S.R.5/P.A.8/

2005/S.70/Amd.(53)/2014 dated 25.01.2014 making the Punjab

Value Added Tax (First Amendment) Rules, 2014 (‘First

Amendment Rules’ hereinafter) to further amend the Punjab VAT

Rules. It is mentioned therein that the amendments would come

into force with effect from 01.02.2014. As per the First

Amendment Rules, after sub-rule (6) of Rule 21 of the Punjab

VAT Rules, sub-rules (7) and (8) were added. Sub-rule (8) as

inserted in Rule 21 vide the First Amendment Rules reads as

under:

(8) where some goods as input or output are lying

in the stock of a taxable person and where rate of

tax on such goods is reduced from a particular

date, then from that date, input tax credit shall be

admissible to the taxable person on the sale of

goods lying in stock or on using the goods as

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input for manufacturing taxable goods, at the

reduced rate.

13. Government of Punjab in the Excise and Taxation

Department issued a revised public notice/clarification drawing

the attention of taxable persons, advocates, chartered accountants

and cost accountants that the rate of tax on iron and steel goods

stood reduced from 4.5 per cent to 2.5 per cent. It was mentioned

therein that input tax credit (ITC) on stock held as on 31.01.2014

would be restricted to the new rate of tax plus surcharge. It was

further clarified that the new tax regime would come into effect

from 01.02.2014.

14. Punjab Government in the Department of Excise and

Taxation also issued notification bearing No. S.O.9/P.A.8./2005/

S.8/2014 dated 25.01.2014 making amendment in Schedule ‘E’

appended to the Punjab VAT Act mentioning that the same was

being done in exercise of the powers conferred by sub-section (3)

of Section 8 of the Punjab VAT Act dispensing with the condition

of previous notice. As per the amendment, serial No.21 was

added to Schedule E whereby iron and steel goods as enumerated

in Clause IV of Section 14 of the Central Sales Tax Act, 1956

except non-cenvat paid iron and steel scrap would attract tax at

8

2.5 per cent whereas non-cenvat paid iron and steel scrap would

attract tax at 1 per cent.

15. Respondent filed CWP No. 7951 of 2014 before the

High Court for a declaration that Rule 21 (8) of the Punjab VAT

Rules as inserted vide the notification dated 25.01.2014 was ultra

vires the Constitution and the Punjab VAT Act. Contention of the

respondent was that credit for the tax already paid by the taxable

person on goods kept as stock in trade would be reduced by

virtue of Rule 21 (8) which is illegal and unconstitutional.

16. By the impugned judgment, High Court allowed the

writ petition holding that on the date of introduction of sub-rule

(8) in Rule 21 of the Punjab VAT Rules, the State did not possess

any power traceable to the Punjab VAT Act to confine the rate of

input tax credit to the reduced rate of tax on the stock in trade

i.e. on those concluded transactions where the taxable person

had already earned input tax credit at the previous higher rate of

tax.

17. Aggrieved thereby, the State is in appeal.

18. Learned counsel for the appellant submits that the

High Court was not at all justified in allowing the writ petition

9

filed by the respondent holding that on the date of introduction of

sub-rule (8) in Rule 21 of the Punjab VAT Rules, the State did not

possess any power to confine availing of input tax credit (ITC) to

the reduced rate of tax on the stock in trade i.e. in respect of

transactions that stood concluded with the taxable person

already earning input tax credit at the previous higher rate of tax.

Judicial intervention in such a case was not warranted.

18.1. Referring to Section 2(o) of the Punjab VAT Act, he

submits that input tax is the tax paid or payable in the course of

business on the purchase of any goods made from a registered

dealer of the State. It is a tax in relation to a taxable person

which is paid or is payable by him on the purchase of taxable

goods for resale or for further use by the taxable person in the

manufacture or processing or packing of taxable goods in the

State. Output tax which is the tax charged or chargeable or

payable under the Punjab VAT Act extends the benefit of ITC

subject to fulfilment of certain conditions. Learned counsel

submits that High Court has completely misread Rule 21(8) of

the Punjab VAT Rules holding that there would be retro-active

application of the said Rule whereas no such intent is

decipherable therefrom.

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18.2. ITC is not a privilege but merely a facility to avoid the

cascading effect of tax. State government introduced the scheme

of ITC under Section 13 of the Punjab VAT Act to minimise the

effect of VAT and to reduce the burden of tax on the ultimate

consumer. Every dealer (taxable person) calculates the output tax

liability and reduces the tax paid on purchases to reach the

quantum of tax payable. Therefore, the state government has the

power to impose tax at the stage of sale and in certain cases, no

ITC may be available. A dealer would be entitled to ITC on the

stock in trade held as on 31.01.2014 equal to the new rate of tax

plus surcharge effective from 01.02.2014. The goods purchased

prior to 31.01.2014 and not sold or utilised till 31.01.2014 would

be eligible to ITC at the new rate enforced till further sale. Thus,

he would not be entitled to credit at the same rate of tax which

was applicable at the time of procurement.

18.3. High Court has failed to appreciate that amendment to

the Punjab VAT Rules applies only to the rate of tax prevailing on

the date of sale of the stock in trade and, therefore, does not

affect the rights of a dealer or the ITC on the transaction which

stood concluded.

11

18.4. Learned counsel has referred to the rule making

provision in the Punjab VAT Act i.e. Section 70. He submits that

as per sub-section (2) of Section 70, the rules under the Punjab

VAT Act may be made either with prospective effect or with

retrospective effect. However, he concedes that as per the proviso

thereto, the rules shall be made with retrospective effect only if

the same are required to be made in public interest.

18.5. He finally submits that State has a larger affirmative

responsibility towards the society. Therefore, the impugned

provision may be examined from that perspective also.

19. Per contra, learned counsel for the respondent submits

that the High Court had rightly observed that on the date of

introduction of sub-rule (8) in Rule 21, the State did not possess

any power emanating from the Punjab VAT Act to confine the

availing of input tax credit (ITC) to the reduced rate of tax on the

stock in trade i.e. on the transaction which stood concluded with

the dealer already earning input tax credit at the previous higher

rate of tax. He submits that a perusal of the amendment in the

first proviso to Section 13(1) of the Punjab VAT Act would reveal

that the said provision is not retrospective but applies to

transactions after 01.04.2014. The amendment in the said Rule

12

which came into effect prior to the amendment in the Punjab VAT

Act could therefore not be enforced by the appellant before

01.04.2014 to take away a vested right already determined and

accrued to the respondent without any statutory sanction.

19.1. Based on the above submission, learned counsel for

the respondent contends that the limited issue in this appeal is

whether Rule 21(8) of the Punjab VAT Rules could have been

introduced and made applicable during the period between

25.01.2014 to 01.04.2014.

19.2. In that context learned counsel contends that on the

date when Rule 21(8) of the Punjab VAT Rules was introduced i.e.

on 25.01.2014 there was no enabling provision in the Punjab

VAT Act that empowered the State to reduce the rate of input tax

credit already earned by reference to the sale of goods lying in

stock. The statutory position is clear in that input tax credit (ITC)

would be earned on the date of purchase in accordance with

Section 13 of the Punjab VAT Act as it stood on that date i.e. on

the date of purchase. Amendment to the Punjab VAT Act

empowering the State to notify such a rule came into effect only

on 01.04.2014 when the first proviso to Section 13(1) of the

Punjab VAT Act was amended. The words ‘are for sale’ appearing

13

in the first proviso to Section 13(1) were deleted and substituted

with the words ‘are sold’. Similarly, the words ‘for use in the

manufacture’ were replaced by the words ‘are used in the

manufacture’. Effect of this amendment was to limit the input tax

credit earned on the goods already sold or used in manufacture.

This amendment therefore enabled the State to reduce the input

tax credit already earned on the stock in trade by reference to the

reduced rate of taxation.

19.3. State of Punjab introduced Rule 21(8) in the Punjab

VAT Rules vide the notification dated 25.01.2014, the effect of

which was that though the respondent would have paid tax at

the existing higher rate on the purchase of raw material used as

input, it would not be in a position to recover the whole of it from

the customers because of subsequent reduction in the rate of tax.

19.4. Learned counsel vehemently argued that the State did

not have the legislative competence to reduce the input tax credit

already earned by inserting sub-rule (8) in Rule 21 before making

amendment in the corresponding enactment i.e. Section 13 of the

Punjab VAT Act. Amendment in the Punjab VAT Act having come

into effect from 01.04.2014, the amendment in Rule 21(8) of the

Punjab VAT Rules could not have come into force prior thereto.

14

19.5. Learned counsel for the respondent submits that there

is no error or infirmity in the view taken by the High Court.

Appeal filed by the State lacks merit and, therefore, should be

dismissed.

20. Submissions made by learned counsel for the parties

have received the due consideration of the Court.

21. At the outset, let us refer to and analyse the relevant

statutory provisions. Section 2 of the Punjab VAT Act is the

definition section. Section 2(o) deals with input tax. It says that

input tax in relation to a taxable person means the value added

tax (VAT), paid or payable under the Punjab VAT Act, by a person

on the purchase of taxable goods for resale or for use by the

taxable person in the manufacture or processing or packing of

taxable goods in the State. Input tax credit has been defined in

Section 2(p) to mean the credit of input tax (ITC) available to a

taxable person under the Punjab VAT Act. On the other hand,

output tax as defined in Section 2(s) in relation to a taxable

person means the tax charged or chargeable or payable in respect

of sale and/or purchase of goods, as the case may be. Reverse

input tax credit as per Section 2(ze) means the amount of input

tax credit (ITC) which is required to be reversed by a taxable

15

person on account of the four situations enumerated thereunder

including one where credit note for output tax is received from

the seller of goods on purchase in respect of which input tax

credit is claimed. While tax period has been defined in Section

2(zm) to mean the period for which a person is required to pay

tax under the Punjab VAT Act or under the Punjab VAT Rules,

taxable person has been defined in Section 2(zn) to mean a

person who is registered for the purpose of paying VAT under the

Punjab VAT Act.

22. Section 13 of the Punjab VAT Act deals with input tax

credit. Sub-section (1) of Section 13 of the Punjab VAT Act

alongwith the first proviso thereto, as it stood prior to the

amendment, reads as under:

S-13. Input tax credit.

(1) A taxable person shall be entitled to the input

tax credit, in such manner and subject to such

conditions, as may be prescribed, in respect of

input tax on taxable goods, including capital

goods, purchased by him from a taxable person

within the State during the tax period:

Provided that such goods are for sale in the

State or in the course of inter-state trade or

commerce or in the course of export or for use

in the manufacture, processing or packing of

16

taxable goods for sale within the State or in the

course of inter-state trade or commerce or in

the course of export.

23. The aforesaid provision says that a taxable person

shall be entitled to ITC in respect of input tax on taxable goods,

including capital goods, purchased by him from a taxable person

within the State during the tax period. As per the unamended

first proviso, such goods should be for sale in the State or in the

course of inter-state trade or commerce or in the course of export

or for use in the manufacture, processing or packing of taxable

goods for sale within the State or in the course of inter-state

trade or commerce or in the course of export.

23.1. Sub-section (9) of Section 13 provides that a person

shall reverse input tax credit availed by him on goods which

could not be used for the purposes specified in sub-section (1) of

Section 13 or which remained in stock at the time of closure of

the business.

24. Section 70 is the rule making provision. While sub-

section (1) empowers the state government to make rules for

carrying out the purposes of the Punjab VAT Act, sub-section (2)

on the other hand provides that rules made under the Punjab

17

VAT Act may be either with prospective effect or with

retrospective effect. As per the proviso to sub-section (2), the

rules shall be with retrospective effect only if the same are

required to be made in public interest.

25. While Rule 18 of the Punjab VAT Rules mentions the

conditions for input tax credit, Rule 19 on the other hand deals

with input tax credit on capital goods.

26. Rule 21 deals with inadmissibility of input tax credit in

certain cases. At the relevant point of time, Rule 21 had six sub

rules, sub-rule (7) having been omitted. Input tax credit would

not be admissible to a person for the tax paid on purchase of

goods if such goods are lost or destroyed or damaged beyond

repair etc.

27. By notification dated 25.01.2014, Government of

Punjab made the Punjab VAT (First Amendment) Rules, 2014

declaring that the amended provisions would come into force

with effect from 01.02.2014. By the First Amendment Rules, Rule

21 of the Punjab VAT Rules was amended in the sense that after

sub-rule (6), sub-rules (7) and (8) were added.

18

28. We have already extracted sub-rule (8) of Rule 21. It

says that where some goods as input or output are lying in the

stock of a taxable person and where the rate of tax on such goods

is reduced from a particular date, then from that date, input tax

credit shall be admissible to the taxable person on the sale of

goods lying in stock or on using the said goods as input for

manufacturing taxable goods etc at the reduced rate from that

particular date.

29. What therefore the newly inserted provision of Rule

21(8) contemplates is that goods which were already purchased

at a higher rate of tax and forming part of the stock in trade

would be entitled to input tax credit of the taxable person on the

further sale of such goods or use of such goods as input for

manufacturing taxable goods etc at the reduced rate with effect

from 01.02.2014.

30. It has come on record that by another notification

dated 25.01.2014, Schedule E to the Punjab VAT Act was

amended by insertion of serial No.21 reducing the rate of tax in

respect of iron and steel goods.

31. Punjab VAT Act was amended the second time by the

Punjab Value Added Tax (Second Amendment) Act, 2013 (Punjab

19

Act No. 38 of 2013). Though as per Section 1(2) of the Second

Amendment Act, the same was to come into force at once, the

proviso thereto mentioned that amendment of sub-section (1) of

Section 13 shall come into force on and with effect from the first

day of April, 2014 i.e. from 01.04.2014. Section 5 of the Second

Amendment Act deals with amendment to Section 13 of the

Punjab VAT Act. As per the amendment, the first proviso to sub-

section (1) of Section 13 was amended and post amendment, the

said proviso reads as under:

Provided that the input tax shall not be available

as input tax credit unless such goods are sold

within the State or in the course of inter-state

trade or commerce or in the course of export or are

used in the manufacture, processing or packing of

taxable goods for sale within the state or in the

course of inter-state trade or commerce or in the

course of export.

32. As already noticed above, this provision came into the

statute book on and with effect from 01.04.2014. Before

proceeding further, it would be apposite to examine the said

provision as it existed prior to the amendment and compare the

same post amendment. Prior to amendment, the first proviso

mentioned that a taxable person would be entitled to input tax

20

credit in respect of input tax on taxable goods purchased by him

from a taxable person within the State during the tax period if

such goods are for sale in the State or in the course of inter-state

trade or commerce or in the course of export or for use in the

manufacture, processing or packing of taxable goods for sale

within the State or in the course of inter-state trade or commerce

or in the course of export. Post amendment, the first proviso says

that input tax shall not be available as input tax credit unless

such goods are sold within the State or in the course of inter-

state trade or commerce or in the course of export or are used in

the manufacture, processing or packing of taxable goods for sale

within the State or in the course of inter-state trade or commerce

or in the course of export.

33. The difference in language in the said provision as it

stood prior to amendment and post amendment is unmistakable.

Prior to amendment, the first proviso permitted availing of input

tax credit in respect of goods which are for sale etc. or are for use

in manufacture etc. Post amendment, the requirement is that

input tax would not be available as a credit unless the goods are

sold within the State etc. or are used in the manufacture etc. of

taxable goods. Post amendment, it is clear that no input tax

21

would be available unless the goods are sold etc. or used in the

manufacture etc. In other words, input tax credit would be

available on and from the date of further sale or use in

manufacture.

34. As we have already seen, by way of the first

amendment to the Punjab VAT Rules, Rule 21(8) was inserted

with effect from 01.02.2014 which made it abundantly clear that

goods purchased earlier on which input tax was paid and which

were lying in the stock of a taxable person would be available for

input tax credit on further sale of such goods or using of such

goods as input for manufacturing taxable goods etc. at the

reduced rate if the rate on such tax is reduced from a particular

date. We have also seen that the rate of tax on iron and steel

goods was reduced with effect from 01.02.2014.

35. The question that the High Court posed for

consideration was whether on 25.01.2024 when the notification

was issued inserting sub-rule (8) in Rule 21, the Punjab VAT Act

empowered the State to notify such a rule. High Court analysed

the provision of Rule 21(8) of the Punjab VAT Rules in the

following manner:

22

A perusal of Rule 21(8) of the Rules reveals that

with respect to goods lying in stock the input tax

credit already earned shall be admissible at the

reduced rate i.e. the rate of taxation prevalent on the

date of their sale. As referred to above, the rate of

taxation was reduced from 4% to 2% from

25.01.2014. The input tax credit already earned

would, therefore, be available with respect to goods

lying in stock at 2%. The petitioner-members, as is

apparent from the facts, had paid tax @ 4% while

purchasing the goods and had earned input tax

credit @ 4%.The goods having been purchased for

resale within the State of Punjab, the right to avail

input tax credit @ 4% per annum stood crystalised

as a determinate right subject to availing this right

during the return period or by carrying it forward.

The State, however, by enacting Rule 21(8) of the

Rules, has reduced the admissible amount of input

tax credit already earned from 4% to 2%.We cannot

possibly dispute the legislative competence of the

State in the exercise of its power of delegated

legislation to enact such a rule but the question, as

we have also noticed, is not the legislative

competence of the State but is whether on

25.01.2014 there was any provision in the statute

that empowered the State of Punjab to notify Rule

21(8) of the Rules to provide that goods that have

already earned input tax credit would avail input tax

credit at the reduced rate of taxation applicable on

the date of sale thereby reducing input tax credit

23

already earned on goods lying in stock by reference

to the reduced rate of tax prevalent on the date of

their sale etc.

35.1. However, High Court noted that as on 25.01.2014,

there was no provision in the statute that empowered the State to

enact a rule to provide that input tax credit already earned on

goods lying in stock could now be availed at the reduced rate as

the rate of tax on the goods in question stood reduced in the

interregnum. Such a power came to be conferred only after the

first proviso to Section 13(1) was amended on and from

01.04.2014. It was in that context, High Court held as follows:

The amendment in the first proviso to Section 13 of

the Act introducing the words "are sold" etc. came

into effect on 01.04.2014. The State of Punjab was,

therefore, empowered in the exercise of its power of

delegated legislation to notify a rule linking the

availing of input tax credit already earned to their

sale on 01.04.2014. Rule 21(8) of the Rules which

resonates the first proviso to Section 13 of the Act by

linking the availing of input tax credit to goods sold

and thereby to the reduced rate of taxation, came

into effect on 25.01.2014 on which date there was no

statutory provision enabling the State, in the

exercise of its power of delegated legislation, to notify

a rule that input tax credit would be "availed" on the

sale of goods lying in stock or their manufacture etc.

24

by reference to the reduced rate of taxation prevalent

at the time of "sale/manufacture" etc. of goods that

had already earned a determinate amount of input

tax credit.

35.2. Allowing the writ petition High Court held 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. High Court further

observed that the said provision i.e. amended first proviso to

Section 13(1) was not retrospective and held as under:

We, therefore, have no hesitation in holding that

on the date of introduction of sub-rule (8) of Rule 21

of the Rules, the State did not possess any power,

emanating from the Act, to confine the availing of

input tax credit to the reduced rate of tax on the

stock in trade i.e. transactions that had concluded

with the dealer already earning input tax credit. A

further perusal of the amendment in the first proviso

to Section 13 of the Act reveals that it is not

retrospective but applies to transactions after

25.01.2014. The amendment in the rule, which came

into effect prior to the amendment of the Act could,

therefore, not be enforced by the respondents before

25

01.04.2014 to take away a vested right already

determined without statutory sanction.

We, therefore, allow the writ petitions and hold

that in the absence of any provision in the statute

enabling the State of Punjab to notify Rule 21(8) of

the Rules w.e.f. 25.01.2014, the said provision would

come into effect from 01.04.2014.

36. 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. High Court has noted

that the enabling provision in the statute came into effect on and

from 01.04.2014 and, therefore, Rule 21(8) of the Punjab VAT

Rules which permits application of the reduced rate of tax cannot

be given effect to transactions which already stood concluded

26

prior thereto. It could only be applied to transactions on and from

01.04.2014.

37. In Eicher Motors Limited Vs. Union of India

1

, a three-

Judge Bench of this Court examined the challenge to the validity

and application of the scheme as modified by way of introduction

to Rule 57(F) of the Central Excise Rules, 1944 under which

credit which was lying unutilised as on 16.03.1995 with the

manufacturers stood lapsed in the manner set out therein. While

examining the above issue, this Court held that if on the inputs,

the assessee had already paid the taxes on the basis that when

the goods are utilised in the manufacture of further products as

inputs thereto then the tax on these goods gets adjusted which

are sold subsequently. Thus, a right accrued to the assessee on

the date when he paid the tax on the raw material or the input

would continue until the facility available thereto gets worked out

or until those goods existed. The impugned rule cannot be

applied to the goods manufactured prior to the date it came into

force i.e. 16.03.1995 on which duty had been paid and credit

facility thereto has been availed of for the purpose of

manufacture of further goods. This Court held as under:

1

(1999) 2 SCC 361

27

6. We may look at the matter from another angle. If

on the inputs, the assessee had already paid the

taxes on the basis that when the goods are utilised

in the manufacture of further products as inputs

thereto then the tax on these goods gets adjusted

which are finished subsequently. Thus a right

accrued to the assessee on the date when they paid

the tax on the raw materials or the inputs and that

right would continue until the facility available

thereto gets worked out or until those goods

existed. Therefore, it becomes clear that Section 37

of the Act does not enable the authorities

concerned to make a rule which is impugned herein

and, therefore, we may have no hesitation to hold

that the Rule cannot be applied to the goods

manufactured prior to 16.03.1995 on which duty

had been paid and credit facility thereto has been

availed of for the purpose of manufacture of further

goods.

38. Sedco Forex International Drill INC.Vs. Commissioner of

Income Tax, Dehradun

2

, is a case where this Court reiterated the

well settled principle of tax law that the law to be applied is that

which is in force in the relevant assessment year unless

otherwise provided expressly or by necessary implication. In so

far an explanation to a statutory provision is concerned if it is

2

(2005) 12 SCC 717

28

clarificatory in nature then the explanation must be read into the

main provision with effect from the time the main provision came

into force. But if it changes the law, it is not to be presumed to be

retrospective. Para 17 of the aforesaid decision reads as follows:

17. As was affirmed by this Court in CIT Vs. Goslino

Mario

3, a cardinal principle of the tax law is that the

law to be applied is that which is in force in the

relevant assessment year unless otherwise provided

expressly or by necessary implication. (See

also Reliance Jute and Industries Ltd. Vs. CIT

4). An

Explanation to a statutory provision may fulfil the

purpose of clearing up an ambiguity in the main

provision or an Explanation can add to and widen

the scope of the main section ( See Sonia

Bhatia Vs. State of U.P.

5). If it is in its nature

clarificatory then the Explanation must be read into

the main provision with effect from the time that the

main provision came into force ( See Shyam

Sunder Vs. Ram Kumar

6, Brij Mohan Das Laxman

Das Vs. CIT

7 and CIT Vs. Podar Cement (P) Ltd.

8).

But if it changes the law, it is not presumed to be

retrospective, irrespective of the fact that the

phrases used are “it is declared” or “for the removal

of doubts”.

3(2000) 10 SCC 165

4(1980) 1 SCC 139

5(1981) 2 SCC 585

6(2001) 8 SCC 24

7(1997) 1 SCC 352

8(1997) 5 SCC 482

29

39. This Court in Commissioner of Central Excise, Patna

Vs. New Swadeshi Sugar Mills

9, agreed with the interpretation

given by the Customs Excise and Service Tax Appellate Tribunal

to Rule 6 of the CENVAT Credit Rules, 2002 by holding that

CENVAT credit which was already earned by the assessee could

not have been taken away if the rigors of Rule 6 would be having

only prospective effect.

40. Again in the case of Jayam and Company Vs. Assistant

Commissioner

10, this 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.

41. Applying the principles culled out from the above

decisions to the facts of the present case, we find that respondent

9(2016) 1 SCC 614

10

(2016) 15 SCC 125

30

had earned input tax credit on purchase of iron and steel goods

which it kept as its stock in trade to be used as inputs or raw

materials in the manufacture etc. of taxable goods. State lowered

the rate of tax with effect from 01.02.2014 on those goods. The

related amendments in the rules i.e. Rule 21(8) of the Punjab

VAT Rules were notified on 25.01.2014 to come into effect from

01.02.2014. There was however no corresponding provision in

the parent statute i.e. Punjab VAT Act which permitted availing of

input tax credit at the lower rate of tax on the existing stock in

trade though the purchase of such input was already made at a

higher rate of tax thereby reducing the quantum of credit. The

enabling provision in the statute i.e. first proviso to Section 13(1)

of the Punjab VAT Act came into force with effect from

01.04.2014.

41.1. 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,

31

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.

41.2. This issue can also be looked at from another angle. As

we have seen, under sub-section (9) of section 13, a person is

under a mandate to reverse input tax credit availed by him on

goods which could not be used for the purposes specified in sub-

section (1) of Section 13 of the Punjab VAT Act or which remained

in stock at the time of closure of business. If the interpretation

sought to be given to Rule 21(8) of the Punjab VAT Rules by the

State is accepted, the natural corollary would be that reversal of

input tax credit would be at the lower rate of tax on the goods in

question when those goods could not be used for the purposes

specified in Section 13(1) or which remained as part of the stock

in trade at the time of closure of business. Such an interpretation

besides being fallacious, would also lead to revenue loss for the

State exchequer.

42. Thus, having regard to the discussions made above 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

32

Section 13 of the Punjab VAT Act is legally sound and warrants

no interference. Consequently, we find no merit in the appeal

which is accordingly dismissed.

43. Resultantly, and in view of the above, all the appeals

are dismissed. However, there shall be no order as to cost.

………………………………J.

[ABHAY S. OKA]

...……………………………J.

[UJJAL BHUYAN]

NEW DELHI;

FEBRUARY 17, 2025.