IMPORTANT POINT
Input tax credit – No facility for input tax credit shall be allowed to a dealer with respect to purchase of any goods where sale of such goods by dealer is exempt from tax under Section 7(c) of Uttar Pradesh Value Added Tax Act, 2008.

JUDGMENT :

(S.V.N. BHATTI, J.)

1. The appellant is a registered dealer under the Uttar Pradesh Value Added Tax Act, 2008 (for short, ‘the Act’). The subject matter of the appeal relates to the turnover returns filed by the dealer for the assessment year 2010-11. The dealer recorded sales against the issuance of Form-E to the manufacturer- exporter, amounting to Rs. 1,89,35,100/-. The dealer claimed an input tax credit amounting to Rs. 6,42,260/-. The assessing officer, at the first instance, allowed input tax to the extent of Rs. 6,42,260/-. Subsequently, the assessing officer vide order dated 22.02.2013 made under section 28 of the Act disallowed the claim of an input tax credit of Rs. 6,42,260/-. In the instant appeal, we are concerned with the disallowance of the input tax credit claimed by the dealer.

2. The assessing officer in the assessment order, passed under section 28 of the Act, put the dealer on notice to hold that the dealer is not entitled to input tax credit for the purchase tax paid by him on the sales turnover made in favour of the manufacturer-exporter. The dealer explained that the case of input tax claimed by the dealer falls within the scope of section 13(1) of the Act. Even though the subject turnover falls within the ambit of section 7(c) of the Act, the proviso or exception covered by section 13(7) of the Act is not attracted. The assessing officer noted that the subject sales or the subject turnover made against Form-E was accepted by the department. The exemption from payment of tax shall not be levied and paid on the turnover of sales or purchase of such goods by such class of dealers as may be specified in the notification issued on this behalf. The notifications dated 24.02.2010 and 25.03.2010 covered the procedure for dealing with the turnover falling within section 7(c) of the Act. Therefore, the input tax benefit is provided in accordance with the scheme outlined in section 13 of the Act. Section 13(7) is a proviso, and the said proviso stipulates that a transaction covered by section 7(c) of the Act is not entitled to input tax credit. Extending input tax credit in terms of section 13(1) of the Act would be contrary to sections 7(c) and 13(1) on the one hand and 13(7) of the Act on the other.

3. The dealer filed an appeal before the additional commissioner, and the first appellate authority vide order dated 22.07.2013 dismissed the appeal. The gist of the first appellate authority’s findings is that the notification dated 24.02.2010 corresponds to section 7(c) of the Act. The notification exempts the direct sale of raw materials and spare parts to manufacturer-exporters from tax upon filing Form-E. The notification does not provide input tax credit facility to sellers having tax-exempted sales made in favour of manufacturer-exporters. Section 13(7) constitutes an embargo, and once it is not disputed by the dealer that no tax turnover was recorded vis-à-vis the subject matter of the appeal, section 7(c) of the Act is attracted, and the consequential effect is that the dealer is not entitled to input tax credit. The order of the assessing authority was upheld in the second appeal filed by the dealer before the Tribunal of Commercial Tax, Meerut, Uttar Pradesh (“the Tribunal”), vide order dated 10.09.2013. The Tribunal, in the admitted facts and circumstances of the case, confirmed the view taken by the assessing officer and the first appellate authority. The Tribunal, in its fine reasoning, culminated in the conclusion that section 13(1)(a) provides for which traders' input tax credit shall be allowed. The appellant’s argument that input tax credit will not be allowed until section 13(1)(a) is amended is legally untenable, as it has been stipulated in section 13(7) that input tax credit will not be allowed in a few instances. Notifications no. 247 dated 24.02.2010 under section 7(c), circular dated 25.03.2010 issued by the commissioner of commercial tax and the order of the commissioner of commercia