Input Tax Credit - Reversal/Reduction

Friends, I feel that we have been committing error of having more confidence in others than ourselves, and rather than doing little exercise oneself, we depend on certain selected ones to teach us what the law is, that can be the only cause, that while interpreting the earlier amendments to sub-section (1) we started interpreting the words ‘put to sale’ as ‘sold’ i.e., a phrase which was cast in ‘present prefect tense, translating the same into ‘past tense’.  Rest is a matter of history.

We have committed the same error this time also.  We have been lead to interpret the recent amendments in a manner, that now on the framing of the rules laying down the ‘prescribed percentage’ a dealer making inter-state sales will be required to reduce the input tax credit by that ‘prescribed percentage’

Please read the relevant provisions again, they are reproduced here below for the sake convenience.

“Amendment of section 9

In the principal Act, in section 9,- (i) in sub-section (3), for the word and figures “(4) and (6)”, the word and figures “(4), (6) and (10)” shall be substituted;

(ii) after sub-section (9), the following shall be inserted, namely:-

“(10) Not withstanding anything contained to the contrary in sub-section (1), where –

(a) a dealer has purchased goods (other than capital goods) for which a tax credit arises under sub-section (1) of this section; and,

(b) the goods or goods manufactured out of such goods are to be exported from Delhi by way of sale made under sub-section (1) of Section 8 of the Central Sales Tax Act, 1956, the amount of the tax credit shall be reduced by the prescribed percentage.”

The provisions of sub-section (1) of Section 8 of the Central Sales Tax Act, 1956 are also reproduced below for the sake of convenience.

“8. Rates of tax on sales in the course of inter-State trade or commerce

(1) Every dealer, who in the course of inter-State trade or commerce, sells to a registered dealer goods of the description referred to in sub-section (3); shall be liable to pay tax under this Act, which shall be three percent of his turnover or at the rate applicable to the sale or purchase of such goods inside the appropriate State under the sales tax law of that State, whichever is lower:

PROVIDED that the Central Government may, by notification in the Official Gazette, reduce the rate of tax  under this sub-section.”

Types of sales are defined in section 3, 4 and 5 of the Central Sales Tax Act, 1956, section 6 provides when a dealer becomes liable to pay tax under the Central Sales Tax Act, 1956 when a dealer making inter-state sales becomes liable to tax and section 8(1) provides that in the event of making sales to the registered dealer , the dealer will become liable to pay tax at the rates provided in section 8 (1) of the Central Sales Tax Act, 1956 . No sales are defined under section 8(1) of the Central Sales Tax Act, 1956, and what the legislature mean by recently inserted clause (b) in sub-section (10) is beyond my imagination and requires some explanation on the part of the legislature.

Some of my friends suggested like they did while interpreting the now deleted amendment in sub-section (1) of section 9 that by words ‘put to sale’ the legislature meant the words ‘sold’, they suggested that the clause (b) referrers to sales which are taxable under section 8(1) of the Central Sales Tax Act, 1956. If that is what the legislature means, who stopped them from saving so, and who we are to interpret the words in a manner what they actually don’t mean. It is settled law that there is no room for intendment in the taxing statues and they are to be construed strictly.

If this is a case of casus omissus, it is for them to rectify, neither any court nor we can supply those missing words.

So, friends feel relaxed, this amendment even after they may prescribe the ‘prescribed percentage’ is not going to have any impact on the tax liability of the dealers.

Even otherwise, these provisions are ultra vires; the detailed examination in reference to the Constitution of India will be done in my next article.