Neha Enterprises vs. Commissioner, Commercial Tax, Lucknow, Up

2025 INSC 476
[REPORTABLE]

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 6553 OF 2016


NEHA ENTERPRISES … APPELLANT(S)

VERSUS

COMMISSIONER, COMMERCIAL TAX,
LUCKNOW, UTTAR PRADESH … RESPONDENT(S)

J U D G E M E N T
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
Signature Not Verified
Digitally signed by
geeta ahuja
Date: 2025.04.09
17:47:30 IST
Reason:
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

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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.

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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
commercial tax under section 59 dated 30.04.2010, are related to providing
facilities to exporters. In these circulars, no facility has been given to the
exporter-sellers. It is clear from section 13(7) that if any notification has been
issued under section 7(c), then no facility of input tax credit will be allowed to
the selling dealer. Hence, the law is against the appellant, and the action of the
assessing officer regarding the reversal of input tax credit is justified.

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4. The dealer filed a revision before the High Court and, through an order
dated 24.11.2014, the revision was dismissed. The operative portion of the
order impugned reads thus:
“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.”

5. Hence, the Civil Appeal.
6. Mr. Udayan Jain, learned Counsel for the appellant, contends that the
denial of input tax credit is prima facie illegal and unsustainable. The
notification under section 7(c) of the Act read in the context of policy would
show that the notification has been issued to encourage manufacturer-
exporters in the State of Uttar Pradesh. The exemption from tax to the
manufacturer-exporter, if, on the one side, promotes trade and commerce,
denial of input tax credit to the seller/dealer, on the other hand, would be
counterproductive to the very policy of the State Government. Section 13(7)
should be read by appreciating its intent, and the input tax credit should not
be denied by applying section 7(c) and the notifications issued. The argument,

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however, has been presented in a different perspective. The emphasis of the
argument is to read section 7(c) in conjunction with section 13(1) and grant an
input tax credit to the dealer. The turnover against Form-E filing has not been
properly appreciated by all the authorities.

7. Mr. Bhakti Vardhan Singh, learned Counsel appearing for the
respondent, contends that the case of the dealer falls under section 7(c) read
with the notifications dated 24.02.2010 and 25.03.2010. The dealer, by filing
Form-E, recorded a turnover of Rs. 1,89,35,100/-. The dealer, therefore, is
disentitled to input tax credit by operation of section 13(7). It is pointed out
that input tax credit is available strictly as per the expression. In the
interpretation of taxing statutes, intent does not form the guiding principle.
There is no ambiguity in preferring an interpretation that is favourable to the
dealer. The expression is clear, and the findings, both in law and fact, recorded
by the courts below, do not warrant interference under Article 136 of the
Constitution of India.

8. We have heard the learned Counsel and perused the record.

9. To avoid repetition, we have set out the gist of the reasoning and the
conclusion of the authorities under the Act and the High Court. The admitted
circumstances are that the subject turnover of Rs. 1,89,35,100/- has been
brought within the fold of section 7(c) of the Act read with notifications dated
24.02.2010 and 25.03.2010. The consequence of such treatment is that the
dealer was unable to sell the goods to the manufacturer-exporter without
collecting the tax from the said manufacturer-exporter. For the said turnover,

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the dealer claims an input tax credit on the purchase tax paid by the dealer.
The entitlement is appreciated through the following schematic excerption and
consideration of the sections, notifications and the exception in section 13(7):
“ Section 7. Tax not to be levied on certain sales and purchases - No tax
under this Act shall be levied and paid on the turnover of
(a) xxx xxx xxx
(b) xxx xxx xxx
(c) such sail or purchase; or sale or purchase of such goods by such class of
dealers, as may be specified in the notification issued by the State
Government in this behalf”

“ Section 13. Input tax credit - (1) Subject to provisions of this Act, dealers
referred to in the following clauses and holding valid registration certificate under
this Act, shall, in respect of taxable goods purchased from within the State and
mentioned in such clauses, subject to conditions given therein and such other
conditions and restrictions as may be prescribed, be allowed credit of an amount,
as input tax credit, to the extent provided by or under the relevant clause.

(a) Subject to conditions given in column (2), every dealer liable to pay tax,
shall, in respect of all taxable goods except non-vat goods, capital goods
and captive power plant, where such taxable goods are purchased on
or after the date of commencement of this Act, be allowed credit of the
amount, as input tax credit, to the extent provided in column (3) of the
table below:

xxx xxx xxx
xxx xxx xxx

13(7) Except where-
(a) purchased goods; or
(b) manufactured goods which are manufactured by using purchased
goods; or

(c) packed goods which are packed by using or consuming purchased
goods.

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are to be sold in the course of the export of the goods out of the territory of
India, no credit of any amount of input tax shall be claimed by a dealer
under sub-section (4) and no facility of input tax credit shall be allowed to a
dealer in respect of purchase of any goods, where –

(i) sale of such goods by the dealer is exempt from payment of
tax under clause (c) of section 7; or
(ii) such goods are to be used or consumed in manufacture or packing of
any goods and sale of such manufactured or packed goods by the
dealer is exempt from payment of tax either under clause (b) or clause
(c) of section 7.
(iii) such goods are for transfer of right to use such goods.”



Notification dated 24.02.2010
“Manufacturer-exporter of any raw materials, processing materials
consumable stores, spare parts, accessories, components, lubricants, fuel
other than petrol and diesel and packing materials for use in the manufacture
of goods by him or in the packing of goods manufactured by him - Turnover
of direct sale to or direct purchase by - Exempt subject to conditions.

K.A. NI.-2-247/XI-9(341)/09-U.P. Act-5-08-Order-(58)-2010


xxx xxx xxx
In the exercise of powers under clause (c) of section 7 of the Uttar Pradesh
Value Added Tax Act, 2008 (U.P. Act No. 5 of 2008), the Governor is pleased
to direct that no tax shall be payable under the said Act, with effect from
April 01, 2010 on the turnover of direct sale to or direct purchase by
manufacturer-exporter of any raw materials, processing materials,
consumable stores, spare parts, accessories, components, lubricants, fuel
other than petrol and diesel and packing materials for use in the manufacture
of goods by him or in the packing of goods manufactured by him subject to
the following conditions:”
xxx xxx xxx

Notification dated 25.03.2010
“OFFICE OF THE COMMISSIONER, COMMERCIAL TAX, UTTAR PRADESH

LEGAL SECTION
LUCKNOW: DATED 25.03.2010.

xxx xxx xxx

In the above notification there is provision of presenting declaration in
prescribed form by the Commissioner in order to take benefit of the facility for
which form 'E' is prescribed. By the letter of headquarter no. VAT/form-D
maintenance procedure / 2007- 2008/511/Commercial Tax dated 14.01.2008
for the purchase of diesel oil, furnace oil etc. by the manufacturer form 'D'
was prescribed which was amended by letter no. 680/ dated 13-03-08.
Similarly to form 'D', form 'E' is prescribed in pursuance of directions as referred

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in notification dated 24.02.2010 for direct sale or purchase by the manufacturer
/ exporters of raw material, processing material, consumable stores, spare
parts, accessories, components, lubricants, fuel other that petrol and diesel
and packing materials for use in manufacture of goods by him or in the packing
of goods manufactured by him. The maintenance and use this will be done as
per the directions given in the letter dated 13-03-09. Before the use of form 'E',
the Tax Assessing Officer will counter sign on the original copy of form 'E' upon
affixing EE series stamps.”


10. The argument of the dealer proceeds by falling on section 13(1) of the
Act. The argument also attempts to give effect to the intention or policy of the
State Government. 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 said exemption applies to the goods and also to the class of dealers who
satisfy the conditions and fall within the notification issued under section 7(c)
of the Act. The controversy is not over the exemption from levy and collection
of tax between the dealer and the department, since the subject turnover falls
admittedly under section 7(c) of the Act, read with notifications dated
24.02.2010 and 25.03.2010. The said admitted position takes us to the
entitlement or eligibility of the dealer for the input tax credit. It is axiomatic,
particularly in tax jurisprudence, that distinct concepts, such as taxable
persons, taxable goods and taxable events, are established for levying and
collecting the tax. Similarly, the scheme of availing input tax credit is
determined by section 13 of the Act. Section 13(1) provides for allowing credit
of an amount as input tax credit to the extent provided by or under the relevant
clause to which the applicable condition is attracted. If the purchased goods
are resold in the course of exporting the goods out of India, then the full amount

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of input tax credit can be claimed. Section 13(7) outlines the circumstances
under which such a benefit cannot be allowed. 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 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. 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 dealer availing section 7(c) of the Act knows the extent to which the
input tax credit could be claimed. 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.


…………………………J.
[PANKAJ MITHAL]




.…..……………………J.
[S.V.N BHATTI]

NEW DELHI;
APRIL 9, 2025

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