SHAKTI SALES CORPORATION vs STATE OF GUJARAT
- Court
- Gujarat High Court
C/SCA/23028/2019 JUDGMENT DATED: 07/07/2026
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 23028 of 2019
With
R/SPECIAL CIVIL APPLICATION NO. 23029 of 2019
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE A.S. SUPEHIA
and
HONOURABLE MS. JUSTICE VAIBHAVI D. NANAVATI
=============================================
Approved for Reporting Yes No
✔
=============================================
SHAKTI SALES CORPORATION & ANR.
Versus
STATE OF GUJARAT & ORS.
=============================================
Appearance:
UCHIT N SHETH(7336) for the Petitioner(s) No. 1,2
MR RAJ TANNA, AGP for the Respondent(s) No. 1,2,3
=============================================
CORAM: HONOURABLE MR. JUSTICE A.S. SUPEHIA
and
HONOURABLE MS. JUSTICE VAIBHAVI D. NANAVATI
Date : 07/07/2026
COMMON ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE A.S. SUPEHIA)
1. Rule returnable forthwith. Learned Assistant Government
Pleader, Mr. Raj Tanna waives service of notice of Rule for and
on behalf of the respondent – State.
2. Since the issue involved in the captioned petitions are
identical, with consent of learned advocates appearing for the
respective parties, are taken up for final disposal. Special Civil
Application No.23028 of 2019 is treated as the lead matter. For
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the purpose of passing the present order, the facts are
incorporated from the said petition.
3. The present writ petition, Special Civil Application
No.23028 of 2019, has been filed by the petitioners for the
following prayers:
“28. In view of the aforesaid premises, the Petitioners humbly pray
that:
RELIEFS CLAIMED
A. This Hon ble Court may be pleased to strike down and declare
the impugned notification (annexed at Annexure A) in so far as it
required reduction of input tax credit in respect of purchases of coke
resold in the course of inter-State trade and commerce and subjected
to tax under the CST Act as violating Article 286(3) of the Constitution
of India read with Section 15(b) of the CST Act;
B. In the alternative this Hon'ble Court may be pleased to declare
that the impugned notification (annexed at Annexure A) cannot lead to
denial of reimbursement as per Section 15(b) of the CST Act in
assessment under the Vat Act;
C. This Hon'ble Court may be pleased to issue writ of mandamus or
writ in the nature of mandamus or any other appropriate writ or order
quashing and setting aside impugned show cause notice dated
17.12.2019 annexed at Annexure B);
D. This Hon'ble Court may be pleased to declare and clarify that
denial of reimbursement under Section 15(b) of the CST Act in respect
of trading of declared goods on the basis of the impugned notification
was never confirmed in the judgement rendered in the case of Kadwani
Forge Ltd. (supra);
E. Pending notice, admission and final hearing of this petition, this
Hon ble Court may be pleased to restrain the learned Respondents
from proceeding further pursuant to the impugned show cause notice
dated 17.12.2019 (annexed at Annexure B);
F. Ex parte ad interim relief in terms of prayer E may kindly be
granted;
G. Such further reliefs) as deemed fit in the facts and
circumstances of the case may kindly be granted in the interest of
justice for which act of kindness your petitioners shall forever pray.”
4. At the outset, learned advocate, Mr.Uchit N. Sheth
appearing for the petitioners has submitted that the issue
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raised in the present writ petition is squarely covered by the
decision of the Coordinate Bench rendered in the case of Hides
and Skin Owners Seva Mandal vs. State of Gujarat , (2020) 83
GSTR 166 wherein, the Coordinate Bench has held that the
Notification No.(GHN-14)VAT-2010-S.11(6)(2)-TH, dated
29.06.2010, which is impugned in the present writ petitions, is
declared as not applicable to goods which are both purchased
and sold as declared goods.
5. However, learned Assistant Government Pleader, Mr.Raj
Tanna, has vehemently opposed the said submission and has
submitted that the issue with regard to the declared goods
along with the effect of the Notification dated 29.06.2010 and
vires of the said Notification was already dealt by this Court in
the judgment dated 22.07.2014 passed in Special Civil
Application No.17439 of 2011 and allied matters in the case of
Kadwani Forge Ltd. Thro. Director Utpalbhai B. Savaliya & Ors.
vs. State of Gujarat Thro. Chief Secretary & Ors. It is submitted
that similar contentions were dealt with by the dealers at the
relevant time and the Coordinate Bench has upheld the validity
of the Notifications restricting the input tax credit to the extent
of 2% of goods made from within the State and used in the
inter-State sales. Thus, the issue falls down to the applicability
of the ratio laid down by the two judgments in the case of
Hides and Skin Owners Seva Mandal (supra) and in the
case of Kadwani Forge Ltd. (supra).
6. It is not in dispute and as admitted by the learned
advocates appearing for the respective parties that in the later
judgment in the case of Hides and Skin Owners Seva
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Mandal (supra) , this Court has considered the judgment of
the Division Bench, dated 22.07.2014, rendered in the case of
Kadwani Forge Ltd. (supra) . In the instant case, the
petitioner has prayed for striking down and declaring the entry
No.2 of Notification No.(GHN-14)VAT-2010-S.11(6)(2)-TH,
dated 29.06.2010, of the Gujarat Value Added Tax Act, 2003
(for short ‘the VAT Act’) to the extent that it requires reduction
of input tax credit qua trading of goods declared to be of
special importance under Section 14 of the Central Sales Tax
Act, 1956 (for short ‘the CST Act’).
6.1 The petitioner No.1 is a proprietorship concern engaged
in the business of trading in petroleum coke and is registered
under the VAT Act and the CST Act. It is the case of the
petitioner that the Article 286(3) of the Constitution of India as
it stood during the period-in-question, the coal including coke
in all forms was declared to be goods of special importance
and the conditions to be abided by the States in so far as
declared goods were concerned, were stipulated under Section
15 of the CST Act, more particularly, Section 15(b) of the CST
Act which existed during the relevant period.
7. The petitioners made local purchases of petroleum coke
on payment of tax under the VAT Act and it is not denied that
such goods were sold in the course of inter-State trade and
commerce and accordingly, the tax under the CST Act was
paid on such inter-State sales under the CST Act. Section 11(6)
of the VAT Act empowers the Government to specify goods or
class of dealers that shall not be entitled to whole or partial tax
credit and accordingly, the impugned Notification was issued in
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exercise of powers of Section 11(6) of the VAT Act and the rate
of reduction of input tax credit in so far as coke was
concerned, was specified as 2%. Thereafter, another
Notification dated 23.09.2014 was issued reducing the input
tax credit in so far as coke was concerned, from 2% to 1 %.
The petitioner accordingly, claimed refund of tax paid on
purchases in terms of Section 15(b) of the CST Act and it
appears that the same has been denied by the respondents
and ultimately, the petitioner has assailed the Notification
dated 29.06.2010.
8. It appears that in the case of Kadwani Forge Ltd.
(supra) , some of the traders had prayed for quashing and
setting aside the Notification dated 29.06.2010 as amended
vide Notification dated 07.09.2010 and further prayer was
made to hold and declare Section 11(6) of the VAT Act, as
unconstitutional and invalid. After considering the rival
submissions and the judgments of the Supreme Court in the
cases of Union of India vs. Jalyan Udyog , AIR 1994 SC 88,
Premium Granites and Anr. vs. State of T.N. & Ors. (1994) 2
SCC 691, Union of India vs. Palival Electricals (P) Ltd., (1996) 3
SCC 407, Orient Weaving Mills (P) Ltd. vs. Union of India, AIR
1963 SC 98, Kasnika Trading and Anr. vs. Union of India and
Anr., (1995) 1 SCC 274, and other judgments of the Supreme
Court, the Coordinate Bench of this Court in the case of
Kadwani Forge Ltd. (supra) after examination of the
provisions of Section 11(6) of the VAT Act and the impugned
Notification, upheld the validity of such Notification by
recording thus:
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“10. For the reasons stated above, neither section 11(6) of the VAT
Act nor the impugned notifications restricting the input tax credit to the
extent of 2% of goods made from within the State and used in the
inter-State sales meaning thereby on sale of goods made from within
the State and used in inter-State sales can be said to be
unconstitutional and/or arbitrary and/or excessive delegation of
powers. The impugned notifications ar absolutely within the powers ę
conferred on the State under Section 11(6) of the VAT Act and the
same is in the larger public interest and with a view to see that the
development programmes of the State are not adversely affected due
to reduction in tax revenue. In view of the reduction of central sales tax
by the State Government and Central Government failed to
compensate the State for the losses on account of reduction in central
sales tax.”
9. Subsequently, it appears that in the case of Hides and
Skin Owners Seva Mandal (supra), the very same
Notification was challenged to the extent that it requires
reduction of input tax credit in respect of purchases of hides
and skins resold in the course of inter-State trade and
commerce. It was prayed that the said Notification may be
declared as violative of Article 286(3) of the Constitution of
India read with Section 15(b) of the CST Act. Further, it was
prayed that the impugned Notification cannot lead to denial of
reimbursement as per Section 15(b) of the CST Act in
assessment under the VAT Act. The Coordinate Bench, after
considering the earlier decision rendered by this Court in the
case of Kadwani Forge Ltd. (supra) , has distinguished the
said judgment as under:
“20. On the reading of the above judgment, it appears that while the
submissions made by the learned counsel for the petitioners therein,
even regarding declared goods have been considered, they appear to
have been considered in the context of the declared goods having
been used in the manufacture of other goods which resulted in new
and different goods being sold and not in the context of both purchase
and sale of declared goods. Moreover, reading the findings recorded by
the Division Bench in their entirety, it is evident that there is no
discussion in the context of section 15(b) of the CST Act.
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21. While the court in the above decision has recorded the
submissions advanced on behalf of the petitioners therein in respect of
declared goods also, from the submissions advanced by the learned
Advocate General it appears that in the facts of those cases, the
petitioners had manufactured and sold, new and different goods and
the vital condition for reimbursement under section 15 of the CST Act,
viz. the purchased as well as sold goods both should be “declared
goods", was not satisfied; whereas in the facts of the present case, the
petitioners are traders who have purchased declared goods and sold
such declared goods in the course of inter-State trade and commerce.
Moreover, as noted hereinabove, the aspect of section 15(b) of the CST
Act has not been gone into in the above decision.
XXX
24. Thus, when a particular point of law involved in the decision has
not been perceived by the court or present to its mind, such decision
can be said to have been passed sub silentio. If two points were urged
before the court, and the court passed its decision on one point, though
the other point was also involved in the facts and although the case
had a specific outcome, the decision is not an authority on the other
point, which is said to have passed sub silentio.
25. Since the validity of the impugned notification was subject
matter of challenge in those petitions, the question that arises for
consideration is whether the controversy involved in this case stands
concluded by the above decision.
26. As noted hereinabove, in the above decision, the court has
referred to the submissions advanced with respect to the challenge to
the impugned notification in the context of declared goods. But as
noted earlier, the learned Advocate General had drawn a distinction
and had stated that section 15 of the CST Act would not come to the
aid of petitioners therein inasmuch as the goods purchased and sold
were not both declared goods as contemplated by section 15 of the
CST Act. The Division Bench in the above decision has not specifically
dealt with the contention regarding article 286(3) of the Constitution of
India read with section 15(b) of the CST Act in the context of goods
which are both purchased and sold as declared goods. Thus, while the
impugned notification was also challenged in respect of declared goods
and the aspect of section 15(b) of the CST Act was also placed before
the court and the court has recorded the submissions, but in the
findings recorded by it, the court has not dealt with the contentions
based on section 15(b) of the CST Act. Thus, while the said notification
can be said to have been upheld by the court, the decision rendered by
the court cannot be said to be a precedent insofar as the aspect of
section 15(b) of the CST Act is concerned, which has passed sub
silentio.
XXX
29. Thus, when a particular point of law is not consciously
determined, the rule of sub silentio would be attracted. In the light of
the principles laid down in above decisions, in the opinion of this court,
the decision of this court in Kadwani Forge Ltd. (supra) cannot be said
to be a decision on the aspect of section 15(b) of the CST Act and to
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the applicability of the impugned notification to cases where the goods
purchased and sold are both declared goods. The contention that the
controversy involved in this case stands concluded by the above
decision, therefore, does not merit acceptance.
30. Adverting to the merits of the case, viz. whether it is permissible
for the State to reduce the State tax which is required to be reimbursed
under section 15(b) of the CST Act on sales of declared goods in the
course of inter-State trade or commerce? Clause (3) of article 286 of
the Constitution of India provides that any State law, insofar as it
imposes or authorises the imposition of a tax on sale or purchase of
goods declared by Parliament by law to be of special importance in
inter-State trade or commerce shall be subject to such restrictions and
conditions in regard to the system of levy, rates and other incidents of
tax as Parliament may by law Specify. Thus, the imposition of tax on
sale or purchase of declared goods is subject to the restrictions and
conditions specified by the Parliament by law. The Parliament has
enacted the law namely, section 15(b) of the CST Act, which in clear
and unambiguous terms provides for reimbursement of the tax levied
under the State law when such goods are sold in the course of inter-
State trade or commerce.
31. On behalf of the respondents it has been contended that section
15(b) of the CST Act permits the State to put restrictions and conditions
subject to which the reimbursement would be made, and hence, it is
permissible for the State to provide even the extent of reimbursement
which would be made. In this regard, it may be noted that under the
sales tax regime, a specific rule had been framed to provide for refund
of the State tax levied on declared goods when such goods were sold
during the course of inter-State trade or commerce, which provided for
refund of the whole of the tax so levied. Therefore, rule 45 of the
Gujarat Sales Tax Rules was in consonance with section 15(b) of the
CST Act. It is, therefore clear, that even the rule making body, at the
relevant time when rule 45 came to be enacted, was conscious of the
fact in case of sale of declared goods in the course of inter-State trade
or commerce, the whole of the State tax has to be refunded. Under the
GVAT Act, since there is no specific provision for refund of State tax
levied on declared goods sold in the course of inter-State trade or
commerce, input tax credit is granted instead.
32. While sub-section (6) of section 11 of the GVAT Act permits the
State Government to specify any goods or class of goods that shall not
be entitled to whole or partial tax credit, the said provision cannot be
read to mean that it empowers the State Government to override the
provisions of section 15(b) of the CST Act and curtail the extent of
reimbursement that has to be granted thereunder. When section 15(b)
of the CST Act permits the State law to provide for the manner in which
such reimbursement is to be granted, which may be subject to
restrictions or conditions, it means that it is permissible for the State to
decide the mode and manner in which such reimbursement is to be
made. For example under the Sales Tax Act, reimbursement was
granted by way of refund; whereas, under the GVAT Act it is granted by
way of input tax credit. It may further be permissible for the State law
to provide for restrictions or conditions, but, in the considered opinion
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of this court, the State law cannot provide for curtailing the extent of
reimbursement which is provided in section 15(b) of the CST Act,
namely the tax levied under the State law at the time of purchase of
such goods. In the opinion of this court, section 15(b) of the CST Act
does not permit the State law to reduce the amount of tax which is
required to be reimbursed, but only permits the State law to provide for
the manner in which such reimbursement is to be granted which may
be subject to restrictions or conditions. However, from the language
employed in section 15(b) of the CST Act, it is not possible to cull out
an intention that the State law is permitted to tinker with the amount
of reimbursement. The words of clause (b) of section 15 of the CST Act
are clear and unambiguous, namely that the tax levied under the State
law shall be reimbursed to the person making such sale in the course
of inter-State trade or commerce.
33. Therefore, in the light of the provisions of article 286(3) of the
Constitution read with section 15(b) of the CST Act, the State is bound
to reimburse the State tax levied on declared goods. The impugned
notification, to the extent it curtails the entitlement to input tax credit
on sales or purchases of declared goods made during the course of
inter-State trade or commerce, therefore falls foul of the above
provisions of the Constitution and the CST Act which is the Central Act.
Keeping in mind the fact that the impugned notification does not relate
only to declared goods, the entire notification cannot be struck down.
However, the notification has to be read down to mean that the non-
entitlement to input tax credit provided thereunder shall not be
applicable to goods which are both purchased and sold as declared
goods. Consequently, the impugned notification shall not be applicable
to purchases of hides and skins resold in the course of inter-State trade
or commerce. The respondents are, therefore, not justified in denying
reimbursement of the whole of the State tax paid by the petitioners on
the declared goods purchased in the State and sold in the course of
inter-State trade and commerce.
XXX
38. In the light of the above discussion, the petition succeeds and is
accordingly allowed. It is hereby held that the impugned Notification
th
No. (GHN-14) VAT-2010-S.11(6)(2)-TH dated 29 June, 2010, as
amended by the Notification No.(GHN-14) VAT-2014-S.11(6)(4)-TH
dated 23rd September, 2014, shall not be applicable to goods which
are both purchased and sold as declared goods. The action of the
respondents in reducing the input tax credit in respect of purchases of
hides and skin resold in the course of inter-State trade and commerce
is hereby held to be violative of article 286(3) of the Constitution of
India read with section 15(b) of the Central Sales Tax Act, 1956.
Accordingly, the respondents are directed to grant input tax credit for
the whole of the tax paid by the petitioners on declared goods
purchased and resold in the course of inter-State trade or commerce.”
10. Thus, the subsequent judgment distinguishes the earlier
judgment dated 22.07.2014 in the case of Kadwani Forge
Ltd. (supra) by recording that the Coordinate Bench in the
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earlier judgment has not dealt with the issue in light of the
provisions of Section 15(b) of the CST Act. It is recorded that
though the submissions of the petitioners/dealers before the
Court regarding declared goods have been considered, they
appeared to have been considered in context of the declared
goods having been used in the manufacture of other goods,
which resulted in new and different goods being sold and not in
the context of both; purchase and sale of declared goods. This
was the distinguishing feature which, the Coordinate Bench in
the case of Hides and Skin Owners Seva Mandal (supra)
has highlighted while considering the provisions of Article
286(3) of the Constitution of India along with the provision of
sub-section (6) of Section 11 of the VAT Act. It is held that the
provision of Section 11(6) of the VAT Act permits the State
Government to specify any goods or class of goods that shall
not be entitled to whole or partial tax credit, however, the said
provision cannot be read to mean that it empowers the State
Government to override the provision of Section 15(b) of the
CST Act and curtail the extent of reimbursement that has to be
granted thereunder. This is the quintessential feature which
the later judgment of Hides and Skin Owners Seva Mandal
(supra) has dealth, and ultimately, while maintaining the
validity of the Notification, it is held that the same shall not be
applicable to goods which are both; purchased and sold as
declared goods. Further, it is held that the action of the
respondents in reducing the input tax credit in respect of
purchases of hides and skin( in the present case coke) resold
in the course of inter-State trade and commerce was held to be
violative of Article 286(3) of the Constitution of India read with
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Section 15(b) of the CST Act. Accordingly, this Court directed
the respondents to grant input tax credit for the whole of the
tax paid by the petitioners on declared goods; purchased and
resold in the course of inter-State trade of commerce.
10.1 Against the said judgment, the State filed Special Leave
Petition (Civil) Diary No.8188 of 2026 after an inordinate delay
of 1381 days, which was rejected by the Supreme Court vide
order dated 09.03.2026, refusing to condone the delay.
11. Thus, the judgment in the case of Hides and Skin
Owners Seva Mandal (supra) has attained finality. The case
of the petitioners is squarely covered by the said decision and
hence, the present writ petition succeeds to the extent as
directed by this Court in the case of Hides and Skin Owners
Seva Mandal (supra) . The impugned show cause notice
dated 17.12.2019 is quashed and set aside, while maintaining
the vires of the impugned Notification. Rule is made absolute
to the aforesaid extent. No order as to costs.
(A. S. SUPEHIA, J)
(VAIBHAVI D. NANAVATI,J)
NEHA /1
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