Input tax credit on flood-damaged goods allowed, but insurance reimbursement must be set off against the credit.

Input tax credit on goods destroyed in a flood cannot be denied merely because the goods were not sold, resold or used in manufacture, where compliance with the statutory condition became impossible due to an act of God. The principle of lex non cogit ad impossibilia was applied to construe the restriction so that impossibility did not defeat credit entitlement. Any insurance reimbursement for the destroyed goods must, however, be adjusted against the credit, because the dealer cannot obtain a double benefit. The dealer was therefore entitled to input tax credit, subject to reduction of the insurance compensation received.

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Issues: Whether input tax credit could be denied on goods destroyed in flood, and whether insurance compensation affected the extent of such credit.

Analysis: The statutory restriction under section 11(5)(f) of the Gujarat Value Added Tax Act, 2003 contemplates denial of tax credit where goods are disposed of otherwise than by sale, resale or manufacture. The Court held that where, because of an act of God such as a flood, it becomes impossible for the dealer to comply with those conditions, the maxim lex non cogit ad impossibilia applies and the provision must be construed so that impossibility does not defeat the entitlement to credit. The Court also held that any amount reimbursed by the insurer for the destroyed goods must be adjusted, because the dealer cannot receive a double benefit.

Conclusion: The dealer was entitled to input tax credit on goods destroyed in flood, but only after reducing the amount compensated by the insurance company.

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