Input tax credit restrictions under VAT law upheld where notification power fits the statutory scheme and does not alter interstate sales tax.

Section 11(6) of the Gujarat Value Added Tax Act, 2003 was upheld because input tax credit under section 11 was expressly made subject to statutory exceptions, and the Government's power to specify goods or classes of dealers for partial or full denial of credit was treated as part of the Act's value-added tax scheme. The provision was therefore not found to confer unguided discretion or offend Article 14. Notifications issued under that power, reducing input tax credit by 2% for specified interstate transactions, were also upheld as intra vires and constitutionally valid, because they operated on the local credit mechanism and did not alter the Central Sales Tax regime or contravene Articles 286(3), 301 or 304(b).

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Issues: (i) Whether section 11(6) of the Gujarat Value Added Tax Act, 2003 suffered from excessive delegation or violated Article 14 of the Constitution of India; (ii) Whether the notifications issued under section 11(6), reducing input tax credit by 2% for specified interstate transactions, were ultra vires the Act or unconstitutional under Articles 286(3), 301 and 304(b) of the Constitution of India.

Issue (i): Whether section 11(6) of the Gujarat Value Added Tax Act, 2003 suffered from excessive delegation or violated Article 14 of the Constitution of India.

Analysis: Section 11 had to be read as a whole. The entitlement to tax credit under section 11(1) was expressly made subject to subsections (2) to (12), including section 11(6). The statutory scheme showed that tax credit was conditional and that the State Government was empowered by notification to specify any goods or class of dealers that would not be entitled to whole or partial tax credit. The object of the Act was taxation on a value-added basis, and the power under section 11(6) was treated as part of that policy framework. In that setting, the provision was not found to confer unguided or uncanalised power, nor was it held arbitrary merely because the Government could reduce or withdraw tax credit in specified cases.

Conclusion: Section 11(6) was held to be constitutionally valid and not violative of Article 14.

Issue (ii): Whether the notifications issued under section 11(6), reducing input tax credit by 2% for specified interstate transactions, were ultra vires the Act or unconstitutional under Articles 286(3), 301 and 304(b) of the Constitution of India.

Analysis: The notifications were held to operate within the statutory power conferred by section 11(6), because the Act itself permitted specification of goods or classes of dealers for whole or partial denial of tax credit. The Court held that the State had not altered the levy on interstate sales under the Central Sales Tax Act, 1956, but had only adjusted the local input tax credit mechanism under the VAT Act. The challenge under Articles 286(3), 301 and 304(b) was rejected because the impugned notifications did not impose a tax on interstate sales, did not modify the CST regime, and were issued in public interest to protect State revenue and development programmes. The contentions based on declared goods and reimbursement were also rejected on the footing that the statutory and constitutional restrictions invoked did not invalidate the notifications on the facts.

Conclusion: The notifications were held to be intra vires and constitutionally valid.

Final Conclusion: The challenge to the statutory provision and the impugned notifications failed in entirety, and the petitions were dismissed.

Ratio Decidendi: Where a taxing statute makes a tax credit expressly subject to subordinate exceptions and authorises the Government to specify goods or classes of dealers by notification, a notification reducing or withdrawing credit within that framework is valid if it is consistent with the statutory scheme and supported by public interest, and it does not become unconstitutional merely because it affects interstate transactions.

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