Input tax credit on stock-in-trade cannot be reduced by subordinate rules before statutory authority exists

Subordinate tax rules cannot curtail accrued input tax credit before the parent statute authorises that restriction. The Court noted that input tax credit under the Punjab Value Added Tax Act accrued on purchase of taxable goods, and that before the amendment to Section 13 taking effect on 01.04.2014, there was no legislative basis to link already earned credit on stock-in-trade to the lower tax rate applicable on sale. Rule 21(8), introduced on 21.01.2014, therefore operated without statutory support for the earlier period and could not reduce a vested fiscal entitlement retrospectively. The writ petitions were allowed and the rule was held inapplicable for the interregnum before 01.04.2014.

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Issues: (i) Whether Rule 21(8) of the Punjab Value Added Tax Rules, 2005 could validly reduce input tax credit on stock-in-trade with effect from 21.01.2014 when the enabling amendment to the Punjab Value Added Tax Act, 2005 came into force only on 01.04.2014.

Issue (i): Whether Rule 21(8) of the Punjab Value Added Tax Rules, 2005 could validly reduce input tax credit on stock-in-trade with effect from 21.01.2014 when the enabling amendment to the Punjab Value Added Tax Act, 2005 came into force only on 01.04.2014.

Analysis: Input tax credit under Section 13 of the Punjab Value Added Tax Act, 2005 accrued on purchase of taxable goods during the tax period, subject to the statutory conditions then in force. Before the amendment of the first proviso to Section 13 with effect from 01.04.2014, the Act did not contain any provision authorising the State to link already earned credit on stock-in-trade to the reduced rate of tax prevailing on the date of sale. Rule 21(8), introduced on 21.01.2014, therefore operated before there was statutory authority for such a restriction and had the effect of reducing an accrued credit without legislative sanction.

Conclusion: Rule 21(8) could not operate from 21.01.2014 and was effective only from 01.04.2014, when the statutory amendment came into force; the challenge succeeded in favour of the assessee.

Final Conclusion: The writ petitions were allowed, and the impugned rule was held inapplicable for the interregnum prior to 01.04.2014, as subordinate legislation cannot curtail an accrued fiscal entitlement before the parent statute authorises it.

Ratio Decidendi: Subordinate legislation affecting accrued input tax credit is valid only when supported by an enabling provision in the parent statute, and it cannot operate to take away a vested fiscal entitlement retrospectively in the absence of such authority.

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