Input tax credit under VAT law is confined by the proviso where finished goods are stock transferred outside the State.

Section 6(3)(d) of the Uttarakhand VAT Act was construed to allow input tax credit on raw materials and packing materials only within the statutory scheme covering sales, including inter-State sales. The proviso was read as a controlling limitation, so that dispatch of finished goods outside the State otherwise than by sale, including stock transfer, fell outside the main clause's relief. On that interpretation, credit was not available for packing materials used in goods sent outside the State otherwise than by sale, and the challenge to the narrower reading failed.

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Issues: Whether section 6(3)(d) of the Uttarakhand Value Added Tax Act allows input tax credit on raw materials and packing materials used in manufacture when the finished goods are dispatched outside the State otherwise than by way of sale, and whether the proviso operates as an independent limitation on such credit.

Analysis: The word "or" in clause (d) was read in the statutory context as covering sale within the State as well as sale in the course of inter-State trade or commerce. The proviso was treated as controlling the scope of clause (d) and was read as meaningful only if dispatch outside the State otherwise than by sale was kept outside the main clause. A stock transfer was therefore treated as different from a sale, and the proviso was held to confine relief to raw materials used in manufacture of finished goods, not to packing materials in respect of goods sent outside the State otherwise than by sale. The challenge based on a narrower reading of the clause was rejected.

Conclusion: Section 6(3)(d) does not extend input tax credit to packing materials where finished goods are stock transferred outside the State otherwise than by sale.

Final Conclusion: The appeals failed on the statutory interpretation issue, and the denial of input tax credit was upheld.

Ratio Decidendi: A proviso to a taxing provision may validly limit the main enacting clause, and where the statutory scheme confines credit to goods sold or resold, stock transfer outside the State otherwise than by sale falls outside the main provision and within the proviso's restrictive operation.

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