Input tax credit classification failed Article 14 review; denial for inter-State sales was read down and relief granted.

A constitutional challenge to sections 10(3)(a) and 10(3)(b) of the Tripura Value Added Tax Act, 2004 was not barred by res judicata or constructive res judicata because the earlier proceedings had addressed input tax credit interpretation, not the vires of the provisions. On merits, denial of input tax credit for inter-State sales, while allowing it for stock transfer and export transactions, was held to create an unreasonable classification lacking rational nexus with the legislative object. The provision was read down to extend the credit to inter-State sales, and the assessment order and demand notice were set aside.

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Issues: (i) whether the earlier revision and connected proceedings barred the challenge to the vires of sections 10(3)(a) and 10(3)(b) of the Tripura Value Added Tax Act, 2004 on the principle of res judicata or constructive res judicata; (ii) whether denial of input tax credit on inter-State sales, while allowing it on stock transfer and export transactions, created an unconstitutional classification offending Article 14 of the Constitution of India.

Issue (i): whether the earlier revision and connected proceedings barred the challenge to the vires of sections 10(3)(a) and 10(3)(b) of the Tripura Value Added Tax Act, 2004 on the principle of res judicata or constructive res judicata.

Analysis: The earlier proceedings had decided the correctness of the statutory interpretation governing entitlement to input tax credit, but they had not examined or ruled upon the constitutional vires of the impugned provisions. A question of constitutionality is not deemed to have been directly and substantially in issue merely because a party could have raised it earlier. Since the vires challenge was not adjudicated in the earlier matter, the bar of res judicata or constructive res judicata did not apply.

Conclusion: The constitutional challenge was not barred and was maintainable.

Issue (ii): whether denial of input tax credit on inter-State sales, while allowing it on stock transfer and export transactions, created an unconstitutional classification offending Article 14 of the Constitution of India.

Analysis: Input tax credit under the TVAT Act was structured to promote industrial activity and to confer credit in respect of purchases within the State for specified taxable outcomes. The Court found that stock transfer, export, and inter-State sale were treated differently in the provision, but the material basis for denying the credit only in the case of inter-State sales was not shown to bear a rational nexus with the object of the legislation. The classification was held to be unreasonable and discriminatory in the setting of the provision. To preserve the scheme of input tax credit, the impugned provision was read down so that the benefit would also extend to inter-State sales.

Conclusion: The restriction in sections 10(3)(a) and 10(3)(b) was held unconstitutional to the extent it denied input tax credit on inter-State sales, and the assessment order and demand notice were set aside.

Final Conclusion: The petitioner succeeded in part: the vires objection was overruled as a procedural bar was absent, but the impugned denial of input tax credit on inter-State sales was struck down by reading down the provision, with consequential relief against the assessment and demand.

Ratio Decidendi: A taxation classification must satisfy intelligible differentia and rational nexus with the legislative object; where a statutory denial of a fiscal benefit is discriminatory and lacks such nexus, the provision may be read down to preserve constitutionality.

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