Retrospective input tax credit restrictions and delegated rules were invalid where they created new fiscal burdens and lacked statutory authority.

Retrospective curtailment of input tax credit under the Jharkhand VAT Act was invalid where the substituted proviso first created a forfeiture of accrued credit, because a fiscal amendment imposing a new burden cannot defeat vested benefits retrospectively. The challenge to clause (xviii) in Section 18(8) failed, as denial of credit for goods consumed or burnt up in manufacturing was treated as a reasonable classification. Rule 26(11A) could not operate retrospectively since Section 94 did not authorise retrospective delegated legislation. For the period before the valid rule took effect, the amended proviso was unworkable for want of a lawful computation mechanism, and forfeiture orders for that period were quashed.

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Issues: (i) Whether the retrospective effect given to the substituted proviso in Section 18(4)(ii) and Section 18(4)(iii) of the Jharkhand Value Added Tax Act, 2005 by the amendment dated 8.2.2016 was valid; (ii) Whether the insertion of clause (xviii) in Section 18(8) of the Jharkhand Value Added Tax Act, 2005 was unconstitutional; (iii) Whether Rule 26(11A) of the Jharkhand Value Added Tax Rules, 2006 could be framed with retrospective effect under Section 94 of the Jharkhand Value Added Tax Act, 2005; (iv) Whether the amended provisions of Section 18(4)(ii) and Section 18(4)(iii) of the Jharkhand Value Added Tax Act, 2005 were workable for the period before Rule 26(11A) came into force.

Issue (i): Whether the retrospective effect given to the substituted proviso in Section 18(4)(ii) and Section 18(4)(iii) of the Jharkhand Value Added Tax Act, 2005 by the amendment dated 8.2.2016 was valid.

Analysis: The substituted proviso introduced for the first time a forfeiture of the balance input tax credit beyond the tax payable under Section 8(1) of the Central Sales Tax Act, 1956. The earlier proviso only restricted the credit to the extent of CST payable. The later amendment therefore created a new detriment and affected accrued rights, and it could not be treated as merely clarificatory. A fiscal amendment that imposes a new burden cannot operate retrospectively so as to take away vested benefits already accrued to dealers.

Conclusion: The retrospective operation of the substituted proviso was invalid and was struck down. The provision was held operative prospectively from 8.2.2016 only.

Issue (ii): Whether the insertion of clause (xviii) in Section 18(8) of the Jharkhand Value Added Tax Act, 2005 was unconstitutional.

Analysis: The amendment denied input tax credit in respect of goods consumed or burnt up in the manufacturing process and not transferred into or existent in the finished product. The classification between goods that remain in the finished product and goods that are consumed or burnt up was treated as a reasonable classification founded on intelligible differentia. In a taxing statute, the State has wider latitude to classify and regulate concessions such as input tax credit. The restriction was therefore viewed as a valid policy choice within legislative competence.

Conclusion: The challenge to clause (xviii) failed and the provision was upheld as intra vires.

Issue (iii): Whether Rule 26(11A) of the Jharkhand Value Added Tax Rules, 2006 could be framed with retrospective effect under Section 94 of the Jharkhand Value Added Tax Act, 2005.

Analysis: Section 94 conferred a general rule-making power to carry out the purposes of the Act, but it did not expressly or by necessary implication authorise retrospective subordinate legislation. The mere requirement that rules be laid before the State Legislature did not enlarge the delegated power into one permitting retrospective rules. A delegate cannot impose retrospectivity unless the parent statute clearly authorises it. Accordingly, the retrospective part of Rule 26(11A) exceeded delegated power.

Conclusion: The retrospective operation of Rule 26(11A) was quashed, and the rule was held effective only prospectively from 17.2.2017.

Issue (iv): Whether the amended provisions of Section 18(4)(ii) and Section 18(4)(iii) of the Jharkhand Value Added Tax Act, 2005 were workable for the period before Rule 26(11A) came into force.

Analysis: The Act required input tax credit to be calculated in the manner prescribed. For the relevant period, there was no valid machinery provision for computing the forfeited portion of credit under the substituted proviso. Without a lawful computation mechanism, the amended restriction on credit could not be effectively enforced. The earlier formula under Rule 26(5) continued to govern until the valid prospective operation of Rule 26(11A).

Conclusion: The amended proviso could not be given effect for the period 23.09.2015 to 16.2.2017, and any assessment or scrutiny order causing forfeiture of input tax credit for that period was quashed.

Final Conclusion: The writ petitions succeeded only in part. The retrospective curtailment of input tax credit and the retrospective rule-making exercise were invalid, while the restriction on credit for consumed or burnt-up raw materials was sustained.

Ratio Decidendi: A taxing amendment that for the first time creates a forfeiture of an accrued concession cannot be applied retrospectively to defeat vested rights, and delegated legislation cannot operate retrospectively unless the parent statute clearly authorises it.

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