Exemption eligibility does not equal compulsory availment, and input tax credit cannot be denied where exemption was not actually taken.

An assessee eligible for exemption under the relevant schedule cannot be compelled to avail it merely because turnover falls below the threshold. Eligibility to claim exemption does not by itself amount to actual availment, and the statutory bar on input tax credit applies only where goods are actually exempted. On these facts, the goods were not exempted in the relevant sense, so denial of input tax credit was unsustainable. The provision dealing with forfeiture of tax collected in a different context did not support denial of credit. The court also noted that forcing an unclaimed exemption while refusing credit would conflict with the scheme of value added taxation and tax neutrality.

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Issues: Whether an assessee who is eligible for exemption under the relevant schedule can be compelled to avail that exemption, and whether input tax credit can be denied on the footing that the goods were exempt though the exemption was not actually availed.

Analysis: The turnover for the relevant assessment year, after excluding interstate sales, was below the exemption threshold, so the assessee was eligible for exemption. However, eligibility did not automatically amount to availment. The statutory bar against input tax credit applied where goods were actually exempted, and not where the assessee, though eligible, chose not to take the exemption. Section 41 dealt with forfeiture of tax collected in a different situation and did not justify denial of credit on these facts. Denying input tax credit while forcing an unclaimed exemption would also run against the scheme of value added taxation and the principle of tax neutrality.

Conclusion: The assessee could not be compelled to avail the exemption, and the denial of input tax credit was unsustainable. The writ petition was allowed.

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