Inter-State input tax credit restriction applied to manufacturers, but later amendment was held curative and retrospective.

A proviso attached to a specific clause in a taxing statute operates only within that clause, so the 2013 proviso to section 19(2)(v) of the Tamil Nadu VAT Act applied to manufacturers making inter-State sales as well as traders. The clause was read broadly to include sale of manufactured goods in inter-State trade, and the proviso was treated as a restriction on input tax credit otherwise available under that head. The 2015 amendment omitting the proviso and substituting clause (v) was treated as curative and declaratory, restoring the prior position retrospectively from 11.11.2013, with refund claims subject to unjust enrichment and limitation.

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Issues: (i) Whether the proviso to section 19(2)(v) of the Tamil Nadu Value Added Tax Act, 2006, inserted in 2013, applied to manufacturers when manufactured goods were sold in inter-State trade under section 8(1) of the Central Sales Tax Act, 1956; (ii) Whether the omission of the proviso by the 2015 amendment was curative and had retrospective effect from 11.11.2013.

Issue (i): Whether the proviso to section 19(2)(v) of the Tamil Nadu Value Added Tax Act, 2006, inserted in 2013, applied to manufacturers when manufactured goods were sold in inter-State trade under section 8(1) of the Central Sales Tax Act, 1956.

Analysis: Section 19(2) creates separate and independent heads of entitlement to input tax credit. The head in clause (ii) concerns inputs used in manufacture or processing within the State, while clause (v) concerns sale in the course of inter-State trade or commerce. The word "sale" in clause (v) was held to include sale of manufactured goods as well, and the clause was not confined to traders or resale transactions. The proviso, however, being attached to clause (v), operated as a restriction on the credit otherwise available where the inter-State sale fell within that clause. The Court rejected the reading that would confine clause (v) only to traded goods or exclude manufacturers from its scope.

Conclusion: The proviso to section 19(2)(v) applied to manufacturers also, and the revenue succeeded on this issue.

Issue (ii): Whether the omission of the proviso by the 2015 amendment was curative and had retrospective effect from 11.11.2013.

Analysis: The 2015 amendment omitted the proviso, substituted clause (v), and removed clause 19(5)(c), restoring the position that inter-State sales to registered and unregistered dealers were to be treated uniformly for input tax credit purposes. The amendment was treated as removing the mischief created by the 2013 proviso and the counter-mischief caused by its implementation, and therefore as declaratory and curative in nature. On that basis, the amended position was held to relate back to 11.11.2013. Claims for refund, if any, were stated to be subject to the doctrine of unjust enrichment and limitation.

Conclusion: The 2015 amendment was curative and retrospective from 11.11.2013, and the assessees obtained relief on this issue.

Final Conclusion: The Court upheld the applicability of the 2013 restriction to manufacturers for the interregnum, but held that the 2015 amendment restored the original position retrospectively, subject to refund claims being tested on established restitution principles.

Ratio Decidendi: Where a proviso is attached to a specific clause in a taxing statute, its operation is confined to that clause, and a later omission and substitution that cures the mischief created by an earlier amendment may be treated as declaratory and retrospective if the legislative intent to restore the prior position is clear.

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