Retrospective input tax credit protection for manufacturers where a curative amendment prevents reversal on later sale of finished goods.

A curative and declaratory amendment to section 19(2) of the Tamil Nadu Value Added Tax Act, 2006 was treated as retrospective from 11.11.2013, so a manufacturer using inputs in manufacture or processing within the State retained input tax credit and was not required to reverse it merely because the finished goods were later sold. The petitioner, being a manufacturer, was entitled to the benefit of the Division Bench ruling on the same issue, and reversal of credit under section 19(2)(v) was therefore unsustainable. Any challenge to that ruling, and the separate incentive-scheme argument, was left open only if the controlling decision is later reversed.

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Issues: Whether input tax credit under section 19(2)(v) of the Tamil Nadu Value Added Tax Act, 2006 was liable to be reversed in the case of a manufacturer, and whether the petitioner was entitled to the benefit of the Division Bench ruling on that issue.

Analysis: The controlling Division Bench ruling had held that the 2015 amendment to section 19(2) was curative and declaratory in nature and therefore operated retrospectively from 11.11.2013. On that basis, the right of manufacturers to avail input tax credit was treated as absolute once the inputs were used in manufacture or processing within the State, and the subsequent sale of the finished goods did not warrant reversal of credit under section 19(2)(v). The petitioner was admittedly a manufacturer and the same legal position applied to its case. The proposed challenge to that ruling and the separate incentive-scheme argument were left to be worked out only if the controlling decision were later reversed.

Conclusion: Reversal of input tax credit under section 19(2)(v) was not sustainable against the petitioner, and the writ petition was allowed.

Ratio Decidendi: A curative and declaratory amendment to the input tax credit provision operates retrospectively, and a manufacturer who has used inputs in the manufacture of goods within the State cannot be denied or required to reverse input tax credit on account of the later sale of the finished goods.

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