Statutory bar on input tax credit and rebate applied to exempt inter-State sales, with limited adjustment relief preserved.

Where the Kerala Value Added Tax Act expressly barred input tax credit and special rebate on exempted outward inter-State sales, exemption notifications under the Central Sales Tax Act could not be treated as optional or used to override that statutory prohibition. The court held that once the rubber sales were brought within the exemption regime under Section 8(5) of the Central Sales Tax Act, the third provisos to Section 11(3) and Section 12(1) of the KVAT Act applied to deny credit and rebate. The later 2019 amendment afforded only limited relief by permitting adjustment of Central Sales Tax already paid against the disallowed demands, so the Tribunal's restricted adjustment relief was left undisturbed.

---

---

Issues: Whether dealers who paid Central Sales Tax on inter-State sales of rubber could still claim input tax credit or special rebate on local purchases, despite exemption notifications issued under the Central Sales Tax Act, when the Kerala Value Added Tax Act contained provisos restricting such credit where the outward inter-State sale was exempted.

Analysis: The exemption notifications could not be read in isolation. Although they may appear optional if viewed apart from the Kerala Value Added Tax Act, the third proviso to Section 11(3) and the third proviso to Section 12(1) operated to deny input tax credit and special rebate where the inter-State sale was exempted from tax. Once the notifications under Section 8(5) of the Central Sales Tax Act brought the inter-State sale within the exemption regime, the statutory bar under the Kerala Value Added Tax Act was attracted. The later 2019 amendment only gave relief to the extent of adjusting Central Sales Tax already paid against the demands raised after disallowance of the credit or rebate.

Conclusion: The assessees were not entitled to input tax credit or special rebate for the relevant period, and the Tribunal's limited relief permitting adjustment of the tax already paid did not call for interference.

Final Conclusion: The questions of law were answered against the assessees and in favour of the Revenue, leaving the Tribunal's order undisturbed to the extent of the limited adjustment relief granted.

Ratio Decidendi: Where a taxing statute expressly denies input tax credit or special rebate upon exempted outward sales, an exemption notification under another enactment cannot be treated as optional so as to override the statutory bar, though subsequent amendment may permit limited adjustment of tax already paid.

---