Accrued input tax credit cannot be reduced by rule before enabling statutory amendment comes into force.

Input tax credit is a statutory entitlement, and any curtailment of accrued credit on stock-in-trade requires clear authority in the parent Act. Rule 21(8) of the Punjab Value Added Tax Rules, 2005 could not operate from 25.01.2014 to 01.04.2014 because, before 01.04.2014, Section 13(1) of the parent Act had not yet been amended to permit reduction of credit by reference to the lower tax rate on sale or use. The rule could therefore take effect only from 01.04.2014, when the enabling amendment came into force, and not earlier against concluded transactions. The challenge failed and the view against the Revenue was upheld.

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Issues: Whether Rule 21(8) of the Punjab Value Added Tax Rules, 2005 could be introduced and applied from 25.01.2014 to 01.04.2014 when the parent Punjab Value Added Tax Act, 2005 did not then contain the enabling amendment to Section 13(1) permitting reduction of input tax credit on stock-in-trade at the reduced rate of tax.

Analysis: The benefit of input tax credit flows from the statute and any curtailment of an accrued credit entitlement, particularly one already earned on purchases made at a higher rate of tax, must have clear statutory support. Before 01.04.2014, the unamended first proviso to Section 13(1) linked eligibility to the goods being for sale or for use in manufacture etc., whereas the amendment substituting the words "are sold" and "are used" came into force only on 01.04.2014. Although Rule 21(8) was inserted earlier with effect from 01.02.2014, the parent Act at that time did not authorise a rule reducing already earned credit on existing stock by reference to the lower rate prevailing on the date of sale or use. A rule framed in advance of the enabling amendment could not operate to the detriment of concluded transactions or take away an accrued credit without statutory sanction.

Conclusion: Rule 21(8) could not be given effect from 25.01.2014 to 01.04.2014 and was applicable only from 01.04.2014 when the amended Section 13(1) came into force. The challenge to the High Court's view failed and the result was against the Revenue.

Final Conclusion: The statutory scheme did not permit reduction of already earned input tax credit on stock-in-trade before the parent Act was amended, and the appeals challenging that view failed.

Ratio Decidendi: A delegated rule that curtails or reduces an accrued tax credit can operate only when supported by an enabling provision in the parent statute, and it cannot be applied retrospectively to concluded transactions in the absence of clear legislative sanction.

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