Input tax credit under VAT had to be reversed on discontinuance of business after GST, and refund was unavailable without statutory preconditions.

Unutilised input tax credit under the Uttar Pradesh VAT regime could not be retained after GST commenced and the dealer's business stood discontinued by operation of law. The Court held that the VAT scheme made such credit conditional and required debit or reversal where closing stock remained on discontinuance, so the dealer had to comply with that statutory obligation. It also held that refund of excess input tax credit was unavailable because the refund provision applied only after the relevant assessment stage and only where the statutory preconditions for excess admissible credit were satisfied. The Tribunal's contrary view was set aside and the Revenue's position was upheld.

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Issues: (i) Whether the dealer was entitled to retain and utilise unutilised input tax credit accrued under the Uttar Pradesh Value Added Tax regime after the introduction of the GST regime on 01.07.2017 despite discontinuance of business by operation of law and existence of closing stock; (ii) Whether refund under the VAT provision dealing with excess input tax credit could be claimed in the circumstances of discontinuance of business.

Issue (i): Whether the dealer was entitled to retain and utilise unutilised input tax credit accrued under the Uttar Pradesh Value Added Tax regime after the introduction of the GST regime on 01.07.2017 despite discontinuance of business by operation of law and existence of closing stock.

Analysis: The entitlement to input tax credit under the VAT regime was held to be conditional and confined to the statutory scheme governing resale, inter-State sale, export, and other prescribed situations. The statutory framework also required debit of unutilised credit where the dealer discontinued business and held closing stock. The Court treated the introduction of the GST regime as bringing the earlier VAT business to an end by operation of law, and held that the dealer was obliged to reverse or debit the unutilised credit under the specific VAT provisions. The contrary view of the Tribunal was found to disregard the governing VAT provisions and the binding earlier precedent relied upon by the Revenue.

Conclusion: The dealer was not entitled to retain the unutilised input tax credit after discontinuance of business by operation of law; the issue was decided against the assessee.

Issue (ii): Whether refund under the VAT provision dealing with excess input tax credit could be claimed in the circumstances of discontinuance of business.

Analysis: The refund provision was held to operate only where, after assessment for the relevant period in which business was discontinued, excess admissible input tax credit remained after adjustment of tax liability. The Court found that this stage and statutory precondition were not satisfied on the facts, and therefore the provision did not assist the dealer. The argument founded on refund was rejected as misconceived in the context of the mandatory debit obligation attaching to discontinuance of business.

Conclusion: No refund of unutilised input tax credit was available on the facts; the issue was decided against the assessee.

Final Conclusion: The revisions succeeded, the Tribunal's relief in favour of the dealers was set aside, and the Revenue's position was upheld on both questions of law.

Ratio Decidendi: Where a dealer under the VAT regime stands discontinued by operation of law on the advent of the GST regime, the statutory scheme requiring debit of unutilised input tax credit on discontinuance must be applied, and refund cannot be claimed unless the specific post-assessment preconditions are satisfied.

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