State of Punjab & Ors. Vs Trishala Alloys Pvt. Ltd. (Supreme Court of India)
Supreme Court dismissed the State of Punjab’s appeal and upheld the Punjab & Haryana High Court’s judgment that Rule 21(8) of the Punjab VAT Rules, 2005, could not have retrospective application. The case involved Trishala Alloys Pvt Ltd, a manufacturer of iron and steel goods, which had claimed Input Tax Credit (ITC) on goods purchased at a higher tax rate of 4.5%. The tax rate on such goods was later reduced to 2.5%, and Rule 21(8) was introduced effective February 1, 2014, to limit ITC to the reduced rate for goods in stock. However, the amendment to the parent statute, the Punjab VAT Act, enabling such restriction, came into effect only on April 1, 2014. The Supreme Court held that a taxpayer acquires a vested right to ITC under the statute in effect at the time of purchase, and this right cannot be unilaterally reduced through rules introduced without statutory backing. Taxing statutes cannot have retrospective effect to the detriment of taxpayers unless expressly provided. The Court emphasized that any restriction on ITC must have the requisite statutory sanction, which was absent before April 1, 2014. Consequently, the High Court’s decision invalidating the retrospective application of Rule 21(8) was upheld, affirming the respondent’s entitlement to ITC on goods purchased at the higher tax rate. The ruling reinforces the principle that rules cannot override or precede enabling provisions in parent statutes.
