Case Law Details
State Of Gujarat Vs S A Himnani Distributors Pvt Ltd. (Gujarat High Court)
The question which is posed for consideration of this Court is, in a case where it is established and proved that due to the act of God and/or other circumstances, it is impossible to fulfill the conditions for availing input tax credit, whether the input tax credit can be denied? Identical question came to be considered by this Court in the case of Rolcon Engineering Co.Ltd. (supra). In the case before the Division Bench, the benefits given to the petitioner under the tax incentive scheme for wind power generation were sought to be withdrawn on the ground that the petitioner had committed breach of Clause 7(f) of the Gujarat Sales Incentive Scheme for Wind Power Generation, 1993 by not by not keeping the wind farm / windmills in operation for a continuous period of six years after commissioning them. In the said case, it was the case on behalf of the petitioner that due to cyclone in the coastal area windmills which were already installed, came to be destroyed. It was only on account of act of God that the petitioner industrial undertaking could not keep the wind-farm running for a continuous period of six years in commissioning them and therefore, it was not possible for the petitioner to comply with Clause 7(f) of the Gujarat Sales Tax Incentive Scheme for Wind Power Generation, 1993. Considering the various authorities, it is held by the Division Bench that a person cannot be constrained to do something which is impossible. It is further observed and held that law cannot compel a man to do what he cannot possibly do. It is further held that if it appears that the performance of the formalities prescribed by a statute had been rendered impossible by circumstances over which the person interested had no control, those circumstances would be taken as a valid excuse. It is further observed and held that when the State is inclined to give some tax benefit to tax prayers, terms or provisions of the policy should be interpreted in a liberal manner and with an intention to see that the purpose for which the policy is framed is fulfilled and the beneficiaries is helped. It is further observed that the interpretation must not be such which would frustrate the objective of the policy. I
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1.00. Feeling aggrieved and dissatisfied with the impugned judgement and order dated 4/2/2013 passed by the Gujarat Value Added Tax Tribunal (hereinafter referred to as “the Tribunal”) in Second Appeal No.364 of 2010, by which, the learned appellate tribunal has allowed the said appeal and holding that the respondent – dealer is entitled to Input Tax Credit on the goods destroyed in flood, State of Gujarat has preferred the present appeal with the following proposed substantial questions of law :-
“(A) Whether on the facts and in the circumstances of the case, the Tribunal has rightly interpreted section 11(3), 11(5) and 11(8) of the Gujarat Value Added Tax Act, 2003?
(B) Whether the respondent is eligible for Input Tax Credit on goods, which destroyed in flood, for which compensation of the same is awarded by Insurance Company and no Out Put Tax liability is created for the same goods?”
2.00. Facts leading to the present appeal in nutshell are as under :-
2.01. That the respondent – dealer is engaged in the business of trading of safety match box and Pan Masala and a registered dealer under the Gujarat Value Added Tax Act, 2003 (hereinafter referred to as “the VAT Act”). That on 7/8/2006 unprecedented flood entered into Surat which affected business premises of the respondent – dealer and the flood water remained in the business premises of the respondent – dealer for the period from 7/8/2006 to 11/8/2006. During that period water level remained upto 8 to 9 feet. in the business premises and their entire goods were damaged and ultimately the same was destroyed. The respondent – dealer also lodged its claim on 12/8/2006 before the Insurance Company. It also appears that the dealer also issued an advertisement in the news paper on 6/9/2006 with respect to damage caused to the goods and destruction of Books and Accounts and other documents. That the claim for reimbursement of the loss due to flood registered with the Insurance Company was settled on 24/2/2007 by an amount of Rs.4,29,000/-. The respondent – dealer also made entry in the Books of Accounts for the loss of claim amounting to Rs.2,12,600/-. That the Assistant Commissioner of Commercial Tax, Division-I, Surat carried out audit assessment under section 34(2) of the Gujarat VAT Act, 2003 and disallowed the input tax credit in respect of the goods destroyed by flood.
2.02. Feeling aggrieved and dissatisfied with the said order of assessment, respondent – dealer preferred an appeal before the Deputy Commissioner of Commercial Tax, Range-5, Surat which came to be dismissed.
2.03. Feeling aggrieved and dissatisfied with the order passed by the first appellate tribunal dismissing the appeal, respondent – dealer preferred Second Appeal before the learned tribunal and by the impugned judgement and order and relying upon the decision of this Court in the case of Rolcon Engineering Co. Ltd. Versus State of Gujarat and others, reported in [2009] 21 VST 118 (Gujarat), learned tribunal has allowed the said appeal and held that the respondent – dealer shall be entitled to input tax credit on the goods destroyed in flood.
2.04. Feeling aggrieved and dissatisfied with the judgement and order passed by the learned tribunal in allowing the said appeal preferred by the respondent herein – dealer and holding that the respondent – dealer shall be entitled to input tax credit on the goods destroyed in flood, State of Gujarat has preferred the present appeal with the aforesaid proposed substantial questions of law.
3.00. Mr.Jaimin Gandhi, learned Assistant Government Pleader appearing on behalf of the appellant – State of Gujarat has vehemently submitted that the learned tribunal has materially erred in holding that the respondent – dealer shall be entitled to input tax credit on the goods destroyed in flood. It is vehemently submitted by Mr.Gandhi, learned Assistant Government Pleader that unless and until conditions stipulated / mentioned in section 11 of the VAT Act are satisfied, dealer shall not be entitled to input tax credit on the goods destroyed in flood. It is submitted that in the present case, goods destroyed by flood are not at all sold by the respondent herein and therefore on the said goods input tax credit is not available. It is submitted that if the goods are disposed of by sale, resale or used in manufacture of goods, input tax credit is allowed. It is submitted that in the present case, goods are not disposed by way of sale, resale or used in manufacture and therefore, considering section 11(5)(f) of the VAT Act, respondent – dealer shall not be entitled to input tax credit on the goods which were destroyed by flood.
3.01. Mr.Gandhi, learned Assistant Government Pleader has further submitted that the learned tribunal has materially erred in relying upon the decision of this Court in the case of Rolcon Engineering Co. Ltd. (supra). It is submitted that when the respondent – dealer was compensated by the Insurance Company for the loss sufferred, to that extent the respondent – dealer shall not be entitled to the input tax credit and/or no tax credit is to be restricted with respect to the loss which is not compensated by the Insurance Company.
By making above submissions, it is requested to dismiss the present appeal.
4.00. Heard Mr.Jaimin Gandhi, learned Assistant Government Pleader appearing on behalf of the appellant – State of Gujarat.
4.01. Short question which is posed for consideration of this Court is whether on the goods destroyed in flood, a dealer shall be entitled to input tax credit or not? It is an admitted position that there was heavy flood in the Surat City which affected the business premises of the respondent – dealer and the flood water remained in the business premises and the water level remained upto 8 to 9 feet in the business premises and the entire goods of the respondent – dealer were damaged and ultimately the same were destroyed. The Assistant Commissioner denied input tax credit to the respondent – dealer on the goods which were destroyed in flood by holding that all conditions for availing input tax credit as mentioned in section 11 of the VAT Act are not satisfied and therefore, considering Section 11(5) of the VAT Act the claim for input tax credit is not allowable. It is true that sub-section (5) of section 11 mentions certain circumstances under which claim for input tax credit is not available. Clause (5) of Section 11 of the VAT Act reads as under :-
“Section 11(5): Notwithstanding anything contained in this Act, Tax Credit shall not be allowed for purchases :
a) xxx xxx xxx xxx
b) xxx xxx xxx xxx
c) xxx xxx xxx xxx
d) xxx xxx xxx xxx
e) xxx xxx xxx xxx
f) of the goods not being taxable goods dispatched outside the State in the course of branch transfer or consignment, which are disposed of otherwise than in sale, resale or manufacture”
4.02. However, the question which is posed for consideration of this Court is, in a case where it is established and proved that due to the act of God and/or other circumstances, it is impossible to fulfill the conditions for availing input tax credit, whether the input tax credit can be denied? Identical question came to be considered by this Court in the case of Rolcon Engineering Co.Ltd. (supra). In the case before the Division Bench, the benefits given to the petitioner under the tax incentive scheme for wind power generation were sought to be withdrawn on the ground that the petitioner had committed breach of Clause 7(f) of the Gujarat Sales Incentive Scheme for Wind Power Generation, 1993 by not by not keeping the wind farm / windmills in operation for a continuous period of six years after commissioning them. In the said case, it was the case on behalf of the petitioner that due to cyclone in the coastal area windmills which were already installed, came to be destroyed. It was only on account of act of God that the petitioner industrial undertaking could not keep the wind-farm running for a continuous period of six years in commissioning them and therefore, it was not possible for the petitioner to comply with Clause 7(f) of the Gujarat Sales Tax Incentive Scheme for Wind Power Generation, 1993. Considering the various authorities, it is held by the Division Bench that a person cannot be constrained to do something which is impossible. It is further observed and held that law cannot compel a man to do what he cannot possibly do. It is further held that if it appears that the performance of the formalities prescribed by a statute had been rendered impossible by circumstances over which the person interested had no control, those circumstances would be taken as a valid excuse. It is further observed and held that when the State is inclined to give some tax benefit to tax prayers, terms or provisions of the policy should be interpreted in a liberal manner and with an intention to see that the purpose for which the policy is framed is fulfilled and the beneficiaries is helped. It is further observed that the interpretation must not be such which would frustrate the objective of the policy. In the said decision the Division Bench in paragraph Nos.35 to 39 and 42 has observed and held as under :-
“35. If one looks at the principles on which a beneficial legislation or a benevolent policy of the State is to be interpreted, it cannot be disputed that when the State is inclined to give some benefit to a taxpayer, the terms or provisions of the policy should be interpreted in a liberal manner and with an intention to see that the purpose for which the policy is framed is fulfilled and the beneficiary is helped. The interpretation must not be such which would frustrate the objective of the policy. The aforestated principle is very well established and has been also accepted by our Apex Court.
36. It is a settled legal position that a person cannot be constrained to do something which is There is a well known legal maxim “Lex non cogit ad impossibilia”, which means that law cannot compel a man to do what he cannot possibly do.
37. If there is an impossibility on the part of a person to perform an obligation, law would not expect the person to do that impossible thing. The said maxim, which has been accepted by our judicial system, has been very well explained in ‘Broom’s Legal Maxims’ (10th Edition) as under:
“……. It is then, a general rule which admits of ample practical illustration, that impotentia excusat legem; where the law creates a duty or charge, and the party is disabled to perform it, without any default in him, and has no remedy over, there the law will in general excuse him (t): and though impossibility of performance is in general no excuse for not performing an obligation which a party has expressly undertaken by contract, yet when the obligation is one implied by law, impossibility of performance is a good excuse
38. The aforesaid maxim has also been explained in ‘Craies on Statute Law’ (7th Edition):
“Under certain circumstances compliance with the provisions of statutes which prescribe how something is to be done will be excused. Thus, in accordance with the maxim of law, Lex non cogit ad impossiblia, if it appears that the performance of the formalities prescribed by a statute has been rendered impossible by circumstances over which the persons interested had no control, like the act of God or the King’s enemies, these circumstances will be taken as a valid excuse”
39. The Hon’ble Supreme Court has approved the aforestated meaning of maxim “lex non cogit ad impossibilia” in the case of I.F.C.I. Ltd Vs. Cannanore Spinning and Weaving Mills Ltd, AIR 2002 SC 1841.
42. We also would like to add that whenever there is any beneficial legislation or any scheme giving certain benefit to anyone, the scheme should be interpreted so as to make its objective more effective and not in a manner which would frustrate the objective. In the instant case, the State wanted generation of additional electricity and under the scheme, the said task had been partly taken over by the petitioner and in fact the petitioner generated electricity as long as it was in a position to do so. The scheme, being framed not only for the benefit of the State but also for the entities like the petitioner, it ought to have been interpreted in a liberal manner.”
4.03. Applying the aforesaid ratio laid down by the Division Bench of this court and considering the facts of the case on hand, due to the act of God, in the present case the flood and the entire goods being destroyed, it was impossible for the respondent – dealer to comply with the conditions for availing input tax credit on the goods destroyed in flood i.e. it was impossible for the respondent – dealer to sell, resell or to use the same in manufacture of goods.
4.04. Under the circumstances, when it was impossible for the respondent – dealer to comply with all the conditions stipulated for input tax credit due to act of God and it was beyond the control of the respondent – dealer to fulfill the conditions for availment of the input tax credit due to the act of God – in the present case, the flood, which can be said to be valid excuse for not fulfilling the conditions stipulated for availing input tax credit on the goods destroyed in flood and therefore, interpreting the provisions for availing input tax credit, it is hereby held that the respondent herein – dealer shall be entitled to input tax credit on the goods destroyed in flood. However, subject to rider that if such dealer is compensated by the Insurance Company with respect to loss sustained i.e. with respect to the goods destroyed, the same can be given credit, meaning thereby, to that extent the respondent – dealer shall not be entitled to input tax credit, otherwise, it will be giving a double benefit to the respondent – dealer.
5.00. In view of the aforesaid facts and circumstances, as such no error has been committed by the learned tribunal in allowing the appeal preferred by the respondent – dealer and holding that the respondent herein – dealer shall be entitled to input tax credit on the goods destroyed in flood. No question of law much less substantial question of law arises. Hence, present appeal deserves to be dismissed and is accordingly dismissed with above observations.
