Introduction Of Rule 21 (8) Under The Punjab Vat Rules Inserted Vide Notification Dated 25.01.2014 W.E.F 01.02.2014 Is Ultra Vires As The Same Is Violative Of Article 14, 19(1)(g), 286 Of The Constitution Of India & Section 15 (b) Of The Central Sales Tax Act 1956.

That Rule 21 (8) which has been introduced w.e.f. 01.02.2014 has impact on the input tax credit with retrospective effect as it reduces the input tax credit which was actually paid by the purchaser to the seller while purchasing the goods and the same was deposited in the Govt Treasury whereas this rule is totally against the basic spirit of the Punjab Vat Act, 2005 and section 15 (b) of the Central Sales Tax Act, 1956 and is violative of Article 14, 19(1)(g) & 286 of the Constitution of India.

That by virtue of this rule the state Govt has provided that the input tax credit on the goods held in stock will be reduced in case the rate of tax on the sales of such goods is reduced from that day which ultimately resulted in reduction of input tax credit and increases the tax liability and that too by charging less tax from the public and net result is the loss to the taxable person who is having the stock.

That the rule 21 (8) which was introduced is also violative of Article 14, 19(1)(g) and Article 286 of the Constitution of India beside this it is totally against the basic provision of the Act due to following reasons :

(a)  As per the Scheme of the Punjab Vat Act a taxable person who purchases goods from another taxable person is entitled for full claim of input tax credit which can be set off from the output tax liability whereas the input tax credit is totally allowable as there is no section in the Punjab Vat Act which casts liability to reduce input tax credit merely on the basis of rule and in the absence of specific section.

(b)  That as per the provision of the Punjab Vat Act the term input tax, input tax credit, reverse input tax credit are defined under section 2 and all these terms relate to purchase of goods beside this section 13, 15 & Rule 22 specifically deals with input tax credit and its reversal but rule 21 (8) as introduced by notification dated 25.01.2014 is totally contrary to aforesaid provisions.

(c)  That the State Govt does not enjoy power under section 13 to make rule 21(8) as the state Govt has been a limited power of prescribing the manner & condition of availment of input tax credit as if we minutely examine rule 21(8) it clearly reflects that input tax credit which is required to be reversed are restricted being already been mentioned in the section and it has no where been provided that similar condition can be introduced by way of rules also as it clearly contradicts the provision of section 13 hence beyond the rule making power.

(d)  That Rule 21 (8) w.e.f 01.02.2014 resulted in huge loss to the taxable persons who have purchased the goods and in a routine manner as the purchases were made on the believe that full input tax credit is allowed and the same cannot be confiscated by the revenue without any reasons hence the rule 21 (8) is confiscatory nature which is violative of Article 14 & 19(1)(g) of the Constitution of India

(e)  That it was considered regarding the notification that it was issued in the public interest whereas impact of the aforesaid amendment would result in all pervasive loss to the Iron & Steel Industry which cannot be at all considered to be public interest.

(f)     That if any dispute arises between the Punjab Vat Act 2005 and the Central Sales Tax Act, 1956 then the provision of the Central Sales Tax Act, 1956 will prevail and as per Section 15 (b) is entitled for the full claim of Tax paid in the state on declared goods.

Conclusion-  Hence it can be safely inferred that the introduction of Rule 21 (8) is not in the Public interest rather it has created a huge loss to the iron and steel industry as a loss of 2.2% on the closing stock will affect the entire working of Industry for which no reason has been provided by the State Govt. Moreover introduction of such type of rules is creating major trouble for the industry whereas in fact the govt has reduced the tax on Iron & Steel but increases the burden on dealers by making unnecessary reversal of input tax credit without any mechanism.

(Compiled by- J S BEDI Advocate, Email ID:, Contact Number: 98140-66336)

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