Neha Enterprises v. Commissioner, Commercial Tax, Lucknow, Uttar Pradesh

Citation: 2025 (4) KLR (SC) 60 : 2025 INSC 476
Court: Supreme Court of India
Judges: Pankaj Mithal, J.; S.V.N. Bhatti, J.
Date of Judgment: April 9, 2025
Case Type: Civil Appeal No. 6553 of 2016

Uttar Pradesh Value Added Tax Act, 2008 – Sections 7(c), 13(1), 13(7) – Input Tax Credit – Denial for Sales Exempt under Section 7(c) – Sales to Manufacturer-Exporter against Form-E – Notifications dated 24.02.2010 and 25.03.2010 – Statutory Interpretation.

Held: Input tax credit of Rs. 6,42,260/- claimed by the appellant for sales of Rs. 1,89,35,100/- to a manufacturer-exporter against Form-E was validly disallowed under Section 13(7) of the Uttar Pradesh Value Added Tax Act, 2008. Sales exempt from tax under Section 7(c), as per notifications dated 24.02.2010 and 25.03.2010, are explicitly excluded from input tax credit eligibility. Tax statutes must be interpreted strictly, and the clear prohibition in Section 13(7) overrides policy considerations favoring trade promotion. The authorities’ findings were consistent with the law, and no interference was warranted under Article 136 of the Constitution. Appeal dismissed.

Facts

Neha Enterprises, a registered dealer under the Uttar Pradesh Value Added Tax Act, 2008, filed turnover returns for the assessment year 2010-11, recording sales of Rs. 1,89,35,100/- to a manufacturer-exporter against Form-E. The appellant claimed an input tax credit of Rs. 6,42,260/-, which was initially allowed by the assessing officer but later disallowed on February 22, 2013, under Section 28 of the Act. The disallowance was based on Section 13(7), which prohibits input tax credit for sales exempt under Section 7(c) of the Act, as supported by notifications dated February 24, 2010, and March 25, 2010. The appellant’s appeals to the Additional Commissioner, the Tribunal of Commercial Tax, and the High Court were dismissed, affirming the disallowance.

Issues

1. Whether Neha Enterprises was entitled to an input tax credit under Section 13(1) of the Uttar Pradesh Value Added Tax Act, 2008, for sales made to a manufacturer-exporter against Form-E.
2. Whether the prohibition under Section 13(7) of the Act, read with notifications under Section 7(c), validly disallowed the input tax credit claimed by the appellant.

Arguments

Appellant (Neha Enterprises)

• The denial of input tax credit was illegal and counterproductive to the state’s policy of encouraging manufacturer-exporters, as the exemption under Section 7(c) aimed to promote trade.
• Section 13(7) should be interpreted in light of the policy intent, and input tax credit should be allowed under Section 13(1) for sales against Form-E.
• The authorities failed to properly appreciate the turnover recorded against Form-E.

Respondent (Commissioner, Commercial Tax)

• The sales fell under Section 7(c) of the Act, as per notifications dated February 24, 2010, and March 25, 2010, making them exempt from tax and ineligible for input tax credit under Section 13(7).
• Taxing statutes must be interpreted strictly, and Section 13(7) clearly prohibits input tax credit for tax-exempt sales under Section 7(c).
• The findings of the lower authorities were consistent with the law and did not warrant interference under Article 136 of the Constitution.

Holding

The Supreme Court dismissed the appeal, holding that:

• The turnover of Rs. 1,89,35,100/- was correctly classified under Section 7(c) of the Act, exempting it from tax as per the notifications.
• Section 13(7) explicitly prohibits input tax credit for sales exempt under Section 7(c), and this statutory mandate overrides any policy intent or interpretation favoring the appellant.
• The appellant, by availing the exemption under Section 7(c), was aware of the consequent ineligibility for input tax credit.

Reasoning

• Statutory Interpretation: The Court emphasized that tax statutes must be interpreted strictly. Section 7(c) exempts specified sales from tax, and Section 13(7) unequivocally bars input tax credit for such exempt sales. The clear language of Section 13(7) left no room for an interpretation based on policy intent.
• Application of Notifications: The notifications dated February 24, 2010, and March 25, 2010, prescribed conditions for tax exemption on direct sales to manufacturer-exporters via Form-E, without providing for input tax credit.
• Consistency of Lower Authorities: The assessing officer, appellate authorities, and High Court consistently applied Section 13(7) to disallow the input tax credit, and their findings were upheld as legally sound.
• Scope of Appeal: The Court found no grounds to interfere under Article 136, as the lower authorities’ decisions were correct in law and fact.

Disposition

The Civil Appeal was dismissed with no order as to costs. All pending applications were disposed of.

Significance

This case reinforces the principle of strict interpretation in tax law, particularly regarding input tax credit eligibility. It clarifies that statutory prohibitions, such as Section 13(7), take precedence over policy objectives, and dealers availing tax exemptions must accept the associated limitations on credits.

Multiple Choice Questions (MCQs)

1. Under which statute was the dispute in Neha Enterprises v. Commissioner, Commercial Tax adjudicated?
   a) Central Sales Tax Act, 1956
   b) Uttar Pradesh Value Added Tax Act, 2008
   c) Goods and Services Tax Act, 2017
   d) Uttar Pradesh Sales Tax Act, 1948
   Answer: b) Uttar Pradesh Value Added Tax Act, 2008
2. What was the primary issue in the case?
   a) Validity of Form-E issuance
   b) Entitlement to input tax credit for sales exempt under Section 7(c)
   c) Classification of goods as taxable
   d) Registration of the dealer under the Act
   Answer: b) Entitlement to input tax credit for sales exempt under Section 7(c)
3. Which section of the Uttar Pradesh Value Added Tax Act, 2008, prohibits input tax credit for sales exempt under Section 7(c)?
   a) Section 13(1)
   b) Section 13(7)
   c) Section 28
   d) Section 7(a)
   Answer: b) Section 13(7)
4. What was the turnover amount recorded by Neha Enterprises for sales against Form-E in the assessment year 2010-11?
   a) Rs. 6,42,260/-
   b) Rs. 1,89,35,100/-
   c) Rs. 2,00,00,000/-
   d) Rs. 1,00,00,000/-
   Answer: b) Rs. 1,89,35,100/-
5. What was the Supreme Court’s rationale for dismissing the appeal?
   a) The appellant failed to file Form-E correctly
   b) Section 13(7) explicitly prohibits input tax credit for tax-exempt sales under Section 7(c)
   c) The notifications were invalidly issued
   d) The assessing officer lacked jurisdiction
   Answer: b) Section 13(7) explicitly prohibits input tax credit for tax-exempt sales under Section 7(c)
6. Which notifications were relied upon to exempt the sales under Section 7(c)?
   a) Notifications dated 24.02.2010 and 25.03.2010
   b) Notifications dated 01.01.2010 and 31.12.2010
   c) Notifications dated 14.01.2008 and 13.03.2008
   d) Notifications dated 30.04.2010 and 01.05.2010
   Answer: a) Notifications dated 24.02.2010 and 25.03.2010
7. What principle of statutory interpretation did the Supreme Court emphasize?
   a) Purposive interpretation
   b) Liberal interpretation
   c) Strict interpretation
   d) Harmonious interpretation
   Answer: c) Strict interpretation
8. Which constitutional provision was cited to justify non-interference by the Supreme Court?
   a) Article 32
   b) Article 136
   c) Article 226
   d) Article 142
   Answer: b) Article 136

Frequently Asked Questions (FAQs)

1. What was the main dispute in Neha Enterprises v. Commissioner, Commercial Tax?
   The dispute centered on whether Neha Enterprises, a registered dealer, was entitled to an input tax credit of Rs. 6,42,260/- for sales of Rs. 1,89,35,100/- made to a manufacturer-exporter against Form-E, which were exempt from tax under Section 7(c) of the Uttar Pradesh Value Added Tax Act, 2008.
2. Why was the input tax credit disallowed by the assessing officer?
   The assessing officer disallowed the input tax credit under Section 13(7) of the Act, which prohibits input tax credit for sales exempt from tax under Section 7(c), as the sales to the manufacturer-exporter were covered by notifications dated 24.02.2010 and 25.03.2010.
3. What role did Section 13(7) play in the case?
   Section 13(7) was pivotal as it explicitly bars input tax credit for purchases related to sales exempt under Section 7(c). The Supreme Court upheld its application, finding it a clear statutory mandate that overrides any policy intent.
4. How did the appellant argue for the input tax credit?
   The appellant argued that denying the input tax credit was illegal and counterproductive to the state’s policy of promoting manufacturer-exporters. They contended that Section 13(7) should be interpreted in light of the policy intent, and the credit should be allowed under Section 13(1).
5. Why did the Supreme Court reject the appellant’s policy-based argument?
   The Supreme Court emphasized that tax statutes require strict interpretation. The clear language of Section 13(7) prohibited input tax credit for exempt sales, and policy considerations could not override the statutory provision.
6. What was the significance of the notifications dated 24.02.2010 and 25.03.2010?
   These notifications, issued under Section 7(c), exempted direct sales of raw materials and spare parts to manufacturer-exporters from tax upon filing Form-E. They also clarified that no input tax credit was available for such exempt sales, supporting the disallowance.
7. What was the outcome of the appeals before the lower authorities?
   The Additional Commissioner (22.07.2013), the Tribunal of Commercial Tax (10.09.2013), and the High Court (24.11.2014) all upheld the assessing officer’s disallowance of the input tax credit, finding it consistent with Section 13(7) and the notifications.
8. Why did the Supreme Court decline to interfere under Article 136?
   The Supreme Court found no error in the consistent findings of the lower authorities, which correctly applied Section 13(7). The clear statutory prohibition and factual admissions did not warrant interference under the discretionary jurisdiction of Article 136.
9. What broader legal principle was reinforced by this judgment?
   The judgment reinforced the principle of strict interpretation in tax law, particularly for input tax credit eligibility, emphasizing that statutory prohibitions take precedence over policy objectives or intent.
10. What was the final disposition of the case?
    The Supreme Court dismissed the civil appeal, upheld the disallowance of the input tax credit, and ordered no costs. All pending applications were disposed of.