Before I express my views on the recent amendments in Sub-section (1) of Section 9, I would like to share a story with you. A person sitting with a cup of Tea surrounded by intelligent people put them a simple question. Which side of the cup is the handle? Because all were intelligent and were afraid of being wrong, gave reply after lot of application of mind. Depending upon the side on which the people were sitting, some one stated towards the left, the others said toward the right, toward me or toward the other side. THE correct answer is ‘OUTSIDE’.
The error occurred because they were looking for an answer, which the person asking the question might had in his mind.
Something similar may not have happened, while working out the ‘input tax credit’ to which a dealer is entitled during a tax period.
In order to find a solution let us see who much net tax a dealer is liable to pay during a tax period.
Net tax payable by a dealer in to be determined on the basis of the following formula given in Section 11 of the Act.
“Net Tax = O – I – C”.
The ‘I’ in this formula, around which all the present day controversies are, denotes the amount of input tax credit arising in the tax period to which the person is entitled under section 9 of the Act, after making the required adjustments under Section 10.
Sub-section (1) of Section 10 requires a dealer to make adjustments in the input tax credit during the tax period in which he receives or issue a debit or credit note.
Sub-section (2) of Section 10 requires a dealer to make adjustments during the tax period in which the dealer has utilized the goods, other way than he intended to use them while he has already claimed the input tax credit during the tax period in which he has made the purchases
Sub-section (3) of Section 10 requires a dealer to make adjustments during the tax period in which the dealer exports the goods while he has already claimed the input tax credit during the tax period in which he has made the purchases.
Sub-section (4) of Section 10 requires a dealer to make adjustments during the tax period in which the dealer incorporates the goods into the structures of a building owned or occupied by him while he has already claimed the input tax credit during the tax period in which he has made the purchases.
In summary, Section 10 foresees a situation when a dealer claims the input tax credit during the tax period in which he has made the purchases under section 9 of the Act. The plain reading of section 10 shows that a dealer is required to reduce the input tax credit during the tax period of utilization of the goods where he has claimed the input tax credit under section 9 of the Act during the tax period in which he has made the purchases.
The same error was committed by the persons who propagated that the phrase ‘put to sale’ should be read as ‘sold’ as while, looking at the cause of amendment in the Act they have over looked the provisions of Section 10 of the Act. It is now a firmly established rule that the intention of the legislature must be found be reading the statute as a whole.[Philips India Ltd. v. Labour Court(1985) 3 SCC 103, P. 112]. If the interpretation that a dealer is entitled to claim input tax credit only on that proportion of goods which have been actually sold during that tax period is accepted then the provisions of Section 10 of the Act becomes redundant and superfluous.
The same error was again committed when the phrase in the freshly introduced clause ‘to the extent of proportion of the goods which have been ‘put to sale’ was translated as ‘sold’. The clause is in passive voice but the tense used is present perfect tense. While translating the word ‘put to sale’ as ‘sold’ same persons have changed the tense of the phrase from present perfect tense to the past tense. I am at loss to understand the reasoning of the same. There is a presumption that the words are used in an
Act of Parliament correctly and exactly and not loosely and inexactly. [Prithpal Singh v. Union of India, AIR 1982 SC 1413, p. 1419].
Again, if the proposition of these people is accepted some of the provisions of Section 23 of this Act will also become redundant.
Again, if the proposition of these people is accepted some of the provisions of Rule 7 will also become redundant and row A3.5 and A3.12 of Annexure to Form DVAT 16 will become redundant.
I fail to agree with the proposition of these persons that what they have interpreted is the intention of the legislature which is apparent from the plain reading of Rule 6A. The Rule 6 has not been amended and the so propagated intention does not seem to apparent there from. To me, the Rule 6A has been introduced only after seeing an opportunity to increase the revenue collection after going through the interpretation of these persons.
The intention of the legislature is apparent from the repeated use of words suggesting that when a dealer has claimed input tax credit on the basis of his intention at the time of the purchase of goods and if he subsequently uses the goods for purposes other than specified under sub-section (1) of Section 9, then in the tax period in which he has so utilized the goods he shall reduce the tax credit already claimed.
To me the phrase ‘put to sale’ means ‘put into the process of sale’, and the purpose of amending sub-section (1) of Section 9 is to make it pertinent that when at the time of the purchase the dealer never had the intention to use the goods purchased for the purposes specified in sub-section (1) of Section 9,the amount of tax credit shall be reduced during the tax period in which those goods were purchased. This proposition is apparent from the reading of Sub-section (4) and (6) of Section 9 which foresees the situations when a dealer at the time of making purchases knew that either he is not going to use the total quantity of goods for the purposes specified in sub-section (1) or partly use for the purpose of undertaking the specified purposes and partly for unspecified purposes, and provides that in such a case the dealer shall reduce the input tax credit claimed. This view of the legislature is clear from the words ‘goods purchased are to be used’ stated in sub-section (4) and ‘goods purchased are to be exported’ stated in sub-section (6).
In view of the above, I would say that a dealer is not required to correlate his purchases with sales in order to claim the input tax credit during the particular tax period. A dealer when at the time of making the purchases has no intention to put the goods purchased to the specified purposes under Sub-section (1) of Section 9, in that case reduce the input tax credit on that proportion of the goods and show the same in Row A3.18 in Annexure to Form DVAT 16 and accordingly bring forward in subsequent period in Row A3.17.
Devinder Jain
Mobile : 9810272568
email: delvatp@gmail.com
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