Shree Om Metals PVT LTD Through Its Director Namely Ramesh Kumar Agarwal vs. The State Of Jharkhand Through Its Secretary Cum Commissioner Commercial Taxes Deptt

Held

The Court held that the amendments to Explanation (1) to Section 19 of the Jharkhand Value Added Tax Act, 2005, cannot be resorted to by the State in the instant case. The ITC that accrued to the petitioner for the financial year 2010-11 and was carried forward cannot be taken away or withdrawn by virtue of the insertion of Explanation (1) to Section 19. The Court reasoned that the right to carry forward the ITC took effect from 01.04.2011, while the relevant amendment became effective from 7th May, 2011. Citing Supreme Court judgments in Jayam and Company v. Assistant Commissioner, DG of Foreign Trade v. Kanak Exports, State of U.P. v. Vam Organic Chemicals Ltd., and Govind Das v. ITO, the Court emphasized that a statute should not be given retrospective operation to take away or impair an existing right. The Court found that the vested right to carry forward the ITC had accrued to the petitioner on 01.04.2011, before the amendment came into force. Consequently, the impugned Assessment Order dated 06.05.2017, which forfeited this ITC, was declared bad. The Court allowed the writ petition by setting aside the impugned assessment order. The challenge to the vires of the amendment acts was expressly left undecided.

Facts

The petitioner, Shree Om Metals Pvt. Limited, is challenging amendments to Section 19 of the Jharkhand Value Added Tax Act, 2005. The petitioner had an accumulated Input Tax Credit (ITC) of Rs. 21,65,133/- for the assessment year 2010-2011, which was carried forward to subsequent financial years. Amendments introduced by Jharkhand Act No. 22 of 2011 and a notification dated 31st March, 2017, inserted explanations to Section 19, leading to the forfeiture of the petitioner's accrued ITC. The petitioner's production was nil from August 2010 to December 2012 due to electricity disconnection. The petitioner sought to declare the amendments ultra vires and alternatively, that the accrued ITC should not be forfeited and should be carried forward. An assessment order dated 06.05.2017, passed on remand, had forfeited this ITC.

Key Issues

1. Whether Explanation 1 to Section 19 of the Jharkhand Value Added Tax Act, 2005, as inserted by the Jharkhand Value Added Tax (Amendment) Act, 2011, and subsequently amended by the Jharkhand Value Added Tax (Amendment) Act, 2016, is ultra vires the parent Act? 2. Whether the accrued Input Tax Credit (ITC) of Rs. 21,65,133/- for the assessment year 2010-2011, which was carried forward, can be forfeited by virtue of the amendments to Section 19 of the Jharkhand Value Added Tax Act, 2005? Petitioner's Arguments: The petitioner argued that the amendments are bad and ultra vires, as they take away a benefit already granted and that the retrospective effect of the amendments is illegal. They contended that since the benefit of ITC had accrued before the amendments came into effect, the amendments cannot take away this crystallized benefit. They relied on the fact that a previous writ petition was disposed of with a direction to reconsider the case after the retrospective effect was withdrawn. Respondents' Arguments: The respondents argued that ITC is a concession, and restrictions on it are within the State Legislature's domain. They contended that the amendments were introduced to protect the State's interest, as ITC should not be allowed to continue in perpetuity when no economic activity or revenue generation occurred. They argued that the forfeiture of credit accrued in an earlier financial year is natural when no revenue was generated. They relied on several Supreme Court judgments, including Godrej & Boyce Mfg. Co. Pvt. Ltd. and State of Karnataka v. M.K. Agro Tech (P) Ltd.