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The State of Punjab v. Trishala Alloys Pvt. Ltd.

Civil Appeal · 2025 INSC 231Decided 17 Feb 2025
Civil Appeal No. 2212 of 2024 (with connected Civil Appeal Nos. 2213, 2214-2216, 2217, 2218 and 2219 of 2024)
Justice Abhay S. Oka · Justice Ujjal Bhuyan

Background

The Punjab government reduced the VAT rate on certain goods with effect from 1 February 2014 and, through Rule 21(8) of the Punjab VAT Rules (notified 25 January 2014), tried to apply this lower rate retroactively to input tax credit that manufacturers like Trishala Alloys had already earned on stock purchased at the older, higher tax rate. However, the enabling amendment to the parent Punjab VAT Act (the first proviso to Section 13(1)) only came into force later, on 1 April 2014. Several affected manufacturers challenged the rule before the Punjab and Haryana High Court, which ruled in their favour, prompting the State's appeal.

Decision Breakdown

The Supreme Court held that a subordinate rule cannot operate without a corresponding enabling provision in the parent statute, and since the Act's amendment took effect only from 1 April 2014, Rule 21(8) could not validly be applied to reduce input tax credit that had already accrued on goods purchased before that date. The Court reasoned that a vested right to input tax credit arises when the tax is paid and continues until the credit is used or the goods cease to exist, and cannot be diminished by a rule that outpaces its parent law. It also noted this interpretation avoided the anomaly of forcing reversal of credit at a lower rate than what was originally paid. All the State's connected appeals were dismissed, with no order as to costs.

Lesson Learnt

Delegated legislation such as rules and regulations cannot take away or reduce a vested statutory right (like accrued input tax credit) unless the parent statute itself has been amended to permit it: a subordinate rule cannot run ahead of the law that authorises it.

Official source (sci.gov.in)View Judgment (PDF)

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