NEHA ENTERPRISES V. COMMISSIONER, COMMERCIAL TAX, LUCKNOW, UTTAR PRADESH 2025 INSC 480:

DATE: 09/04/2025

COURT: Supreme Court of India:

BENCH: Justice Pankaj Mithal and Justice SVN Bhatti

FACTS:

The appellant is a registered dealer under the Uttar Pradesh Value Added Tax Act, 2008, and the dispute pertains to the assessment year 2010-11. During this period, the dealer claimed an input tax credit of Rs.6,42,260/- on sales made to a manufacturer-exporter against the issuance of Form-E, amounting to Rs.1,89,35,100/-. Initially, the assessing officer allowed the claim, but later, through an order dated 22.02.2013 under Section 28 of the Act, disallowed the input tax credit. The disallowance was based on the reasoning that the sales were covered under Section 7(c) of the Act, which exempts such transactions from tax, and as per Section 13(7), input tax credit is not permissible for exempt sales.

The dealer's appeal before the Additional Commissioner and subsequently before the Commercial Tax Tribunal, Meerut, was dismissed. Both authorities upheld the view that Section 13(7) barred input tax credit on transactions falling under Section 7(c), particularly in light of Notification No. 247 dated 24.02.2010 and related circulars. The High Court also dismissed the dealer’s revision petition, affirming that the input tax credit was rightly reversed by the assessing authority, as the sale in question was exempt and did not qualify for input tax benefits under the applicable provisions of the Act.

ISSUES:

The main issue in this case was the judgement made by the High Court on the revision petition filed by the appellant. The High Court in its judgement stated that the appellant was not entitled for the input tax credit with respect to the sale of goods exempted under Section 7(c) of the Act. In this case the appellant seeks to question this verdict.

JUDGEMENT WITH REASONING:

The Hon’ble Court dismissed the Civil Appeal filed by the dealer, holding that the denial of input tax credit (ITC) was lawful and in accordance with Section 13(7) of the Uttar Pradesh Value Added Tax Act, 2008. The Court held that the statutory bar on claiming ITC, where sales are exempt under Section 7(c), was clear and could not be overridden by policy considerations or notifications. There shall be no order as to costs.

The Court emphasized the primacy of statutory provisions over policy objectives or interpretative arguments. It noted that while Section 13(1) allows input tax credit on taxable purchases under specified conditions, Section 13(7) expressly prohibits such credit where the sale of goods is exempt under Section 7(c). Since the dealer's sales were covered under the exemption notification issued under Section 7(c), the statutory mandate under Section 13(7) applied in full force, thus barring the claim for ITC.

Additionally, the Court rejected the appellant’s plea that the policy intention behind the exemption notifications should permit the allowance of ITC. The Court held that while policies may aim to promote trade, statutory interpretation must be grounded in the language of the law. It reaffirmed that the dealer, by opting for the exemption under Section 7(c), consciously accepted the limitations associated with it, including the forfeiture of ITC. Therefore, in the presence of an express bar, no input tax credit could be granted.

ANALYSIS:

This case highlights a crucial aspect of tax jurisprudence—the interplay between tax exemptions and the eligibility for input tax credit (ITC) under the Uttar Pradesh Value Added Tax Act, 2008. The appellant, a registered dealer, made sales to a manufacturer-exporter under a notified exemption (Section 7(c)) and sought ITC on those sales. Initially allowed by the assessing officer, the ITC was later reversed under Section 28. The central question was whether a dealer is entitled to claim ITC on transactions that are themselves exempt from tax due to government notifications. The assessing authority, the appellate forums, and eventually the High Court consistently held that Section 13(7) of the Act clearly prohibits ITC in such cases where sales are exempt under Section 7(c), regardless of the policy objective behind the exemption.

The Supreme Court, in affirming the lower courts' decisions, underscored that statutory provisions must prevail over policy-driven arguments. Although the appellant contended that the exemption intended to promote trade and thus ITC should be allowed, the Court clarified that legal entitlements like ITC cannot be inferred or implied from policy goals—they must be expressly provided for in the statute. The ruling thus reinforces the importance of strict statutory interpretation in tax law. It also serves as a caution to dealers that availing of exemptions under special notifications often involves relinquishing other benefits like ITC, especially where the law explicitly restricts such claims.