Limitation on availing Input Tax Credit: Supreme Court upholds validity of Section 19(11) of Tamil Nadu VAT Act

The Supreme Court has upheld has upheld the Constitutional validity of Section 19(11) of the Tamil Nadu Value Added Tax Act, 2006 which lays down limitation for claiming input tax credit..The judgment was delivered by a Bench of Justices AK Sikri and Ashok Bhushan in a batch of appeals against a 2013 judgment of the Madras High Court..The Section, the validity of which was in question in this case, lays down that if a registered dealer fails to claim input tax credit in respect of any transaction of taxable purchase in any month, he can make the claim before the financial year or before ninety days from the date of purchase, whichever is later..A large number of writ petitions were filed in Madras High Court by petitioners whose claims for Input Tax Credit was disallowed on account of noncompliance with Section 19(11). All the petitions were decided by a common judgment in 2013. The Division Bench of the Madras High Court by the said judgment upheld the validity of the Section and upheld the orders passed by the respondents denying the benefit of Input Tax Credit..Consequently, the matter reached the Supreme Court..The appellants contended that substantive and vested right of a registered dealer to claim Input Tax Credit cannot be curtailed and fettered by an unreasonable restriction imposed under Section 19(11) of the requiring claim to be made within 90 days from the date of purchase or before the end of the financial year..They submitted that Section 19(11) makes the enforcement of the substantive right unreasonable as well as arbitrary and violative of Article 14 and 19(1)(g) of the Constitution. Such right under Section 3(3) of the Act cannot be taken away by Section 19(11) which is only a procedural provision. Section 19(11) is inconsistent with the charging Section 3(3) of the Act. In any view of the matter, Section 19(11) is only a directory provision and cannot be held to be mandatory..It was their argument that the statutory benefit under Section 3(3) is mandatory being part of the charging Section. Section 3 which entitles claim of Input Tax Credit does not contain any limitation hence such right could not be hedged by any limitation, as contained in Section 19(11)..State of Tamil Nadu argued that Section 19(11) of the Tamil Nadu VAT Act, 2006 contains essential conditions under which Input Tax Credit can be claimed by a dealer. It was argued that Section 19(11) is part of the same statutory scheme and does not suffer from any ultra vires..The Court first addressed the claim of the appellant that the provision is arbitrary and violative of Article 14 and 19(1)(g) of the Constitution..It proceeded to rely on the principle of statutory interpretation that a provision in the statute is not to be read in isolation rather it has to read along with other related provisions itself, more particularly when the subject matter dealt with by different sections or parts of the same statute is the same..The Court ruled that the submission that Section 19 is inconsistent to Section 3(3) is wholly misconceived. What is envisaged in Section 3 sub-section (3) is amplified and explained in Section 19. The reduction in the tax as contemplated in Section 3 subsection (3) has to be in the manner and as provided in Section 19. Section 19(11) contains a condition for claiming the input tax credit, the Bench held..When the input tax credit is to be allowed and when it is to be disallowed is elaborated in Section 19 which is a selfcontained scheme and benefit under Section 3 subSection (3) can be claimed only when conditions, as enumerated in Section 19, are fulfilled..The Court also proceeded to rely on the judgment in Jayam and Company v. Assistant Commissioner and Another [(2016) 15 SCC 125]..In that case, the court while upholding the validity of Section 19(20) of the TN Vat Act had held that it is a trite law that whenever concession is given by a statute the conditions thereof are to be strictly complied with in order to avail such concession..“The above decision is a clear authority with proposition that Input Tax Credit is admissible only as per conditions enumerated under Section 19 of the Tamil Nadu Value Added Tax Act, 2016. The interpretation put up by this Court on Section 3(2) and 3(3) and Section 19(2) is fully attracted while considering the same provisions of Section 3(2) and 3(3) and provision of Section 19(11) of the Act”, it ruled..On the contention of the appellants that the provision is not mandatory but only directory, the Court held that whether a particular provision is mandatory or directory has to be determined on the basis ofthe object of particular provision and design of the statute..“Section 19(11) provides for an extended period for Input Credit which if not claimed in any month can be claimed before the end of the financial year or before the 90 days from the date of purchase whichever is later. The provision of Section 19(11) is thus an additional benefit given to dealer for claiming Input Credit in extended period.”.The use of the words “shall make the claim” needs no other interpretation and makes it clear that the provision is mandatory, the Court ruled..Therefore, finding no error in the judgment of the Madras High Court, the Supreme Court dismissed the appeals and upheld the constitutional validity of the Section in question..Read Judgment: