Food Corporation Of India v. State Of Punjab And Ors.

1. This writ petition has been filed seeking declaration of the provisions of Section 14 of the Punjab Value Added Tax Act, 2005 (for short, "the PVAT Act") to be ultra vires to the provisions of Section 15(c) of the Central Sales Tax Act, 1956 (for short, "the Central Act") on the ground that credit of tax paid on paddy is not being allowed as input tax credit (ITC) while calculating the tax payable on rice procured out of it.

2. The case of the petitioner is that it had purchased rice extracted out of the paddy, on which, purchase tax had already been paid. Credit of tax paid on paddy is admissible on tax payable on sale of rice. Though vide letter dated August 23, 2005 (annexure P5), the department clarified that if paddy from which rice is prepared has suffered tax, ITC will be available on sale of such rice, but the said letter was subsequently withdrawn on August 29, 2005 (annexure P6). The claim of the petitioner for ITC on the sale of rice was disallowed. This stand is contrary to the provisions of Article 286 of the Constitution of India read with Section 15(c) of the Central Act, which is as under:

15. Restrictions and conditions in regard to tax on sale or purchase of declared goods within a State.-Every sales tax law of a State shall, in so far as it imposes or authorises the imposition of a tax on the sale or purchase of declared goods, be subject to the following restrictions and conditions, namely:

(a) ...

(b) ...

(c) where a tax has been levied under that law in respect of the sale or purchase inside the State of any paddy referred to in Sub-clause (i) of Clause (ii) of Section 14, the tax leviable on rice procured out of such paddy shall be reduced by the amount of tax levied on such paddy.

3. Learned Counsel for the petitioner submits that the provisions of Section 15(c) of the Central Act override the State law in view of the provisions of Article 286 of the Constitution and language of Section 15 of the Central Act itself.

4. On July 18, 2006 following order was passed:

Learned Counsel for the petitioners point out that in the Punjab Value Added Tax Act, 2005, provisions of Section 15(c) of the Central Sales Tax Act, 1956 have not been given effect to.

Learned Counsel for the State says that steps are being taken to meet the objection raised by the learned Counsel for the petitioners and about one month's period be given so that a final decision is taken at the appropriate level.

List again on August 24, 2006.

A photocopy of this order be placed on the file of each connected case.

5. Learned Counsel for the State has handed over a note from the Assistant Excise & Taxation Commissioner, Patiala to the following effect:

Note for Additional Advocate-General, Punjab in the case of Food Corporation of India. (C. W. P. No. 6222 of 2006) Subject : Set-off of tax paid on paddy in the event of sale of rice. The Excise and Taxation Department agrees that as and when sale of rice takes place, in the case of rice lying in stock on the appointed day, and the person making sale of rice produces evidence to the effect that paddy, from which the said rice was procured, had suffered tax in the State, set-off of tax paid on paddy shall be allowed as per requirement of Section 15(c) of the Central Sales Tax Act, 1956 provided that the rice is sold within the State or is used for manufacture of taxable goods in the State for sale or is sold in the course of inter-State trade or commerce or in the course of export.

6. In view of the legal position already noticed above and the stand taken by the State of Punjab, we are of the view that Section 15(c) of the Central Act has to be given effect to for the period in dispute, that is, from the date of enforcement of PVAT Act on April 1, 2005.

7. The petitioner will be at liberty to seek the benefit of the said provision in accordance with law before the appropriate authority.

8. It is made clear that if any order has been passed which is inconsistent with the abovesaid order, the said order will be treated as non est and the authority concerned will pass fresh orders in consonance with the order of this Court.

9. The writ petition is disposed of in the manner indicated above.