The Gujarat High Court in the case of Khushbu Vinyl Pvt. Ltd. v State of Gujarat ruling in favour of assessee quashed and set aside the order passed by the Deputy Commr of Commercial Tax, restored the Certificate of Entitlement and directed the respondents to work out the amount of refund that petitioners would be entitled to and adjust the same towards outstanding dues.
The petitioners in the present case are engaged in the business of manufacture and sale of cotton fabrics. They have been made eligible to refund of tax paid on the purchase of raw material and intermediate products from the Industries Department of output tax paid on sales under the textile policy for which they have been granted Certificate of Entitlement under the Gujarat Value Added Tax, 2003. However, the petitioners have been discharging tax liability under the GVAT Act like a normal dealer by claiming the input tax credit on tax paid on purchases and adjusting the same against output tax liability. The act made them defaulters of tax and hence making their certificate liable to be cancelled.
It was the case of the petitioners that they were in any case entitled to the refund under the policy and if such refund was forthwith granted to the petitioners, it was only then that the petitioners would be able to immediately discharge the tax liability. It was submitted by the Commercial Tax Officer that since the petitioners had claimed the input tax credit on purchases, they are not entitled to a refund of such tax additionally requiring the respondents to pay output tax under the policy. The Officer hence cancelled the registration of the petitioners.
The petitioners before the present Court argued on the above lines and additionally pleaded that the provisions of the textile policy and notifications thereunder being investment linked incentive scheme have to be read liberally and have to be read in consonance with the objects and provisions of the Act. Further, it has been contended that the retrospective cancellation of the certificate of entitlement is arbitrary, bad and illegal.
On the other hand, the respondents submitted that the petitioners have not cleared their dues and could not comply with the conditions of the policy and therefore the certificate has been cancelled. It has been stated by the provisions that in order to get the benefit of the output tax, the dealer has to first pay the amount to the govt. treasury and then the same would be reimbursed to him.
The Bench constituting of Justice Harsha Devani and Justice Dr. A.P. Thaker quashed and set aside the order passed by the Deputy Commr of Commercial Tax, restored the Certificate of Entitlement and directed the respondents to work out the amount of refund that petitioners would be entitled to and adjust the same towards outstanding dues.
It was held that the issue in the present matter is a result of the retrospective grant of certificate. The petitioners were being taxed for output tax liability and were denied the refund since they had claimed the input tax credit on output tax liability.
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