STATE OF PUNJAB & ORS.versusTRISHALA ALLOYS PVT. LTD.

                [2025] 2 S.C.R. 1948 : 2025 INSC 231

                         State of Punjab & Ors.
                                    v.
                        Trishala Alloys Pvt. Ltd.
                      (Civil Appeal No. 2212 of 2024)
                              17 February 2025
               [Abhay S. Oka and Ujjal Bhuyan,* JJ.]


                           Issue for Consideration
       Whether the State could amend the Punjab Value Added Tax Rules,
       2005 to provide that the input tax credit (ITC) already earned on
       goods kept in stock could be availed at a reduced rate as the rate
       of tax on the goods stood reduced in the interregnum when there
       was no enabling provision in the parent statute i.e., the Punjab
       Value Added Tax Act, 2005.

                                 Headnotes†
       Punjab Value Added Tax Act, 2005 (“Punjab VAT Act”) – First
       proviso to s.13(1) – Amended with effect from 01.04.2014 –
       Punjab Value Added Tax Rules, 2005 (“Punjab VAT Rules”) –
       Rule 21(8) introduced and Schedule E amended with effect
       from 01.02.2014 – As a result, the ITC already paid for goods
       kept as stock in trade could only be availed at a reduced
       rate – Held, no statutory sanction prior to 01.04.2014 to
       allow applicability of Rule 21(8) on the stock in trade already
       purchased at a higher rate of tax – Impugned judgment of
       High Court upheld – Appeals dismissed:
       Held: Amendment dated 25.01.2024 which inserted sub-rule (8) in
       Rule 21 of VAT Rules whereby a taxable person’s entitlement to
       get ITC on concerned goods (iron and steel) was reduced based
       on reduction in input tax on such goods was unjustified in the
       absence of there being an enabling provision to do so in the VAT
       Act which was the parent statute – It was held that any change in
       the ITC scheme by amending VAT Rules could have been done
       only after 01.04.2024 when first proviso to Section 13(1) of VAT
       Act was amended, which dealt with ITC. [Paras 31-35]



* Author
[2025] 2 S.C.R.                                                             1949

            State of Punjab & Ors. v. Trishala Alloys Pvt. Ltd.


     Comparison between pre and post amendment scenario
     regarding first proviso to Section 13(1) of VAT Act prejudicial
     and unfair:
     Held: Court observed that pre-amendment, the first proviso entitled
     taxable persons to receive ITC in respect of goods which were for
     sale/use in manufacture etc., but post amendment, such persons
     were not entitled to receive ITC unless such goods were sold/used
     in the manufacture etc – Thus essentially, post amendment, the
     benefit of ITC became available from the date of further sale/use/
     manufacture etc and therefore goods which were “stock in trade”
     would not attract the benefit of ITC – Additionally, as per sub-rule
     (8) of Rule 21 of VAT Rules, the ITC already earned i.e., @4%
     was now available at the reduced rate i.e., @2% w.e.f. 25.01.2014
     on sale of such goods – Held, it would be prejudicial and unfair
     to a taxable person who had stock in trade as on 25.01.2014
     or as on 01.02.2014 (when amended rule came into effect) by
     paying higher rate of tax on purchase of iron and steel goods
     but would later on be entitled to reduced ITC due to reduction
     in the rate of tax on such goods on a subsequent date – Rule
     21(8) could come into effect only on and from 01.04.2024 i.e.,
     when amended the Punjab VAT Act, s.13(1) came into force.
     [Paras 36, 41, 41.1]

     Right accrued to the assessee on date of purchase of goods
     immutable till such goods meet the objective of their purchase
     or continue to exists:
     Held: Court relied on Eicher Motors Limited Vs. Union of India,
     (1999) 2 SCC 361 which concerned ITC and held that a right
     accrued to the assessee on the date when he pays the tax on the
     raw material or the input would continue until the facility available
     thereto gets worked out or until those goods existed. [Para 37]

     Statutory amendments amounting to change in law to not
     have retrospective application:
     Held: Court relied on Sedco Forex International Drill INC.Vs.
     Commissioner of Income Tax, Dehradun, (2005) 12 SCC 717
     which stated the general principle of tax law that if any statutory
     amendment is clarificatory in nature, it could be read into the main
     provision from the date when such provision became effective
1950                                                          [2025] 2 S.C.R.

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    however if any such amendment amounts to a change in law, then
    it cannot be presumed to have retrospective application – Court
    also relied on Commissioner of Central Excise, Patna Vs. New
    Swadeshi Sugar Mills (2016) 1 SCC 614 which dealt with CENVAT
    Credit Rules, 2002 and held that CENVAT credit already earned by
    the assessee could not be changed by a statutory amendment that
    did away with it and such amendment would have only prospective
    effect. [Paras 38-39]
    Reliance placed on Jayam and Company Vs. Assistant Commissioner
    (2016) 15 SCC 125 wherein the court that the said amendment
    being detrimental to the ITC entitlement of taxable persons would
    not have retrospective application. [Para 40]

    Impact on reverse ITC obligation under Section 13(9):
    Held: That if Petitioner’s contention were to be accepted, it would
    require reversing of ITC in terms of Section 13(9) at reduced rate
    of tax on the goods in question if such goods were not used for the
    purposes specified in Section 13(1) or which remained as “stock
    in trade” at the time of closure of business which effectively will
    lead to revenue loss to State exchequer. [Para 41.2]

                             Case Law Cited
    Eicher Motors Limited v. Union of India [1999] 1 SCR 295 : (1999)
    2 SCC 361; Sedco Forex International Drill INC. v. CIT [2005]
    Supp. 5 SCR 302 : (2005) 12 SCC 717; Commissioner of Central
    Excise, Patna v. New Swadeshi Sugar Mills (2016) 1 SCC 614;
    Jayam and Company v. Assistant Commissioner [2016] 6 SCR
    787 : (2016) 15 SCC 125 – relied on.

                                List of Acts
    Punjab Value Added Tax Act, 2005; Punjab Value Added Tax
    Rules, 2005.

                             List of Keywords
    Input tax credit; Value added tax; Parent statute; Enabling provision;
    Delegated legislation; Prospective effect; Retrospective effect;
    Legislative competence; Punjab VAT Act 2005; Punjab VAT Rules
    2005.
[2025] 2 S.C.R.                                                               1951

            State of Punjab & Ors. v. Trishala Alloys Pvt. Ltd.


                             Case Arising From
     CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2212 of 2024
     From the Judgment and Order dated 20.05.2015 of the High Court
     of Punjab & Haryana at Chandigarh in CWP No. 7951 of 2014
     With
     Civil Appeal Nos. 2213, 2214-2216, 2217, 2218 and 2219 of 2024

                           Appearances for Parties
     Vivek Jain, D.A.G., Karan Sharma, Rajat Jain, Ms. Princy Sharma,
     Abhinav Jain, Mohit Siwach, Ms. Ranjeeta Rohatgi, Advs. for the
     Appellants.
     Mohit D. Ram, Samdeep Goyal, Sandeep Goyal, Pawanshree
     Agrawal, Ms. Shubhangi Negi, Rishabh Chauhan, Atul Krishna,
     Ms. Monisha Handa, Rajul Shrivastav, Anubhav Sharma, Advs.
     for the Respondent.

                Judgment / Order of the Supreme Court

                                  Judgment

     Ujjal Bhuyan, J.

     This judgment and order will dispose of Civil Appeal Nos. 2212,
     2213, 2214-2216, 2217, 2218 and 2219 of 2024.
2.   Details of the Civil Appeals are as under:

      Sl.   Civil Appeal    SLP (C) No(s).               Cause Title
      No.      No(s).
      1.    2212 of 2024   35263 of 2015     State of Punjab & Ors. Vs. Trishala
                                             Alloys Pvt. Ltd.
      2.    2213 of 2024   35269 of 2015     State of Punjab Vs. Prime Steel
                                             Processors.
      3.    2214-2216 of   35265-35267 of    State of Punjab Vs. JREW
            2024           2015              Engineering Ltd. Etc. Etc.
      4.    2217 of 2024   35790 of 2015     State of Punjab Vs. District Taxation
                                             Bar Association (Sales Tax),
                                             Ludhiana.
1952                                                          [2025] 2 S.C.R.

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        5.   2218 of 2024   904 of 2016    State of Punjab Vs. LSR Forge Pvt.
                                           Ltd.
        6.   2219 of 2024   2407 of 2016   State of Punjab vs Jalandhar Iron
                                           and Steel Merchants Association
                                           (Regd.).

3.   Since parties have advanced their arguments in Civil Appeal No. 2212
     of 2024 (State of Punjab Vs. Trishala Alloys Pvt. Ltd.), the same is
     taken as the lead appeal and for the sake of convenience, facts
     stated in the said appeal would be referred to hereunder.
4.   This appeal by special leave is directed against the order dated
     20.05.2015 passed by the High Court of Punjab and Haryana at
     Chandigarh (briefly ‘the High Court’ hereinafter) in CWP No. 7951/2014
     (Trishala Alloys Private Ltd. Vs. State of Punjab) whereby the High
     Court has allowed the writ petition filed by the respondent by following
     its judgment and order of even date passed in CWP No. 5625/2014
     (Jalandhar Iron and Steel Merchants Association Vs. State of Punjab).
5.   State of Punjab has filed the related petition for special leave to
     appeal (civil) No. 35263/2016 assailing the order dated 20.05.2015.
6.   Question for consideration is whether Rule 21(8) of the Punjab
     Value Added Tax Rules, 2005 (Punjab VAT Rules) could have been
     introduced during the period between 25.01.2014 to 01.04.2014
     when there was no enabling provision in the parent statute i.e. the
     Punjab Value Added Tax Act, 2005 (Punjab VAT Act)? The above
     issue has arisen in the following factual backdrop.
7.   Respondent is a manufacturer of iron and steel goods. For
     manufacturing such goods, it purchases raw material of iron and
     steel from within the State of Punjab as well as from outside the
     State of Punjab.
8.   Punjab VAT Act came into force from 01.04.2005. As per the scheme
     of Punjab VAT Act, value added tax (VAT) paid or payable under the
     said Act by a taxable person on the purchase of taxable goods for
     resale or for use by him in the manufacture or processing or packing
     of taxable goods in the State of Punjab would be termed as input
     tax. The credit of input tax available to a taxable person under the
     Punjab VAT Act is referred to as input tax credit (ITC). There is a
     concept called reverse input tax credit which means the amount of
[2025] 2 S.C.R.                                                        1953

            State of Punjab & Ors. v. Trishala Alloys Pvt. Ltd.



     input tax credit which is required to be reversed by a taxable person
     on account of credit note for output tax received from the previous
     seller of goods on purchase in respect of which input tax credit (ITC)
     is claimed etc. Output tax in relation to a taxable person means
     the tax charged or chargeable or payable in respect of sale and/or
     purchase of goods, as the case may be, under the Punjab VAT Act.
9.   A taxable person shall be entitled to input tax credit in such manner
     and subject to such conditions as may be prescribed in respect of
     input tax on taxable goods including on capital goods purchased by
     him from a taxable person within the State during the tax period.
     However, such goods must be for sale in the State of Punjab or in
     the course of inter-state trade, commerce or in the course of export
     or for use in the manufacture, processing or packing of taxable goods
     for sale within the State of Punjab or in the course of inter-state trade
     or commerce or in the course of export.
     9.1.   Taxable person has been defined to mean a person who is
            registered for the purpose of paying value added tax under
            the Punjab VAT Act and tax period means the period for which
            a person is required to pay tax under the Punjab VAT Act or
            the rules framed thereunder.
10. Section 13(1) of the Punjab VAT Act read with the first proviso thereto,
    as it stood prior to amendment, provided that a taxable person shall
    be entitled to input tax credit in respect of input tax on taxable goods
    purchased by him from a taxable person within the State during the
    tax period if such goods are for further sale etc or for manufacture
    etc of taxable goods.
     10.1. After amendment with effect from 01.04.2014, the mandate
           of the provision undergoes a change in that input tax credit
           would be available only if the goods are sold or are used in
           manufacture etc.
11. In exercise of the powers conferred by sub-section (1) of Section 70
    of the Punjab VAT Act, the Punjab VAT Rules have been framed.
     11.1. Rule 18 deals with conditions for input tax credit whereas input
           tax credit on capital goods is dealt with in Rule 19.
     11.2. Rule 21 is relevant. It provides for inadmissibility of input tax
           credit in certain cases, such as, no input tax credit shall be
1954                                                     [2025] 2 S.C.R.

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           admissible to a person for tax paid on purchase of goods if
           such goods are lost or destroyed or damaged beyond repair
           etc. Calculation of input tax credit is dealt with in Rule 22.
12. Government of Punjab in the Department of Excise and Taxation
    issued notification bearing No.G.S.R.5/P.A.8/ 2005/S.70/Amd.
    (53)/2014 dated 25.01.2014 making the Punjab Value Added Tax (First
    Amendment) Rules, 2014 (‘First Amendment Rules’ hereinafter) to
    further amend the Punjab VAT Rules. It is mentioned therein that the
    amendments would come into force with effect from 01.02.2014. As
    per the First Amendment Rules, after sub-rule (6) of Rule 21 of the
    Punjab VAT Rules, sub-rules (7) and (8) were added. Sub-rule (8) as
    inserted in Rule 21 vide the First Amendment Rules reads as under:
           (8) where some goods as input or output are lying in the
           stock of a taxable person and where rate of tax on such
           goods is reduced from a particular date, then from that
           date, input tax credit shall be admissible to the taxable
           person on the sale of goods lying in stock or on using
           the goods as input for manufacturing taxable goods, at
           the reduced rate.
13. Government of Punjab in the Excise and Taxation Department issued
    a revised public notice/clarification drawing the attention of taxable
    persons, advocates, chartered accountants and cost accountants that
    the rate of tax on iron and steel goods stood reduced from 4.5 per
    cent to 2.5 per cent. It was mentioned therein that input tax credit
    (ITC) on stock held as on 31.01.2014 would be restricted to the new
    rate of tax plus surcharge. It was further clarified that the new tax
    regime would come into effect from 01.02.2014.
14. Punjab Government in the Department of Excise and Taxation also
    issued notification bearing No. S.O.9/P.A.8./2005/ S.8/2014 dated
    25.01.2014 making amendment in Schedule ‘E’ appended to the
    Punjab VAT Act mentioning that the same was being done in exercise
    of the powers conferred by sub-section (3) of Section 8 of the Punjab
    VAT Act dispensing with the condition of previous notice. As per the
    amendment, serial No.21 was added to Schedule E whereby iron
    and steel goods as enumerated in Clause IV of Section 14 of the
    Central Sales Tax Act, 1956 except non-cenvat paid iron and steel
    scrap would attract tax at 2.5 per cent whereas non-cenvat paid iron
    and steel scrap would attract tax at 1 per cent.
[2025] 2 S.C.R.                                                        1955

            State of Punjab & Ors. v. Trishala Alloys Pvt. Ltd.


15. Respondent filed CWP No. 7951 of 2014 before the High Court for
    a declaration that Rule 21 (8) of the Punjab VAT Rules as inserted
    vide the notification dated 25.01.2014 was ultra vires the Constitution
    and the Punjab VAT Act. Contention of the respondent was that
    credit for the tax already paid by the taxable person on goods kept
    as stock in trade would be reduced by virtue of Rule 21 (8) which
    is illegal and unconstitutional.
16. By the impugned judgment, High Court allowed the writ petition
    holding that on the date of introduction of sub-rule (8) in Rule 21 of
    the Punjab VAT Rules, the State did not possess any power traceable
    to the Punjab VAT Act to confine the rate of input tax credit to the
    reduced rate of tax on the stock in trade i.e. on those concluded
    transactions where the taxable person had already earned input tax
    credit at the previous higher rate of tax.
17. Aggrieved thereby, the State is in appeal.
18. Learned counsel for the appellant submits that the High Court was
    not at all justified in allowing the writ petition filed by the respondent
    holding that on the date of introduction of sub-rule (8) in Rule 21
    of the Punjab VAT Rules, the State did not possess any power
    to confine availing of input tax credit (ITC) to the reduced rate of
    tax on the stock in trade i.e. in respect of transactions that stood
    concluded with the taxable person already earning input tax credit at
    the previous higher rate of tax. Judicial intervention in such a case
    was not warranted.
     18.1. Referring to Section 2(o) of the Punjab VAT Act, he submits
           that input tax is the tax paid or payable in the course of
           business on the purchase of any goods made from a registered
           dealer of the State. It is a tax in relation to a taxable person
           which is paid or is payable by him on the purchase of taxable
           goods for resale or for further use by the taxable person in
           the manufacture or processing or packing of taxable goods in
           the State. Output tax which is the tax charged or chargeable
           or payable under the Punjab VAT Act extends the benefit of
           ITC subject to fulfilment of certain conditions. Learned counsel
           submits that High Court has completely misread Rule 21(8)
           of the Punjab VAT Rules holding that there would be retro-
           active application of the said Rule whereas no such intent is
           decipherable therefrom.
1956                                                         [2025] 2 S.C.R.

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     18.2. ITC is not a privilege but merely a facility to avoid the cascading
           effect of tax. State government introduced the scheme of
           ITC under Section 13 of the Punjab VAT Act to minimise the
           effect of VAT and to reduce the burden of tax on the ultimate
           consumer. Every dealer (taxable person) calculates the output
           tax liability and reduces the tax paid on purchases to reach
           the quantum of tax payable. Therefore, the state government
           has the power to impose tax at the stage of sale and in certain
           cases, no ITC may be available. A dealer would be entitled
           to ITC on the stock in trade held as on 31.01.2014 equal to
           the new rate of tax plus surcharge effective from 01.02.2014.
           The goods purchased prior to 31.01.2014 and not sold or
           utilised till 31.01.2014 would be eligible to ITC at the new
           rate enforced till further sale. Thus, he would not be entitled
           to credit at the same rate of tax which was applicable at the
           time of procurement.
     18.3. High Court has failed to appreciate that amendment to the
           Punjab VAT Rules applies only to the rate of tax prevailing
           on the date of sale of the stock in trade and, therefore, does
           not affect the rights of a dealer or the ITC on the transaction
           which stood concluded.
     18.4. Learned counsel has referred to the rule making provision in
           the Punjab VAT Act i.e. Section 70. He submits that as per
           sub-section (2) of Section 70, the rules under the Punjab
           VAT Act may be made either with prospective effect or with
           retrospective effect. However, he concedes that as per the
           proviso thereto, the rules shall be made with retrospective effect
           only if the same are required to be made in public interest.
     18.5. He finally submits that State has a larger affirmative
           responsibility towards the society. Therefore, the impugned
           provision may be examined from that perspective also.
19. Per contra, learned counsel for the respondent submits that the High
    Court had rightly observed that on the date of introduction of sub-rule
    (8) in Rule 21, the State did not possess any power emanating from
    the Punjab VAT Act to confine the availing of input tax credit (ITC) to
    the reduced rate of tax on the stock in trade i.e. on the transaction
    which stood concluded with the dealer already earning input tax credit
    at the previous higher rate of tax. He submits that a perusal of the
[2025] 2 S.C.R.                                                       1957

            State of Punjab & Ors. v. Trishala Alloys Pvt. Ltd.


     amendment in the first proviso to Section 13(1) of the Punjab VAT Act
     would reveal that the said provision is not retrospective but applies
     to transactions after 01.04.2014. The amendment in the said Rule
     which came into effect prior to the amendment in the Punjab VAT Act
     could therefore not be enforced by the appellant before 01.04.2014
     to take away a vested right already determined and accrued to the
     respondent without any statutory sanction.
     19.1. Based on the above submission, learned counsel for the
           respondent contends that the limited issue in this appeal is
           whether Rule 21(8) of the Punjab VAT Rules could have been
           introduced and made applicable during the period between
           25.01.2014 to 01.04.2014.
     19.2. In that context learned counsel contends that on the date when
           Rule 21(8) of the Punjab VAT Rules was introduced i.e. on
           25.01.2014 there was no enabling provision in the Punjab VAT
           Act that empowered the State to reduce the rate of input tax
           credit already earned by reference to the sale of goods lying
           in stock. The statutory position is clear in that input tax credit
           (ITC) would be earned on the date of purchase in accordance
           with Section 13 of the Punjab VAT Act as it stood on that date
           i.e. on the date of purchase. Amendment to the Punjab VAT
           Act empowering the State to notify such a rule came into effect
           only on 01.04.2014 when the first proviso to Section 13(1) of
           the Punjab VAT Act was amended. The words ‘are for sale’
           appearing in the first proviso to Section 13(1) were deleted
           and substituted with the words ‘are sold’. Similarly, the words
           ‘for use in the manufacture’ were replaced by the words ‘are
           used in the manufacture’. Effect of this amendment was to
           limit the input tax credit earned on the goods already sold or
           used in manufacture. This amendment therefore enabled the
           State to reduce the input tax credit already earned on the
           stock in trade by reference to the reduced rate of taxation.
     19.3. State of Punjab introduced Rule 21(8) in the Punjab VAT Rules
           vide the notification dated 25.01.2014, the effect of which was
           that though the respondent would have paid tax at the existing
           higher rate on the purchase of raw material used as input, it
           would not be in a position to recover the whole of it from the
           customers because of subsequent reduction in the rate of tax.
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     19.4. Learned counsel vehemently argued that the State did not
           have the legislative competence to reduce the input tax credit
           already earned by inserting sub-rule (8) in Rule 21 before
           making amendment in the corresponding enactment i.e. Section
           13 of the Punjab VAT Act. Amendment in the Punjab VAT Act
           having come into effect from 01.04.2014, the amendment in
           Rule 21(8) of the Punjab VAT Rules could not have come into
           force prior thereto.
     19.5. Learned counsel for the respondent submits that there is no
           error or infirmity in the view taken by the High Court. Appeal filed
           by the State lacks merit and, therefore, should be dismissed.
20. Submissions made by learned counsel for the parties have received
    the due consideration of the Court.
21. At the outset, let us refer to and analyse the relevant statutory
    provisions. Section 2 of the Punjab VAT Act is the definition section.
    Section 2(o) deals with input tax. It says that input tax in relation to
    a taxable person means the value added tax (VAT), paid or payable
    under the Punjab VAT Act, by a person on the purchase of taxable
    goods for resale or for use by the taxable person in the manufacture
    or processing or packing of taxable goods in the State. Input tax
    credit has been defined in Section 2(p) to mean the credit of input
    tax (ITC) available to a taxable person under the Punjab VAT Act.
    On the other hand, output tax as defined in Section 2(s) in relation
    to a taxable person means the tax charged or chargeable or payable
    in respect of sale and/or purchase of goods, as the case may be.
    Reverse input tax credit as per Section 2(ze) means the amount of
    input tax credit (ITC) which is required to be reversed by a taxable
    person on account of the four situations enumerated thereunder
    including one where credit note for output tax is received from the
    seller of goods on purchase in respect of which input tax credit is
    claimed. While tax period has been defined in Section 2(zm) to mean
    the period for which a person is required to pay tax under the Punjab
    VAT Act or under the Punjab VAT Rules, taxable person has been
    defined in Section 2(zn) to mean a person who is registered for the
    purpose of paying VAT under the Punjab VAT Act.
22. Section 13 of the Punjab VAT Act deals with input tax credit. Sub-
    section (1) of Section 13 of the Punjab VAT Act alongwith the first
    proviso thereto, as it stood prior to the amendment, reads as under:
[2025] 2 S.C.R.                                                          1959

            State of Punjab & Ors. v. Trishala Alloys Pvt. Ltd.


           S-13. Input tax credit.
           (1)   A taxable person shall be entitled to the input tax
                 credit, in such manner and subject to such conditions,
                 as may be prescribed, in respect of input tax on
                 taxable goods, including capital goods, purchased
                 by him from a taxable person within the State during
                 the tax period:
                 Provided that such goods are for sale in the State or
                 in the course of inter-state trade or commerce or in
                 the course of export or for use in the manufacture,
                 processing or packing of taxable goods for sale
                 within the State or in the course of inter-state trade
                 or commerce or in the course of export.
23. The aforesaid provision says that a taxable person shall be entitled to
    ITC in respect of input tax on taxable goods, including capital goods,
    purchased by him from a taxable person within the State during the
    tax period. As per the unamended first proviso, such goods should be
    for sale in the State or in the course of inter-state trade or commerce
    or in the course of export or for use in the manufacture, processing
    or packing of taxable goods for sale within the State or in the course
    of inter-state trade or commerce or in the course of export.
     23.1. Sub-section (9) of Section 13 provides that a person shall
           reverse input tax credit availed by him on goods which could
           not be used for the purposes specified in sub-section (1) of
           Section 13 or which remained in stock at the time of closure
           of the business.
24. Section 70 is the rule making provision. While sub-section (1)
    empowers the state government to make rules for carrying out the
    purposes of the Punjab VAT Act, sub-section (2) on the other hand
    provides that rules made under the Punjab VAT Act may be either
    with prospective effect or with retrospective effect. As per the proviso
    to sub-section (2), the rules shall be with retrospective effect only if
    the same are required to be made in public interest.
25. While Rule 18 of the Punjab VAT Rules mentions the conditions
    for input tax credit, Rule 19 on the other hand deals with input tax
    credit on capital goods.
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26. Rule 21 deals with inadmissibility of input tax credit in certain cases.
    At the relevant point of time, Rule 21 had six sub rules, sub-rule (7)
    having been omitted. Input tax credit would not be admissible to a
    person for the tax paid on purchase of goods if such goods are lost
    or destroyed or damaged beyond repair etc.
27. By notification dated 25.01.2014, Government of Punjab made
    the Punjab VAT (First Amendment) Rules, 2014 declaring that
    the amended provisions would come into force with effect from
    01.02.2014. By the First Amendment Rules, Rule 21 of the Punjab
    VAT Rules was amended in the sense that after sub-rule (6), sub-
    rules (7) and (8) were added.
28. We have already extracted sub-rule (8) of Rule 21. It says that
    where some goods as input or output are lying in the stock of a
    taxable person and where the rate of tax on such goods is reduced
    from a particular date, then from that date, input tax credit shall be
    admissible to the taxable person on the sale of goods lying in stock
    or on using the said goods as input for manufacturing taxable goods
    etc at the reduced rate from that particular date.
29. What therefore the newly inserted provision of Rule 21(8) contemplates
    is that goods which were already purchased at a higher rate of tax
    and forming part of the stock in trade would be entitled to input tax
    credit of the taxable person on the further sale of such goods or use
    of such goods as input for manufacturing taxable goods etc at the
    reduced rate with effect from 01.02.2014.
30. It has come on record that by another notification dated 25.01.2014,
    Schedule E to the Punjab VAT Act was amended by insertion of serial
    No.21 reducing the rate of tax in respect of iron and steel goods.
31. Punjab VAT Act was amended the second time by the Punjab Value
    Added Tax (Second Amendment) Act, 2013 (Punjab Act No. 38
    of 2013). Though as per Section 1(2) of the Second Amendment
    Act, the same was to come into force at once, the proviso thereto
    mentioned that amendment of sub-section (1) of Section 13 shall
    come into force on and with effect from the first day of April, 2014
    i.e. from 01.04.2014. Section 5 of the Second Amendment Act deals
    with amendment to Section 13 of the Punjab VAT Act. As per the
    amendment, the first proviso to sub-section (1) of Section 13 was
    amended and post amendment, the said proviso reads as under:
[2025] 2 S.C.R.                                                         1961

            State of Punjab & Ors. v. Trishala Alloys Pvt. Ltd.


           Provided that the input tax shall not be available as input
           tax credit unless such goods are sold within the State or
           in the course of inter-state trade or commerce or in the
           course of export or are used in the manufacture, processing
           or packing of taxable goods for sale within the state or
           in the course of inter-state trade or commerce or in the
           course of export.
32. As already noticed above, this provision came into the statute book
    on and with effect from 01.04.2014. Before proceeding further, it
    would be apposite to examine the said provision as it existed prior
    to the amendment and compare the same post amendment. Prior to
    amendment, the first proviso mentioned that a taxable person would
    be entitled to input tax credit in respect of input tax on taxable goods
    purchased by him from a taxable person within the State during the
    tax period if such goods are for sale in the State or in the course of
    inter-state trade or commerce or in the course of export or for use
    in the manufacture, processing or packing of taxable goods for sale
    within the State or in the course of inter-state trade or commerce
    or in the course of export. Post amendment, the first proviso says
    that input tax shall not be available as input tax credit unless such
    goods are sold within the State or in the course of inter-state trade or
    commerce or in the course of export or are used in the manufacture,
    processing or packing of taxable goods for sale within the State or in
    the course of inter-state trade or commerce or in the course of export.
33. The difference in language in the said provision as it stood prior
    to amendment and post amendment is unmistakable. Prior to
    amendment, the first proviso permitted availing of input tax credit in
    respect of goods which are for sale etc. or are for use in manufacture
    etc. Post amendment, the requirement is that input tax would not
    be available as a credit unless the goods are sold within the State
    etc. or are used in the manufacture etc. of taxable goods. Post
    amendment, it is clear that no input tax would be available unless
    the goods are sold etc. or used in the manufacture etc. In other
    words, input tax credit would be available on and from the date of
    further sale or use in manufacture.
34. As we have already seen, by way of the first amendment to the Punjab
    VAT Rules, Rule 21(8) was inserted with effect from 01.02.2014 which
    made it abundantly clear that goods purchased earlier on which input
1962                                                        [2025] 2 S.C.R.

                        Supreme Court Reports


     tax was paid and which were lying in the stock of a taxable person
     would be available for input tax credit on further sale of such goods
     or using of such goods as input for manufacturing taxable goods
     etc. at the reduced rate if the rate on such tax is reduced from a
     particular date. We have also seen that the rate of tax on iron and
     steel goods was reduced with effect from 01.02.2014.
35. The question that the High Court posed for consideration was whether
    on 25.01.2024 when the notification was issued inserting sub-rule
    (8) in Rule 21, the Punjab VAT Act empowered the State to notify
    such a rule. High Court analysed the provision of Rule 21(8) of the
    Punjab VAT Rules in the following manner:
           A perusal of Rule 21(8) of the Rules reveals that with
           respect to goods lying in stock the input tax credit already
           earned shall be admissible at the reduced rate i.e. the
           rate of taxation prevalent on the date of their sale. As
           referred to above, the rate of taxation was reduced from
           4% to 2% from 25.01.2014. The input tax credit already
           earned would, therefore, be available with respect to
           goods lying in stock at 2%. The petitioner-members,
           as is apparent from the facts, had paid tax @ 4% while
           purchasing the goods and had earned input tax credit @
           4%.The goods having been purchased for resale within
           the State of Punjab, the right to avail input tax credit @
           4% per annum stood crystalised as a determinate right
           subject to availing this right during the return period or by
           carrying it forward. The State, however, by enacting Rule
           21(8) of the Rules, has reduced the admissible amount
           of input tax credit already earned from 4% to 2%.We
           cannot possibly dispute the legislative competence of the
           State in the exercise of its power of delegated legislation
           to enact such a rule but the question, as we have also
           noticed, is not the legislative competence of the State
           but is whether on 25.01.2014 there was any provision in
           the statute that empowered the State of Punjab to notify
           Rule 21(8) of the Rules to provide that goods that have
           already earned input tax credit would avail input tax credit
           at the reduced rate of taxation applicable on the date of
           sale thereby reducing input tax credit already earned on
[2025] 2 S.C.R.                                                              1963

            State of Punjab & Ors. v. Trishala Alloys Pvt. Ltd.


            goods lying in stock by reference to the reduced rate of
            tax prevalent on the date of their sale etc.
     35.1. However, High Court noted that as on 25.01.2014, there was
           no provision in the statute that empowered the State to enact
           a rule to provide that input tax credit already earned on goods
           lying in stock could now be availed at the reduced rate as
           the rate of tax on the goods in question stood reduced in the
           interregnum. Such a power came to be conferred only after
           the first proviso to Section 13(1) was amended on and from
           01.04.2014. It was in that context, High Court held as follows:
                    The amendment in the first proviso to Section 13 of
                    the Act introducing the words “are sold” etc. came
                    into effect on 01.04.2014. The State of Punjab was,
                    therefore, empowered in the exercise of its power
                    of delegated legislation to notify a rule linking the
                    availing of input tax credit already earned to their
                    sale on 01.04.2014. Rule 21(8) of the Rules which
                    resonates the first proviso to Section 13 of the Act by
                    linking the availing of input tax credit to goods sold
                    and thereby to the reduced rate of taxation, came
                    into effect on 25.01.2014 on which date there was no
                    statutory provision enabling the State, in the exercise
                    of its power of delegated legislation, to notify a rule
                    that input tax credit would be “availed” on the sale
                    of goods lying in stock or their manufacture etc. by
                    reference to the reduced rate of taxation prevalent
                    at the time of “sale/manufacture” etc. of goods that
                    had already earned a determinate amount of input
                    tax credit.
     35.2. Allowing the writ petition High Court held that in the absence
           of any provision in the statute enabling the State of Punjab
           to notify Rule 21 (8) with effect from 25.01.2014, the said
           provision would come into effect only from 01.04.2014 i.e. the
           date of coming into force of the amended provision of Section
           13(1) along with the first proviso thereto. High Court further
           observed that the said provision i.e. amended first proviso to
           Section 13(1) was not retrospective and held as under:
1964                                                     [2025] 2 S.C.R.

                        Supreme Court Reports


                We, therefore, have no hesitation in holding that
                on the date of introduction of sub-rule (8) of Rule
                21 of the Rules, the State did not possess any
                power, emanating from the Act, to confine the
                availing of input tax credit to the reduced rate of
                tax on the stock in trade i.e. transactions that had
                concluded with the dealer already earning input tax
                credit. A further perusal of the amendment in the
                first proviso to Section 13 of the Act reveals that
                it is not retrospective but applies to transactions
                after 25.01.2014. The amendment in the rule,
                which came into effect prior to the amendment of
                the Act could, therefore, not be enforced by the
                respondents before 01.04.2014 to take away a
                vested right already determined without statutory
                sanction.
                We, therefore, allow the writ petitions and hold
                that in the absence of any provision in the statute
                enabling the State of Punjab to notify Rule 21(8)
                of the Rules w.e.f. 25.01.2014, the said provision
                would come into effect from 01.04.2014.
36. According to us, view taken by the High Court is logical and correct.
    A taxable person who had stock in trade as on 25.01.2014 or as on
    01.02.2014 had already paid the tax while making the purchase of
    such goods. In this case, the purchase was made by paying higher
    rate of tax on iron and steel goods to be used as input for the
    purpose of manufacture etc. of taxable goods. The taxable person
    who is otherwise entitled to avail input tax credit on the goods
    already purchased and lying in stock would suffer serious prejudice
    and loss if his entitlement to input tax credit are reduced by virtue
    of lowering of the rate of tax on such goods on a subsequent date.
    High Court has noted that the enabling provision in the statute came
    into effect on and from 01.04.2014 and, therefore, Rule 21(8) of the
    Punjab VAT Rules which permits application of the reduced rate
    of tax cannot be given effect to transactions which already stood
    concluded prior thereto. It could only be applied to transactions on
    and from 01.04.2014.
[2025] 2 S.C.R.                                                             1965

             State of Punjab & Ors. v. Trishala Alloys Pvt. Ltd.


37. In Eicher Motors Limited Vs. Union of India1, a three-Judge Bench
    of this Court examined the challenge to the validity and application
    of the scheme as modified by way of introduction to Rule 57(F) of
    the Central Excise Rules, 1944 under which credit which was lying
    unutilised as on 16.03.1995 with the manufacturers stood lapsed in
    the manner set out therein. While examining the above issue, this
    Court held that if on the inputs, the assessee had already paid the
    taxes on the basis that when the goods are utilised in the manufacture
    of further products as inputs thereto then the tax on these goods
    gets adjusted which are sold subsequently. Thus, a right accrued to
    the assessee on the date when he paid the tax on the raw material
    or the input would continue until the facility available thereto gets
    worked out or until those goods existed. The impugned rule cannot
    be applied to the goods manufactured prior to the date it came into
    force i.e. 16.03.1995 on which duty had been paid and credit facility
    thereto has been availed of for the purpose of manufacture of further
    goods. This Court held as under:
            6. We may look at the matter from another angle. If on the
            inputs, the assessee had already paid the taxes on the
            basis that when the goods are utilised in the manufacture
            of further products as inputs thereto then the tax on these
            goods gets adjusted which are finished subsequently.
            Thus a right accrued to the assessee on the date when
            they paid the tax on the raw materials or the inputs and
            that right would continue until the facility available thereto
            gets worked out or until those goods existed. Therefore, it
            becomes clear that Section 37 of the Act does not enable
            the authorities concerned to make a rule which is impugned
            herein and, therefore, we may have no hesitation to hold
            that the Rule cannot be applied to the goods manufactured
            prior to 16.03.1995 on which duty had been paid and
            credit facility thereto has been availed of for the purpose
            of manufacture of further goods.
38. Sedco Forex International Drill INC.Vs. Commissioner of Income
    Tax, Dehradun2, is a case where this Court reiterated the well


1   (1999) 2 SCC 361
2   (2005) 12 SCC 717
1966                                                         [2025] 2 S.C.R.

                          Supreme Court Reports


     settled principle of tax law that the law to be applied is that which is
     in force in the relevant assessment year unless otherwise provided
     expressly or by necessary implication. In so far an explanation to a
     statutory provision is concerned if it is clarificatory in nature then the
     explanation must be read into the main provision with effect from the
     time the main provision came into force. But if it changes the law, it
     is not to be presumed to be retrospective. Para 17 of the aforesaid
     decision reads as follows:
            17. As was affirmed by this Court in CIT Vs. Goslino Mario3,
            a cardinal principle of the tax law is that the law to be
            applied is that which is in force in the relevant assessment
            year unless otherwise provided expressly or by necessary
            implication. (See also Reliance Jute and Industries Ltd. Vs.
            CIT4). An Explanation to a statutory provision may fulfil the
            purpose of clearing up an ambiguity in the main provision
            or an Explanation can add to and widen the scope of the
            main section (See Sonia Bhatia Vs. State of U.P.5). If it
            is in its nature clarificatory then the Explanation must be
            read into the main provision with effect from the time that
            the main provision came into force (See Shyam Sunder
            Vs. Ram Kumar6, Brij Mohan Das Laxman Das Vs. CIT7
            and CIT Vs. Podar Cement (P) Ltd.8). But if it changes the
            law, it is not presumed to be retrospective, irrespective of
            the fact that the phrases used are “it is declared” or “for
            the removal of doubts”.
39. This Court in Commissioner of Central Excise, Patna Vs. New
    Swadeshi Sugar Mills9, agreed with the interpretation given by the
    Customs Excise and Service Tax Appellate Tribunal to Rule 6 of the
    CENVAT Credit Rules, 2002 by holding that CENVAT credit which
    was already earned by the assessee could not have been taken
    away if the rigors of Rule 6 would be having only prospective effect.


3   (2000) 10 SCC 165
4   (1980) 1 SCC 139
5   (1981) 2 SCC 585
6   (2001) 8 SCC 24
7   (1997) 1 SCC 352
8   (1997) 5 SCC 482
9   (2016) 1 SCC 614
[2025] 2 S.C.R.                                                       1967

              State of Punjab & Ors. v. Trishala Alloys Pvt. Ltd.


40. Again in the case of Jayam and Company Vs. Assistant Commissioner10,
    this Court in the context of Section 19(20) of the Tamil Nadu Value
    Added Tax Act, 2006, which was inserted in the statute vide the
    amendment brought about by the Amendment Act of 2010, held
    that the said provision was made for the first time to the detriment
    of the dealers lowering the rate of input tax credit on resale. Such
    a provision therefore cannot have retrospective effect more so
    when vested right had accrued in favour of the dealers in respect of
    purchase and sale made prior to insertion of the aforesaid provision.
41. Applying the principles culled out from the above decisions to the
    facts of the present case, we find that respondent had earned
    input tax credit on purchase of iron and steel goods which it kept
    as its stock in trade to be used as inputs or raw materials in the
    manufacture etc. of taxable goods. State lowered the rate of tax with
    effect from 01.02.2014 on those goods. The related amendments in
    the rules i.e. Rule 21(8) of the Punjab VAT Rules were notified on
    25.01.2014 to come into effect from 01.02.2014. There was however
    no corresponding provision in the parent statute i.e. Punjab VAT Act
    which permitted availing of input tax credit at the lower rate of tax
    on the existing stock in trade though the purchase of such input was
    already made at a higher rate of tax thereby reducing the quantum
    of credit. The enabling provision in the statute i.e. first proviso to
    Section 13(1) of the Punjab VAT Act came into force with effect from
    01.04.2014.
      41.1. The benefit of input tax credit is traceable to the statute. If
            the same has to be reduced, which will have an adverse civil
            consequence upon the beneficiary, it must have the requisite
            statutory sanction. In this case, the statutory sanction came on
            and from 01.04.2014 with the amendment of the first proviso
            to Section 13(1) of the Punjab VAT Act. Therefore, the High
            Court was justified in holding that prior to 01.04.2014, there
            was no statutory sanction to allow applicability of Rule 21(8)
            on the stock in trade i.e. on inputs already purchased for which
            transactions stood concluded at a higher rate of tax.
      41.2. This issue can also be looked at from another angle. As we
            have seen, under sub-section (9) of section 13, a person is


10   (2016) 15 SCC 125
1968                                                               [2025] 2 S.C.R.

                              Supreme Court Reports


               under a mandate to reverse input tax credit availed by him on
               goods which could not be used for the purposes specified in
               sub-section (1) of Section 13 of the Punjab VAT Act or which
               remained in stock at the time of closure of business. If the
               interpretation sought to be given to Rule 21(8) of the Punjab
               VAT Rules by the State is accepted, the natural corollary would
               be that reversal of input tax credit would be at the lower rate
               of tax on the goods in question when those goods could not
               be used for the purposes specified in Section 13(1) or which
               remained as part of the stock in trade at the time of closure
               of business. Such an interpretation besides being fallacious,
               would also lead to revenue loss for the State exchequer.
42. Thus, having regard to the discussions made above we are of the
    unhesitant view that the interpretation given by the High Court to
    the applicability of Rule 21(8) of the Punjab VAT Rules read with the
    amended first proviso to sub-section (1) of Section 13 of the Punjab
    VAT Act is legally sound and warrants no interference. Consequently,
    we find no merit in the appeal which is accordingly dismissed.
43. Resultantly, and in view of the above, all the appeals are dismissed.
    However, there shall be no order as to cost.

     Result of the case: Appeals dismissed.




     †
         Headnotes prepared by: Niti Richhariya, Hony. Associate Editor
                                 (Verified by: Shibani Ghosh, Adv.)