Holding

A dealer whose sales are exempt under section 7(c) is statutorily barred from claiming input tax credit under section 13(7) of the Uttar Pradesh Value Added Tax Act, 2008.

Summary

Neha Enterprises, a registered dealer under the Uttar Pradesh Value Added Tax Act, 2008, claimed an input tax credit of Rs. 6,42,260 for purchases related to sales made to a manufacturer‑exporter under Form‑E for the assessment year 2010‑11. The assessing officer initially allowed the credit but later disallowed it under section 28, invoking section 13(7) which bars input tax credit where the sale is exempt under section 7(c). The dealer appealed, arguing that the exemption was intended to promote exports and that section 13(1) should permit the credit. The courts below upheld the disallowance, holding that the notification under section 7(c) expressly exempts such sales and that section 13(7) imposes a statutory embargo on credit in these cases. The Supreme Court affirmed this view, emphasizing the clear language of section 13(7) over policy considerations, and dismissed the appeal.

Issues considered

Whether a dealer whose sales to a manufacturer‑exporter are exempt under section 7(c) of the Uttar Pradesh Value Added Tax Act, 2008, is entitled to claim input tax credit on the purchase tax paid.
Whether section 13(7) of the Act overrides the dealer's argument that section 13(1) should allow the credit despite the exemption.

Legislation cited

Uttar Pradesh Value Added Tax Act, 2008s. 13(1), s. 13(7), s. 28, s. 59, s. 7(c)

Headnote

Issue for Consideration Matter pertains to disallowance of the input tax credit claimed by the dealer. Whether the assessing officer correctly held that the dealer is not entitled to input tax credit for the purchase tax paid by him on the sales turnover made in favour of Value Added Tax Act, 2008 – s.7(c) and s.13(7) – The appellant-dealer claimed an input tax credit amounting to Rs. 6,42,260/- – The assessing officer, at the first instance, allowed input tax to the extent of Rs. 6,42,260/- – Subsequently, the assessing officer vide order

Subjects

Input tax creditInput tax credit for the purchase taxSection 7(c) of the Uttar Pradesh Value Added Tax Act, 2008Section 13(7) of the Uttar Pradesh Value Added Tax Act, 2008Statutory mandateCollection of taxExemption from taxProhibition from allowing input tax creditLevying of tax

Judgment

[2025] 5 S.C.R. 475 : 2025 INSC 476

Neha Enterprises
v.
Commissioner, Commercial Tax, Lucknow, Uttar Pradesh
(Civil Appeal No. 6553 of 2016)
09 April 2025
[Pankaj Mithal and S.V.N Bhatti,* JJ.]

Issue for Consideration
Matter pertains to disallowance of the input tax credit claimed by
the dealer. Whether the assessing officer correctly held that the
dealer is not entitled to input tax credit for the purchase tax paid
by him on the sales turnover made in favour of the manufacturer-
exporter.

Headnotes†
Uttar Pradesh Value Added Tax Act, 2008 – s.7(c) and s.13(7) –
The appellant-dealer claimed an input tax credit amounting
to Rs. 6,42,260/- – The assessing officer, at the first instance,
allowed input tax to the extent of Rs. 6,42,260/- – Subsequently,
the assessing officer vide order dated 22.02.2013 made u/s.28
of the Act disallowed the claim of an input tax credit of
Rs.6,42,260/- – Courts below concurrently denied the reliefs
to the appellant herein – Correctness:
Held: The admitted circumstances are that the subject turnover
of Rs. 1,89,35,100/- has been brought within the fold of section
7(c) of the Act read with notifications dated 24.02.2010 and
25.03.2010 – The consequence of such treatment is that the
dealer was unable to sell the goods to the manufacturer-exporter
without collecting the tax from the said manufacturer-exporter –
For the said turnover, the dealer claims an input tax credit on
the purchase tax paid by the dealer – Plainly interpreting and
applying section 7(c) provides that no tax under the Act shall
be levied and paid on the turnover of sale or purchase of such
goods by such class of dealers as may be specified in the
notification – The said exemption applies to the goods and also
to the class of dealers who satisfy the conditions and fall within

* Author
476 [2025] 5 S.C.R.

Supreme Court Reports

the notification issued under section 7(c) of the Act – Similarly,
the scheme of availing input tax credit is determined by section
13 of the Act – Section 13(1) provides for allowing credit of an
amount as input tax credit to the extent provided by or under the
relevant clause to which the applicable condition is attracted – If
the purchased goods are resold in the course of exporting the
goods out of India, then the full amount of input tax credit can be
claimed – Section 13(7) outlines the circumstances under which
such a benefit cannot be allowed – Section 13(7) also sets out
that no facility for input tax credit shall be allowed to a dealer
with respect to the purchase of any goods where the sale of
such goods by the dealer is exempt from tax under Section 7(c)
of the Act – The prohibition from allowing input tax credit is a
statutory mandate, and the view taken by the orders impugned,
in the facts and circumstances of this case, is available and
correct. [Paras 9 and 10]

List of Acts
Uttar Pradesh Value Added Tax Act, 2008.

List of Keywords
Input tax credit; Input tax credit for the purchase tax; Section 7(c)
of the Uttar Pradesh Value Added Tax Act, 2008; Section 13(7) of
the Uttar Pradesh Value Added Tax Act, 2008; Statutory mandate;
Collection of tax; Exepmtion from tax; Prohibition from allowing
input tax credit; Levying of tax.

Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6553 of 2016
From the Judgment and Order dated 24.11.2014 of the High Court
of Judicature at Allahabad in CTR No. 713 of 2013

Appearances for Parties
Advs. for the Appellant:
Udayan Jain, Ms. Kajal Sharma, Ranjan Mishra, Ms. Geetika Vyas,
Harsh Jaiswal, Ms. Amiti Gupta, Sonal Jain.
Advs. for the Respondent:
Bhakti Vardhan Singh.
[2025] 5 S.C.R. 477

Neha Enterprises v.
Commissioner, Commercial Tax, Lucknow, Uttar Pradesh

Judgment / Order of the Supreme Court

Judgment

S.V.N. Bhatti, J.

1. The appellant is a registered dealer under the Uttar Pradesh Value
Added Tax Act, 2008 (for short, ‘the Act’). The subject matter of
the appeal relates to the turnover returns filed by the dealer for the
assessment year 2010-11. The dealer recorded sales against the
issuance of Form-E to the manufacturer-exporter, amounting to Rs.
1,89,35,100/-. The dealer claimed an input tax credit amounting to
Rs. 6,42,260/-. The assessing officer, at the first instance, allowed
input tax to the extent of Rs. 6,42,260/-. Subsequently, the assessing
officer vide order dated 22.02.2013 made under section 28 of the
Act disallowed the claim of an input tax credit of Rs. 6,42,260/-. In
the instant appeal, we are concerned with the disallowance of the
input tax credit claimed by the dealer.
2. The assessing officer in the assessment order, passed under section
28 of the Act, put the dealer on notice to hold that the dealer is not
entitled to input tax credit for the purchase tax paid by him on the
sales turnover made in favour of the manufacturer-exporter. The
dealer explained that the case of input tax claimed by the dealer falls
within the scope of section 13(1) of the Act. Even though the subject
turnover falls within the ambit of section 7(c) of the Act, the proviso
or exception covered by section 13(7) of the Act is not attracted.
The assessing officer noted that the subject sales or the subject
turnover made against Form-E was accepted by the department.
The exemption from payment of tax shall not be levied and paid on
the turnover of sales or purchase of such goods by such class of
dealers as may be specified in the notification issued on this behalf.
The notifications dated 24.02.2010 and 25.03.2010 covered the
procedure for dealing with the turnover falling within section 7(c) of
the Act. Therefore, the input tax benefit is provided in accordance
with the scheme outlined in section 13 of the Act. Section 13(7) is
a proviso, and the said proviso stipulates that a transaction covered
by section 7(c) of the Act is not entitled to input tax credit. Extending
input tax credit in terms of section 13(1) of the Act would be contrary
to sections 7(c) and 13(1) on the one hand and 13(7) of the Act on
the other.
478 [2025] 5 S.C.R.

Supreme Court Reports

3. The dealer filed an appeal before the additional commissioner,
and the first appellate authority vide order dated 22.07.2013
dismissed the appeal. The gist of the first appellate authority’s
findings is that the notification dated 24.02.2010 corresponds to
section 7(c) of the Act. The notification exempts the direct sale
of raw materials and spare parts to manufacturer-exporters from
tax upon filing Form-E. The notification does not provide input tax
credit facility to sellers having tax-exempted sales made in favour
of manufacturer-exporters. Section 13(7) constitutes an embargo,
and once it is not disputed by the dealer that no tax turnover was
recorded vis-à-vis the subject matter of the appeal, section 7(c) of
the Act is attracted, and the consequential effect is that the dealer is
not entitled to input tax credit. The order of the assessing authority
was upheld in the second appeal filed by the dealer before the
Tribunal of Commercial Tax, Meerut, Uttar Pradesh (“the Tribunal”),
vide order dated 10.09.2013. The Tribunal, in the admitted facts
and circumstances of the case, confirmed the view taken by the
assessing officer and the first appellate authority. The Tribunal, in
its fine reasoning, culminated in the conclusion that section 13(1)
(a) provides for which traders’ input tax credit shall be allowed. The
appellant’s argument that input tax credit will not be allowed until
section 13(1)(a) is amended is legally untenable, as it has been
stipulated in section 13(7) that input tax credit will not be allowed
in a few instances. Notifications no. 247 dated 24.02.2010 under
section 7(c), circular dated 25.03.2010 issued by the commissioner
of commercial tax and the order of the commissioner of commercial
tax under section 59 dated 30.04.2010, are related to providing
facilities to exporters. In these circulars, no facility has been given
to the exporter-sellers. It is clear from section 13(7) that if any
notification has been issued under section 7(c), then no facility
of input tax credit will be allowed to the selling dealer. Hence, the
law is against the appellant, and the action of the assessing officer
regarding the reversal of input tax credit is justified.
4. The dealer filed a revision before the High Court and, through an
order dated 24.11.2014, the revision was dismissed. The operative
portion of the order impugned reads thus:
“Bare reading of the provisions of Section 13(7) clearly
reveals that the applicant was ·not entitled for the input
tax credit with respect to the sale of goods exempted
[2025] 5 S.C.R. 479

Neha Enterprises v.
Commissioner, Commercial Tax, Lucknow, Uttar Pradesh

under Section 7(c) of the Act. Tribunal has considered the
facts of the case and held that in view of the provisions
of Section 13(7) of the Act, the applicant was not entitled
for input tax credit.
Under the facts and circumstances of the present case,
the input tax credit was lawfully reversed by the Assessing
Authority. I find no infirmity in the impugned order of the
Tribunal. Question of law is answered in favour of the
revenue and against the assessee.”
5. Hence, the Civil Appeal.
6. Mr. Udayan Jain, learned Counsel for the appellant, contends that
the denial of input tax credit is prima facie illegal and unsustainable.
The notification under section 7(c) of the Act read in the context
of policy would show that the notification has been issued to
encourage manufacturer-exporters in the State of Uttar Pradesh.
The exemption from tax to the manufacturer-exporter, if, on the one
side, promotes trade and commerce, denial of input tax credit to
the seller/dealer, on the other hand, would be counterproductive to
the very policy of the State Government. Section 13(7) should be
read by appreciating its intent, and the input tax credit should not
be denied by applying section 7(c) and the notifications issued. The
argument, however, has been presented in a different perspective.
The emphasis of the argument is to read section 7(c) in conjunction
with section 13(1) and grant an input tax credit to the dealer. The
turnover against Form-E filing has not been properly appreciated
by all the authorities.
7. Mr. Bhakti Vardhan Singh, learned Counsel appearing for the
respondent, contends that the case of the dealer falls under section
7(c) read with the notifications dated 24.02.2010 and 25.03.2010. The
dealer, by filing Form-E, recorded a turnover of Rs. 1,89,35,100/-.
The dealer, therefore, is disentitled to input tax credit by operation
of section 13(7). It is pointed out that input tax credit is available
strictly as per the expression. In the interpretation of taxing statutes,
intent does not form the guiding principle. There is no ambiguity
in preferring an interpretation that is favourable to the dealer. The
expression is clear, and the findings, both in law and fact, recorded
by the courts below, do not warrant interference under Article 136
of the Constitution of India.
480 [2025] 5 S.C.R.

Supreme Court Reports

8. We have heard the learned Counsel and perused the record.
9. To avoid repetition, we have set out the gist of the reasoning and
the conclusion of the authorities under the Act and the High Court.
The admitted circumstances are that the subject turnover of Rs.
1,89,35,100/- has been brought within the fold of section 7(c) of
the Act read with notifications dated 24.02.2010 and 25.03.2010.
The consequence of such treatment is that the dealer was unable
to sell the goods to the manufacturer-exporter without collecting the
tax from the said manufacturer-exporter. For the said turnover, the
dealer claims an input tax credit on the purchase tax paid by the
dealer. The entitlement is appreciated through the following schematic
excerption and consideration of the sections, notifications and the
exception in section 13(7):
“Section 7. Tax not to be levied on certain sales and
purchases- No tax under this Act shall be levied and paid
on the turnover of
(a) xxx xxx xxx
(b) xxx xxx xxx
(c) such sail or purchase; or sale or purchase of such
goods by such class of dealers, as may be specified
in the notification issued by the State Government
in this behalf”
“Section 13. Input tax credit- (1) Subject to provisions of
this Act, dealers referred to in the following clauses and
holding valid registration certificate under this Act, shall, in
respect of taxable goods purchased from within the State
and mentioned in such clauses, subject to conditions given
therein and such other conditions and restrictions as may
be prescribed, be allowed credit of an amount, as input tax
credit, to the extent provided by or under the relevant clause.
(d) Subject to conditions given in column (2), every dealer
liable to pay tax, shall, in respect of all taxable goods
except non-vat goods, capital goods and captive
power plant, where such taxable goods are purchased
on or after the date of commencement of this Act, be
allowed credit of the amount, as input tax credit, to
the extent provided in column (3) of the table below:
[2025] 5 S.C.R. 481

Neha Enterprises v.
Commissioner, Commercial Tax, Lucknow, Uttar Pradesh

TABLE

Sl. Conditions Extent of amount
No. of input tax credit

(1) (2) (3)

1. If purchased goods are re-sold- Full amount of input
(i) inside the State; or tax

(ii) in the course of inter-State
trade or commerce; or
(iii) in the course of the export of
the goods out of the territory
of India.

xxx xxx xxx
xxx xxx xxx

13(7) Except where-
(a) purchased goods; or
(b) manufactured goods which are manufactured by
using purchased goods; or
(c) packed goods which are packed by using or
consuming purchased goods.
are to be sold in the course of the export of the goods out
of the territory of India, no credit of any amount of input
tax shall be claimed by a dealer under sub-section (4) and
no facility of input tax credit shall be allowed to a dealer
in respect of purchase of any goods, where –
(i) sale of such goods by the dealer is exempt from
payment of tax under clause (c) of section 7; or
(ii) such goods are to be used or consumed in
manufacture or packing of any goods and sale of
such manufactured or packed goods by the dealer
is exempt from payment of tax either under clause
(b) or clause (c) of section 7.
(iii) such goods are for transfer of right to use such goods.”
482 [2025] 5 S.C.R.

Supreme Court Reports

Notification dated 24.02.2010
“Manufacturer-exporter of any raw materials, processing
materials consumable stores, spare parts, accessories,
components, lubricants, fuel other than petrol and diesel
and packing materials for use in the manufacture of goods
by him or in the packing of goods manufactured by him -
Turnover of direct sale to or direct purchase by - Exempt
subject to conditions.
K.A. NI.-2-247/XI-9(341)/09-U.P. Act-5-08-Order-(58)-2010

xxx xxx xxx
In the exercise of powers under clause (c) of section 7 of
the Uttar Pradesh Value Added Tax Act, 2008 (U.P. Act
No. 5 of 2008), the Governor is pleased to direct that no
tax shall be payable under the said Act, with effect from
April 01, 2010 on the turnover of direct sale to or direct
purchase by manufacturer-exporter of any raw materials,
processing materials, consumable stores, spare parts,
accessories, components, lubricants, fuel other than petrol
and diesel and packing materials for use in the manufacture
of goods by him or in the packing of goods manufactured
by him subject to the following conditions:”

xxx xxx xxx

Notification dated 25.03.2010
“OFFICE OF THE COMMISSIONER, COMMERCIAL
TAX, UTTAR PRADESH
LEGAL SECTION
LUCKNOW: DATED 25.03.2010.

xxx xxx xxx

In the above notification there is provision of presenting
declaration in prescribed form by the Commissioner in
order to take benefit of the facility for which form ‘E’ is
prescribed. By the letter of headquarter no. VAT/form-D
maintenance procedure / 2007- 2008/511/Commercial Tax
dated 14.01.2008 for the purchase of diesel oil, furnace
[2025] 5 S.C.R. 483

Neha Enterprises v.
Commissioner, Commercial Tax, Lucknow, Uttar Pradesh

oil etc. by the manufacturer form ‘D’ was prescribed
which was amended by letter no. 680/ dated 13-03-08.
Similarly to form ‘D’, form ‘E’ is prescribed in pursuance
of directions as referred in notification dated 24.02.2010
for direct sale or purchase by the manufacturer / exporters
of raw material, processing material, consumable stores,
spare parts, accessories, components, lubricants, fuel
other that petrol and diesel and packing materials for use
in manufacture of goods by him or in the packing of goods
manufactured by him. The maintenance and use this will
be done as per the directions given in the letter dated
13-03-09. Before the use of form ‘E’, the Tax Assessing
Officer will counter sign on the original copy of form ‘E’
upon affixing EE series stamps.”
10. The argument of the dealer proceeds by falling on section 13(1) of
the Act. The argument also attempts to give effect to the intention
or policy of the State Government. Plainly interpreting and applying
section 7(c) provides that no tax under the Act shall be levied and
paid on the turnover of sale or purchase of such goods by such class
of dealers as may be specified in the notification. The said exemption
applies to the goods and also to the class of dealers who satisfy the
conditions and fall within the notification issued under section 7(c)
of the Act. The controversy is not over the exemption from levy and
collection of tax between the dealer and the department, since the
subject turnover falls admittedly under section 7(c) of the Act, read
with notifications dated 24.02.2010 and 25.03.2010. The said admitted
position takes us to the entitlement or eligibility of the dealer for the
input tax credit. It is axiomatic, particularly in tax jurisprudence, that
distinct concepts, such as taxable persons, taxable goods and taxable
events, are established for levying and collecting the tax. Similarly,
the scheme of availing input tax credit is determined by section 13
of the Act. Section 13(1) provides for allowing credit of an amount as
input tax credit to the extent provided by or under the relevant clause
to which the applicable condition is attracted. If the purchased goods
are resold in the course of exporting the goods out of India, then the
full amount of input tax credit can be claimed. Section 13(7) outlines
the circumstances under which such a benefit cannot be allowed.
Section 13(7) also sets out that no facility for input tax credit shall
be allowed to a dealer with respect to the purchase of any goods
484 [2025] 5 S.C.R.

Supreme Court Reports

where the sale of such goods by the dealer is exempt from tax under
Section 7(c) of the Act. The prohibition from allowing input tax credit
is a statutory mandate, and the view taken by the orders impugned,
in the facts and circumstances of this case, is available and correct.
In the teeth of clear expression in section 13(7) of the Act, we find
it difficult to give effect to the intent or policy made known through
notifications to grant input tax credit. The dealer availing section 7(c)
of the Act knows the extent to which the input tax credit could be
claimed. Hence, the Civil Appeal fails, and is accordingly dismissed.
There shall be no order as to costs. Pending applications, if any,
shall stand disposed of.

Result of the case: Appeal dismissed.

†
Headnotes prepared by: Ankit Gyan