Strict compliance of law to claim Input tax credit / Cenvat Credit / Exemption

The benefit of ITC / CCR / exemption is available only assesee satisfies the eligibility criteria and for that purpose the provision must be strictly construed. If exemption is available on complying with certain conditions, the conditions have to be mandatorily complied with. 

In (2011) [Commissioner of Central Excise v. Hari Chand Gopal], the Hon’ble Supreme Court held as under:-

1. The law is well settled that a person who claims exemption or concession has to establish that he is entitled to that exemption or concession. 

2. A provision providing for an exemption, concession or exception, as the case may be, has to be construed strictly with certain exceptions depending upon the settings on which the provision has been placed in the statute and the object and purpose to be achieved. 

3. If exemption is available on complying with certain conditions, the conditions have to be complied with. The mandatory requirements of those conditions must be obeyed or fulfilled exactly, though at times, some latitude can be shown, if there is a failure to comply with some requirements which are directory in nature, the non-compliance of which would not affect the essence or substance of the notification granting exemption.

For example

1. The entire design of VAT with Input Tax Credit is crucially based on documentation of tax invoice, cash memo or bill. 

2. There is a statutory obligation for every registered dealer having turnover of sales above the amounts specified to issue a tax invoice serially numbered containing the prescribed particulars. 

3. Failure to comply with the mandatory requirements attracts penalty. 

4. The basic simplification of VAT is that VAT liability will be self assessed by the dealer themselves in terms of submissions on returns upon setting of the credit limit. 

5. This has done away with the requirement of compulsory assessment as in the sales tax regime. 

6. The correctness of self assessment is subject to check through the departmental audit. 

If all the following conditions are strictly complied then assessee is eligible for ITC.