VAT - There is difference between exempted goods, i.e., goods on which no Value Added Tax is payable and are, therefore, not taxable and other cases where particular transaction, when it satisfies specific condition, is not taxable - Input Tax Credit correctly allowed : SC

It can be seen that in case of exemption to goods iteself, all subsequent sales being exempted tax cost in the form of itc reversal would be same with all the manufacturer.

Howeever, in case of exemption to particular transaction, if itc reversal is there(as proposed by department)tax cost in the form of itc recersal will be there say Rs. X, and all subsequent sales being taxable, eventhough credit of previous input is available the initial ITC reversal would amount to cost at each stage, whereas if same product if purchased from the manufacturer whoes transaction is not exempted then there being no ITC reversal the tax cost would be NIL against that of Rs. X if purchased from exempted manufacturer. This would make the exempted transaction costly by Rs. X.

This would not be there if ITC reversal is not there(As done by Honourable SC).

So, in case of exempted Goods, cost of all manufacturer would be same, because all manufacturers are required to revers ITC, in same line in case of exempted transaction, when ITC is not reversed, Tax cost of all the manufacturer would be same. Only then exemption to goods and Exemption to Transactions would be on same footing.

Regards.

Anand Chauhan 25/11/2015