2014 (2) TMI 1248 - HC - VAT and Sales Tax

Reversal of input-tax credit - Manufacture of wheels and air-suspension automobile components - Petitioner selling the goods in the course of inter-State trade or commerce, under section 8(1) of the Central Sales Tax Act, 1956 for which the assessing authority took a position that case would fall under clause (v) of sub-section (2) of section 19 and therefore, the proviso inserted by the amendment would apply to them and called upon the petitioner to claim the input-tax credit in excess of three per cent. and reverse the credit up to three per cent but petitioner contended that they would fall under clause (ii) of sub-section (2) of section 19 - Held that - clause (ii) deals with purchase of goods used as input in manufacturing and processing of goods in the State but clause (v) deals with sale in the course of inter-State trade or commerce. Interestingly, clause (ii) uses the expression manufacturing or processing , but not the expression sale in the course of inter- State trade or commerce . On the contrary, clause (v) uses the expression sale in the course of inter-State trade or commerce , but not the expression manufacturing or processing . If at least the expression sale had been used in clause (ii), one can conclude that clause (ii) applies only to manufacture and sale within the State. Alternatively, if at least the expression manufacture had been used in clause (v), one can conclude that clause (v) covers the manufacture and sale in the course of inter-State trade or commerce and not manufacture and sale within the State. But, both these clauses omit the expressions essential for the interpretation that the parties want to view to the proviso to clause (v). While the petitioner wants to read into clause (ii), the expression sale , the respondent wants to read into clause (v), the expression manufacture . Therefore, if one is wrong, the other is also wrong and if one is right, the other should also be right. So, to come up from this confusion, the application has to be made to Advance Ruling Authority which the appellant has already and rightly made and the respondent ought to have waited for the decision of Advance Ruling Authority. Since the respondent did not wait, the petitioner is justified in coming up before this court.Therefore, the impugned orders suffer from non application of mind and are liable to be set aside. - Matter remitted back

Summary

Issues:
Challenge to reversal of input-tax credit pending advance ruling application before authority.

Analysis:
The petitioner, engaged in manufacturing automobile components, claimed input-tax credit under the Tamil Nadu Value Added Tax Act, 2006, for goods purchased. The dispute arose due to an amendment inserting a proviso under section 19(2)(v) of the Act, leading to notices threatening to reverse the credit. The petitioner objected, but the respondent overruled and issued orders. The petitioner contended their case fell under clause (ii) and not (v) of section 19(2). A crucial distinction was noted between the expressions used in these clauses, with clause (ii) focusing on manufacturing inputs and clause (v) on inter-State sales. The petitioner sought clarification from the Advance Ruling Authority, but the respondent proceeded with enforcement, prompting the writ petitions.

The judgment highlighted the ambiguity in the statutory language and the conflicting interpretations by the parties. It emphasized the necessity of an advance ruling in such complex cases to ensure proper legal clarity. The court criticized the respondent for not awaiting the ruling before taking action, leading to a lack of reasoned decision in the impugned orders. Consequently, the court allowed the writ petitions, set aside the orders, and remitted the matter to the respondent for a fresh decision post the advance ruling. The Advance Ruling Authority was directed to provide a ruling within four weeks, and the respondent was instructed to reconsider the matter based on the ruling. The judgment underscored the importance of legal clarity and proper application of mind in tax matters to avoid arbitrary decisions.

In conclusion, the judgment focused on the need for clarity in interpreting tax laws, especially in cases involving complex provisions. It stressed the importance of seeking advance rulings to resolve legal ambiguities and criticized the respondent for premature enforcement actions. The court's decision to remit the matter for a fresh decision post the advance ruling aimed at ensuring a well-informed and reasoned outcome. The judgment highlighted the significance of proper legal interpretation and the role of advance rulings in resolving tax disputes effectively.