2014 (12) TMI 1221 - HC - VAT and Sales Tax

Validity of impugned order - Manufacturer of industrial pumps valves and its parts - Petitioner not claimed refund of ITC in form W therefore required to reverse the ITC relating to the export after deducting the tax dues within 180 days from the date of export as it had lapsed to the Government according to section 18(3) of the TNVAT Act - Held that - the assessing officer adopted a formula viz. by stating that proportionate ITC due for refund on zero rated sale. It is seen that this formula adopted by the assessing officer has been done for the first time and such formula was not adopted while issuing show-cause notice dated June 19 2014. Therefore if only the dealer had been put on notice referring proportionate ITC due for refund on zero rated sale and proposing to calculate then only the dealer would be in a position to submit his objections. If show-cause notice does not disclose the basis to such calculation then the dealer would not be in a position to know what is passing in the minds of the assessing officer and that is the reason the dealer would not object to reverse the proposal effectively. Therefore the resultant consequence would be the impugned proceedings and has travelled beyond the scope of the show-cause notice by adopting the procedure which was not disclosed to the petitioner at the time of proposal. Hence the impugned order suffers from serious procedural infirmity and the same is in violation of principles of natural justice. Validity of impugned order - Reversal of ITC under section 19(2) of the Act - Manufacturers of goods within the State and goods purchased from registered dealers which are for the purpose of use in the manufacture within the State - Demand is purely on account of the amendment to section 19(2) by Amending Act 28 of 2013 and sought to justify as to how the said amendment would not affect the petitioner - Held that - the assessing officer did not advert into any of the objections raised except to state that as per section 19(2)(v) the reversal was proposed as per the amended section; as per the section there is no exception for manufacturer. The petitioner in their objection/reply elaborately dealt with the issue relating to section 19(2)(v) and the petitioner stated that the said provision was not attracted as the Legislature has not sought to restrict the credit in respect of goods which are for the purpose of use in manufacture or processing within the State. It is seen that the petitioner would state that they being manufacturers they would fall within clause (ii) of section 19(2) i.e. inputs are for the purpose of use as input in the manufacture or processing of goods in the State. Therefore the assessing officer while dealing with second issue regarding applicability of section 19(2) did not assign any reasons. Therefore the impugned order is not valid. - Matter remanded back

Summary

Issues Involved:
Assessment under Tamil Nadu Value Added Tax Act, 2006 for the year 2013-14; Procedural fairness and natural justice in assessment proceedings; Interpretation of section 19(2) of the Act regarding reversal of Input Tax Credit (ITC).

Analysis:
1. Assessment under TNVAT Act for 2013-14:
The petitioner, a registered dealer manufacturing industrial pumps and valves, faced an issue regarding the reversal of Input Tax Credit (ITC) for export sales not claimed in Form W. The assessing officer demanded the reversal of ITC as it lapsed to the Government under section 18(3) of the TNVAT Act. The petitioner submitted detailed objections, explaining the closing input-tax credit balance and justifying their position based on the amendment to section 19(2) by Amending Act 28 of 2013. The High Court found that the assessing officer's formula for calculating ITC due for refund on zero-rated sales was not disclosed in the show-cause notice, leading to a serious procedural infirmity and a violation of natural justice principles.

2. Procedural Fairness and Natural Justice:
The High Court observed that the assessing officer's adoption of a new formula without prior notice to the petitioner went beyond the scope of the show-cause notice. This lack of disclosure hindered the petitioner's ability to object effectively, rendering the assessment procedurally flawed. The Court emphasized the importance of providing a clear basis for calculations in show-cause notices to ensure transparency and fairness in assessment proceedings.

3. Interpretation of Section 19(2) of the Act:
The assessing officer's proposal to reverse ITC under section 19(2) was challenged by the petitioner, arguing that the provision did not restrict credit for goods used in manufacturing within the State. The petitioner contended that as manufacturers purchasing goods for use in-state processing, they fell under clause (ii) of section 19(2) and should not be subject to reversal. However, the assessing officer failed to provide reasons for disregarding the petitioner's objections, leading to another flaw in the assessment order.

In conclusion, the High Court allowed the writ petition, quashed the impugned order, and remitted the matter to the respondent for fresh consideration with the grant of a personal hearing. The Court directed the respondent to address all contentions raised by the petitioner and to allow further objections if necessary, emphasizing the importance of procedural fairness and adherence to natural justice principles in assessment proceedings under the TNVAT Act.