2016 (5) TMI 1274 - HC - VAT and Sales Tax

Input tax credit - proposal to revise the audit assessment order and disallow input tax credit on the ground that the registration certificate of M/s. Om Incorporation, who was one of the vendors of the petitioner, had been cancelled with retrospective effect. - Held that - input tax credit cannot be denied to a party in the absence of the Department having established that the transactions in question are not genuine or that they are bogus etc. In the facts of the present case as emerging from the record, no such material has been brought on record by the respondent. In the facts of the present case, the revisional authority had initiated the revision proceedings by calling upon the petitioner to show-cause as to why the input tax credit on the purchases made by it from M/s. Om Incorporation for the period after 1st January, 2007 should not be disallowed. The petitioner, at no point of time, was called upon to establish the genuineness of such transactions or to produce any documentary evidence in support of such transactions. In the facts of the present case, when the authorities below have not called upon the petitioner to establish the genuineness of the transactions, in the opinion of this court, the Tribunal was not justified in brushing aside the documentary evidence produced by the petitioner by stating that the same had been subsequently created - Credit cannot be denied - Decided in favor of assessee.

Issues Involved:

1. Jurisdiction of the revisional authority under Section 75 of the GVAT Act.
2. Validity of the disallowance of input tax credit based on the cancellation of the vendor's registration.
3. Genuineness of the transactions between the petitioner and M/s. Om Incorporation.
4. Applicability of Section 11(5)(mmmm) of the GVAT Act.
5. Legality of the Tribunal's reliance on extraneous material and previous decisions.

Detailed Analysis:

1. Jurisdiction of the Revisional Authority:

The petitioner contended that the revisional proceedings were initiated based on material extraneous to the record, which is not permissible under Section 75 of the GVAT Act. The court noted that the revisional authority could only examine the record of the order passed by the subordinate officer and not rely on new material. The proceedings were initiated based on the cancellation of M/s. Om Incorporation's registration, which was not part of the original assessment record. The court referred to the Supreme Court's decision in *State of Kerala v. K.M. Cheria Abdulla and Co.*, emphasizing that the revisional authority cannot travel beyond the record of the order passed by the subordinate officer. Thus, the very initiation of the revisional proceedings was deemed without jurisdiction.

2. Validity of the Disallowance of Input Tax Credit:

The petitioner argued that the input tax credit could not be disallowed merely because the vendor's registration was canceled retrospectively. The court observed that under Section 11(5)(mmmm) of the GVAT Act, input tax credit can only be disallowed after the publication of the dealer's name under Section 27(11) or Section 97. The court highlighted that the petitioner was not aware of the cancellation at the time of the transactions and had acted in good faith. Therefore, the disallowance of input tax credit based solely on the retrospective cancellation of the vendor's registration was not justified.

3. Genuineness of the Transactions:

The revisional authority and the Tribunal concluded that the transactions between the petitioner and M/s. Om Incorporation were not genuine, alleging that the vendor was involved in issuing bills without actual delivery of goods. However, the petitioner was not called upon to prove the genuineness of the transactions during the revision proceedings. The court found that the Tribunal had relied on extraneous material and previous findings from another case, which was not appropriate. Each case must be decided on its own facts, and the Tribunal's reliance on material from another proceeding was contrary to legal norms.

4. Applicability of Section 11(5)(mmmm) of the GVAT Act:

The court noted that Section 11(5)(mmmm) disallows input tax credit for purchases made from a dealer after the publication of the dealer's name under Section 27(11) or Section 97. The petitioner had made purchases before the publication of the cancellation, and there was no evidence to suggest that the transactions were not genuine. The court emphasized that input tax credit cannot be denied merely because the vendor's registration was canceled retrospectively, without establishing that the transactions were fictitious or non-genuine.

5. Legality of the Tribunal's Reliance on Extraneous Material and Previous Decisions:

The Tribunal relied on departmental correspondence and findings from another case to conclude that the transactions were not genuine. The court held that reliance on material not part of the original record and findings from another case was improper. The Tribunal should have based its decision solely on the material before the subordinate officer and the specific facts of the petitioner's case.

Conclusion:

The court allowed the petition, quashed the Tribunal's order to the extent it confirmed the additional tax liability and interest, and held that the petitioner was entitled to input tax credit on purchases made from M/s. Om Incorporation. The court ruled that the initiation of revisional proceedings was without jurisdiction, and the disallowance of input tax credit was not justified based on the retrospective cancellation of the vendor's registration. The Tribunal's reliance on extraneous material and previous decisions was also deemed improper.

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