2015 (3) TMI 1265 - HC - VAT and Sales Tax

Principles of natural justice - The reasons mentioned in the SCN are not mentioned in the final order and the authority had arrived at a conclusion giving a totally different version for the order - The authority has failed to take into consideration that the purchaser cannot be penalised even for the non-payment of tax by the seller. Held that - the reason given in the SCN are not the same as given in the final order and it is totally different. It is against the principles of natural justice. Consequently, even assuming for a moment that if at all the petitioner has produced the transport bills and noted lorry registration numbers in Form-8, it would not definitely show the petitioner is acting against the law, when admittedly the sale was performed in the Tuticorin Port yard itself. The material imported is woods and the sale and purchase prices have been transacted through bank transactions. Therefore, the question of way-bill and lorry registration numbers does not arise, especially in view the fact that the petitioner as well as the seller both of them have got officially registered godowns in the Tuticorin Port Yard, for which details, documents have been produced to the authority concerned. This vital fact has not at all been considered by the authority. More over, it is an admitted fact that what has not been asked in the SCN cannot be a ground for passing a final order. It is for the purchaser to produce the way-bill. In this case, after the SCN, the petitioner also produced annexure-2 and thereafter, tax has been paid by the selling agent. When that has been produced as early as on 22.01.2015 along with reply, no proper explanation has been given in the order and further opportunity has not been given. The authority should have taken into consideration the tax paid by the seller and as stated supra, even as per the Rule 10(2) of the TNVAT Act, there is no violation. Since both the purchaser and the seller have godowns in Tuticorin Port yard itself, the question of producing way-bill and noting of lorry registration numbers does not arise at all. Petition allowed - decided in favor of petitioner.

Summary

Issues Involved:

1. Violation of principles of natural justice due to discrepancies between the show-cause notice and the final order.
2. Incorrect penalization of the purchaser for the non-payment of tax by the seller.

Issue-Wise Detailed Analysis:

1. Violation of Principles of Natural Justice:

The petitioner contended that the reasons mentioned in the show-cause notice were not the same as those in the final order, which constitutes a violation of the principles of natural justice. The show-cause notice did not mention the requirement for a way-bill, whereas the final order rejected the claim based on the non-production of way-bills. This discrepancy deprived the petitioner of the opportunity to address the specific grounds for rejection, thus violating natural justice principles. The court emphasized that any new grounds for rejection not mentioned in the show-cause notice cannot form the basis for the final order.

2. Incorrect Penalization of the Purchaser:

The petitioner argued that the purchaser should not be penalized for the seller's failure to pay the tax. According to the petitioner, the necessary documents, including the way-bill and payment evidence, were produced as per Rule 10 of the TNVAT Act. The court noted that the sale and purchase were conducted within the Tuticorin Port yard, where both parties had officially registered godowns, making the requirement for way-bills and lorry registration numbers irrelevant. The court cited previous decisions (50 VST 179 and 60 VST 283) which established that the purchaser's claim for input tax credit (ITC) should not be denied if the purchaser has complied with the necessary requirements, even if the seller failed to remit the tax.

Relevant Case Law:

The court referred to the following cases to support its decision:

- Althaf Shoes (P) Limited Vs The Assistant Commissioner (CT), Valluvarkottam, Assessment Circle, Chennai-6 [2012 50 VST 179 (Mad)]: This case established that the purchaser's claim for ITC cannot be denied if the purchaser has complied with the requirements under Rule 10(2) of the TNVAT Act, even if the seller has not paid the tax. The court emphasized that it is the Revenue's responsibility to take action against the non-compliant seller.

- Sri Vinayaga Agencies Vs The Assistant Commissioner (CT), Vadapalani-I, Assessment Circle, Chennai and another [2013 60 VST 283 (Mad)]: This case reiterated that the purchaser should not be penalized for the seller's failure to pay the tax. The court held that the liability should be on the seller, not the purchaser who has shown proof of tax payment.

- W.P.No.9265 of 2013: This case confirmed that the purchaser's claim for ITC should not be reversed on the grounds that the seller has not filed returns or paid taxes, provided the purchaser has complied with the requirements under Rule 10(2) of the TNVAT Act.

Conclusion:

The court concluded that the authority failed to consider the relevant facts and legal principles, leading to an erroneous final order. The impugned order was set aside, and the authority was directed to issue a fresh notice in accordance with the law, giving the petitioner an opportunity to respond. The writ petition was allowed, and the connected miscellaneous petition was closed.