2013 (6) TMI 385 - HC - VAT and Sales Tax

Refund claim rejected - discrepancy in the purchase invoice supplied by the petitioner containing incomplete information on the rate of tax and the actual tax payable - proposal to restrict the petitioner s claim of ITC to 4% on the purchase of capital goods that have been purchased on payment of 12.5% - Tamil Nadu Value Added Tax Act - Held that - It is admitted that the petitioner had in fact paid the tax at 12.5% which could not be refuted by the seller. If there had been a charging of tax by the seller when effected the sale to the purchaser at the rate over and above what is payable under the TNVAT Act all that the Revenue could do is to proceed against the seller of the goods for charging the purchaser at a rate not legally sustainable. Do not agree with the contention of the Additional Government Pleader who overlooks the fundamental fact of difference between the earlier Act and the present Act that when the ITC claim clearly shows that the purchaser had paid the tax at 12.5% the question of the seller coming forward before the authority concerned as regards the collection of tax or as to the proof on the passing of liability does not arise. Additional Government Pleader contention that section 18(2) does not have any restrictive words to mean that the dealer could refer only a purchaser to grant a refund is to be rejected as this line of contention outright as given the fact that the zero rating of tax is as per Section 18 of the TNVAT Act and the same is only at the hands of a purchasing dealer of goods and not at the hands of the seller who sells the capital goods the acceptance of the stand of the Department would only amount to either ignoring Section 18 or cutting down the width of Section 18 for that matter even to overlook Section 19 - thus claim of the petitioner as regards the refund of tax without any reduction has to be accepted.

Summary

Issues:
Challenge to orders restricting claim of refund of Input Tax Credit (ITC) under TNVAT Act.

Analysis:

Issue 1: Restriction on Claim of Refund of ITC
The petitioner, a 100% Export Oriented Unit (EOU), challenged the respondent's orders restricting the claim of refund of ITC made by the petitioner. The respondent proposed to restrict the petitioner's claim of ITC to 4% on the purchase of capital goods, which were actually purchased on payment of 12.5% tax. The petitioner contended that the purchases were essential capital goods for their manufacturing process, enabling the production of final products for export. The respondent justified the restriction based on the petitioner's violation of section 3(2) of the TNVAT Act, stating that the excess amount paid would be liable to forfeiture under section 40(1) of the Act. The petitioner argued that the restriction to 4% was unjust and illegal, seeking a complete refund as per Section 18 of the TNVAT Act.

Issue 2: Interpretation of TNVAT Act
The court analyzed Section 18 of the TNVAT Act, emphasizing sub-sections (1) and (2) which provide for zero rating sales and refund of input tax paid on exported goods. The court noted that the choice of adjusting input tax credit lies with the assessee, and a suo-motu adjustment by the Revenue is not permissible when a refund is sought under sub-section (2). The court highlighted that the petitioner's sale was zero-rated under Section 18(1), entitling them to a refund under Section 18(2) for the input tax paid on purchased goods used in the manufacturing process for exported products.

Issue 3: Entitlement to Refund
The court rejected the respondent's argument that the refund should only be granted to the remitter of the tax, emphasizing that the petitioner, as the purchaser who paid the tax at 12.5%, was entitled to a full refund under Section 18(2) of the TNVAT Act. The court dismissed the contention that the dealer mentioned in the provision referred only to the seller, clarifying that the dealer entitled to claim a refund is the purchaser of goods used in export or manufacturing for export. The court relied on precedent and set aside the orders rejecting the refund, allowing the petitioner's claim for a complete refund without any reduction.

Conclusion
The court allowed the writ petitions, setting aside the orders restricting the refund of tax and directing a full refund to the petitioner as per the provisions of the TNVAT Act. The court emphasized the entitlement of the purchaser to claim a refund under Section 18(2) and rejected the respondent's arguments against granting a complete refund.