2015 (3) TMI 1004 - HC - VAT and Sales Tax

Reversal of input tax credit - Shortage of material - Whether the input tax credit availed can be adjusted towards output in respect of goods which are not sold - Held that - There is no dispute that the petitioner is a dealer. Therefore, Section 19(9)(ii) of the TNVAT Act will not be applicable to the case of the petitioner and it is Section 19(9)(i) of the TNVAT Act that will be applicable. We are not inclined to accept the technical plea of the petitioner that a wrong provision, namely, Section 19(9)(ii) of the TNVAT Act, has been quoted instead of Section 19(9)(i) of the TNVAT Act, as the facts clearly establish that it is a case which falls under Section 19(9)(i) of the TNVAT Act, which the Original Authority has failed to properly apply its mind. - A reading of the Section 19(9)(i) of the TNVAT Act makes it evident that no input tax credit shall be availed by a registered dealer for purchase of goods, if such goods are not sold because of any theft, loss or destruction, for any reason, including natural calamity, and if the dealer has already availed input tax credit against purchase of such goods, there shall be reversal of tax credit. This reversal of input tax credit has been done by the Original Authority based on the surprise inspection conducted by the Enforcement Wing on verification of the records and on coming to know that the goods on which input tax credit has been availed have not been sold for reason that there is a shortage, for whatever reason. Section 19(9)(i) of the TNVAT Act clearly provides that if the goods are not sold for any reason contained therein, there shall be reversal of tax credit. It is clear that the reversal of credit is only in respect of the goods not sold and, therefore, we find that the proceedings initiated by the Department, culminating in the order of the Tribunal, which is under challenge in these revisions, does not suffer from any infirmity. - No question of law arises - Decided against assessee.

Summary

Issues:
1. Whether the order passed by the Tribunal is sustainable in law?
2. Correctness of holding that input tax credit had to be reversed under Section 19(9)(i) of the TNVAT Act.
3. Classification of shortage due to weight difference as loss of goods under Section 19(9)(i) of the TNVAT Act.
4. Tribunal's correctness in ignoring the timing of shortage discovery and the negligible percentage of shortage.
5. Applicability of input tax credit availed when goods are not sold due to theft, loss, or destruction.

Analysis:
1. The revisions were filed against the Tribunal's order on questions of law. The petitioner, a dealer in Iron and Steel Products, faced a shortage of material during inspections, leading to a dispute over input tax credit availed. The Original Authority and Deputy Commissioner had differing views on the application of Section 19(9)(ii) of the TNVAT Act, which the Tribunal ultimately resolved in favor of the Department.

2. The Tribunal determined that the shortage constituted a loss under Section 19(9)(i) of the TNVAT Act, justifying the reversal of input tax credit. The petitioner's argument regarding weighing discrepancies was dismissed, emphasizing that the shortage at the time of purchase rendered the credit ineligible. The Tribunal's decision was based on the dealer's failure to sell the entire quantity purchased, leading to the conclusion that the goods shortage amounted to loss.

3. The High Court criticized the Original Authority and Tribunal for not properly applying the provisions of Section 19(9)(i) of the TNVAT Act. The Court clarified that the reversal of input tax credit was justified under this section due to the goods not being sold because of the shortage, irrespective of the reason behind the shortage. The Court upheld the Department's actions and the Tribunal's decision on this matter.

4. The Court highlighted that the reversal of credit was specific to the unsold goods affected by the shortage, affirming the correctness of the proceedings initiated by the Department. The Court concluded that no substantial question of law arose from the revisions and dismissed them, emphasizing the legality of reversing input tax credit under Section 19(9)(i) of the TNVAT Act in cases of unsold goods due to various reasons like theft, loss, or destruction.