2015 (4) TMI 779 - HC - VAT and Sales Tax

Adjustment of carried forward input tax credit - Whether the learned Tribunal has committed any error in declaring and holding that an assessee/dealer is entitled to the Input Tax Credit adjustment against its output tax liability under the VAT Act under the current year under consideration and whether the learned Tribunal has committed any error in quashing and setting aside the order passed by the Assessing Officer as well as the first Appellate Authority in directing to carry forward such Input Tax Credit to the next subsequent year - Held that - Section 11 of the VAT Act provides for an Input Tax Credit admissible and Rule 18 of the Rules, 2006 provides for calculation of the Input Tax Credit. It cannot be disputed that for the purpose of claiming Input Tax Credit, an assessee/dealer is required to submit its claim in the required format i.e. in Form No.108 and on that the assessment order is required to be passed and on assessment the Input Tax Credit admissible to an assessee/dealer is determined. Once on assessment it is found that dealer is entitled to a particular Input Tax Credit, in that case, Rule 18 of the Rules, 2006 which provides for calculation of tax would come into play. On conjoint reading of section 11 of the VAT Act read with Rule 18 of the Rules, 2006, a dealer is entitled to adjust its output tax liability against its admissible Input Tax Credit in the current year under consideration. When on assessment the assessee / dealer is held to be entitled to a particular Input Tax Credit, in that case, the assessee/dealer is entitled to the benefit of Rule 18 of the Rules, 2006 and is entitled to adjust such Input Tax Credit against its output tax liability under the VAT Act of the current year under consideration. Merely because while submitting the Form No.108 the assessee/dealer submitted the claim of Input Tax Credit more than which is held to be admissible on assessment may be original assessment or even audit assessment or even reassessment, by that itself is no ground to deny the assessee/dealer to adjust the admissible Input Tax Credit against its output tax liability of VAT Act of the current year under consideration. - assessee/dealer is entitled to adjust the Input Tax Credit against its output tax liability of the VAT Act of the current year under consideration and after adjusting the same the liability of interest on the balance amount due is required to be considered. - Following decision of State of Gujarat vs. Dashmesh Hydraulic Machinery 2015 (3) TMI 134 - GUJARAT HIGH COURT - Decided against Revenue.

Summary

Issues Involved:
1. Entitlement to adjustment of input tax credit (ITC) towards output tax liability.
2. Set-off of admissible ITC despite price differences and issuance of credit notes.
3. Adjustment of tax demanded from carried forward ITC.
4. Adjustment of ITC against GST liability.
5. Reversal of carry-forward credit of ITC for subsequent years.
6. Deletion of interest and penalty levied due to excess ITC.

Detailed Analysis:

1. Entitlement to Adjustment of Input Tax Credit Towards Output Tax Liability:
The primary issue revolves around whether the tribunal was correct in allowing the adjustment of ITC towards the output tax liability for the assessment year in question, even though the ITC was carried forward to the next tax period in the return submitted by the assessee. The court upheld the tribunal's decision, stating that once on assessment it is found that the dealer is entitled to a particular ITC, the dealer is entitled to adjust this ITC against its output tax liability for the current year. This adjustment is in line with Section 11 of the VAT Act and Rule 18 of the Gujarat Value Added Tax Rules, 2006.

2. Set-off of Admissible ITC Despite Price Differences and Issuance of Credit Notes:
The court examined whether the opponent is entitled to set off admissible ITC despite price differences and the issuance of credit notes, where the ITC was not reduced to the extent of the credit notes in the same assessment year. The tribunal's interpretation of Section 13 read with Rule 18 was upheld, confirming that the opponent could adjust the tax demanded as the difference of assessed tax and returned tax from the carried forward ITC.

3. Adjustment of Tax Demanded from Carried Forward ITC:
The court addressed whether the tribunal erred in permitting the adjustment of tax due on assessment against carried forward ITC. The tribunal's decision was upheld, affirming that the adjustment of admissible ITC against the output tax liability in the current year is permissible, and any balance ITC can be carried forward to the subsequent year.

4. Adjustment of ITC Against GST Liability:
The court considered whether the tribunal erred in holding that the ITC carried forward should be adjusted against the liability of GST. It was determined that the tribunal correctly allowed the adjustment of ITC against the output tax liability, and any remaining ITC could be carried forward to the subsequent year.

5. Reversal of Carry-Forward Credit of ITC for Subsequent Years:
The court examined whether the tribunal was required to give specific directions for the reversal of carry-forward credit of ITC for subsequent years. The tribunal's decision was upheld, confirming that the adjustment of ITC against output tax liability for the current year is appropriate, and any remaining ITC should be carried forward without specific directions for reversal.

6. Deletion of Interest and Penalty Levied Due to Excess ITC:
The court addressed whether the tribunal erred in deleting the levy of interest and penalty merely because the assessee had excess ITC adjustable against the tax demand. The tribunal's decision was upheld, referencing the case of Dashmesh Hydraulic Machinery, where it was established that if the assessee had sufficient ITC to adjust against the additional tax liability, interest and penalty could not be levied. The court confirmed that the deletion of interest and penalty was justifiable as there was no intention to evade tax.

Conclusion:
The court dismissed all the tax appeals, affirming that the assessee/dealer is entitled to adjust the admissible ITC against its output tax liability for the current year under consideration. The substantial questions of law were answered against the Revenue and in favor of the assessee/dealer. The court emphasized that the scheme of the VAT Act and the Rules, 2006, supports the adjustment of ITC in the current year, and any balance ITC should be carried forward to the subsequent year.