2015 (4) TMI 965 - 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 - Following decision of State of Gujarat Versus Cosmos International Ltd. 2015 (4) TMI 779 - GUJARAT HIGH COURT - Decided against Revenue.

Summary

Issues Involved:
1. Whether the Tribunal erred in adjudicating on merits despite the first appellate authority dismissing only on the ground of pre-deposit.
2. Whether the Tribunal erred in holding that the Input Tax carried forward is required to be adjusted against the liability of CST.
3. Whether the Tribunal erred in not giving a specific direction requiring the reversal of carry forward of Input Credit in subsequent years.
4. Whether the Tribunal erred in deleting the levy of interest and penalty.

Analysis:

1. Tribunal's Adjudication on Merits Despite Pre-deposit Dismissal:
The main grievance of the appellant was that the Tribunal adjudicated on the merits of the case despite the first appellate authority dismissing the appeal solely on the ground of non-deposit of pre-deposit. The appellant cited various decisions of the High Court which held that the Tribunal should concentrate on the order passed by the first appellate authority dismissing the appeal on the ground of pre-deposit and not enter into the merits of the case. The respondent's advocate conceded that the Tribunal should have restricted its appeal to the order of pre-deposit. However, since the issue of tax liability deduction from Input Tax Credit (ITC) was already concluded by a Division Bench in a recent decision, it was argued that remanding the matter would be academic.

2. Adjustment of Input Tax Credit Against CST Liability:
The Tribunal held that the Input Tax carried forward is required to be adjusted against the liability of CST. This decision was challenged by the appellant. However, the High Court noted that the issue was already covered by the decision in the case of Cosmos International Ltd., where it was held that a dealer could adjust the tax liability out of the amount in the current year of tax liability out of the ITC available in the credit of the dealer.

3. Direction on Reversal of Carry Forward of Input Credit:
The appellant contended that the Tribunal did not give a specific direction requiring the reversal of carry forward of Input Credit in subsequent years. The High Court found that this issue was also covered by the Cosmos International Ltd. decision, which provided a clear framework for the adjustment of ITC against the output tax liability and the subsequent carry forward of any remaining ITC.

4. Deletion of Interest and Penalty:
The Tribunal deleted the levy of interest and penalty imposed by the Assessing Authority. The High Court upheld this decision, referencing the Cosmos International Ltd. case, which stated that the dealer is liable to pay interest only on the dues arising on assessment after adjusting the admissible ITC towards its tax liability. The Court emphasized that merely claiming more ITC than admissible does not justify denying the adjustment of the admissible ITC against the output tax liability of the current year.

Conclusion:
The High Court dismissed the present Tax Appeal, stating that no substantial questions of law arise as proposed by the appellant-State. Given that the main issue on merits was already concluded against the revenue by the judgment in the Cosmos International Ltd. case, remanding the matter to the Tribunal or the first appellate authority would serve no fruitful purpose. The Tribunal's decision to allow the dealer to adjust the tax liability in the current year out of the ITC available was upheld.