2015 (8) TMI 1005 - HC - VAT and Sales Tax

Reversal of Input Tax Credit on issuance of credit note Tribunal-VAT vide impugned order held that appellants were required to reverse input tax credits claimed on purchases made by them, on account of credit notes issued by selling dealers, despite selling dealers having confirmed that they have not reduced their output tax liability Whether it can be said that returns filed by appellants were false, misleading or deceptive, attracting penalty under DVAT act Held that - Appellants have been able to produce certificates from selling dealers who have clarified that they are not claiming any output tax credit or seeking any refund Therefore, there is no question of selling dealer resorting to procedure under Section 51(a) of DVAT Act to raise credit note If purchasing dealer is not given credit note by selling dealer, question of purchasing dealer adjusting input tax does not arise Settled legal position was that if by virtue of insertion of explanation in taxing statute a substantive law is introduced, it will have no retrospective effect Any reduction in tax payable by selling dealer on account of reduction in sale price would correspondingly result in reassessment of tax credit claimed by buyer in cases where goods have been sold by one registered dealer to another Same would necessarily involve issuance of credit notes as without issuance of such credit notes, it would not be open for buying dealer to adjust tax credit. In assessment order, nothing has been brought on record by Department to show that arrangement by which discounts/incentives were offered to purchasing dealers by selling dealers was with view to defeat the application or purposes of any provision of DVAT Act Thus, Tribunal erred in holding that Appellants were required to reverse Input Tax Credit claimed on purchases made by them and returns filed by Appellants could not be held to be false, misleading or deceptive Impugned judgment of Tribunal unsustainable in law and hereby set aside Decided in favour of Appellant.

Summary

Issues Involved:

1. Whether the Appellate Tribunal-VAT was right in holding that the appellants were required to reverse input tax credits claimed on purchases made by them due to credit notes issued by selling dealers, despite the selling dealers not reducing their output tax liability.
2. Whether the returns filed by the appellants were false, misleading, or deceptive, attracting penalty under Section 86(10) of the DVAT Act.

Issue-wise Detailed Analysis:

1. Reversal of Input Tax Credits (ITC):

The appellants, registered dealers under the Delhi Value Added Tax Act, 2004 (DVAT Act), faced demands from the Value Added Tax Officer (VATO) for failure to reverse the ITC availed by them on receiving discounts/incentives from selling dealers. The Department contended that under Section 10(1) read with Section 51(a) of the DVAT Act, the purchasing dealer must adjust ITC proportionately with the discount received. The appellants argued that such reversal is lawful only if the selling dealer adjusted their output tax and issued a credit note disclosing the tax amount separately as per Rule 45 of the DVAT Rules. Despite the selling dealers not adjusting their output tax or claiming refunds, the VATO reduced the purchase value and corresponding ITC.

The Tribunal upheld the Department's view, stating that the issuance of credit notes post-sale reduces the sale price, impacting the purchase price and ITC claimed, thus violating the DVAT scheme. The Tribunal referenced the Madras High Court's decision in Jayam & Co. v. Assistant Commissioner, which upheld a similar provision in the Tamil Nadu Value Added Tax Act (TNVAT Act).

The Court, however, found that Section 10(5) of the DVAT Act, introduced on 1st April 2010, brought a substantive change by obliging the buying dealer to reduce ITC if the sale price was lower than the purchase price. This provision was not merely clarificatory but substantive and thus could not be applied retrospectively. The Court noted that the selling dealers had issued certificates confirming no adjustment of output tax or refund claims, negating the need for the purchasing dealers to reverse ITC under the pre-amendment scheme.

2. False, Misleading, or Deceptive Returns:

The Tribunal's decision to impose penalties under Section 86(10) of the DVAT Act for filing false, misleading, or deceptive returns was also challenged. The Court found no evidence that the returns filed by the appellants were false or misleading. The appellants had relied on the selling dealers' certificates and followed the prevailing legal framework before the introduction of Section 10(5).

Conclusion:

The Court held that the Tribunal erred in requiring the appellants to reverse ITC claimed on purchases and in penalizing them for filing allegedly false returns. The impugned judgment of the Tribunal and the corresponding orders of the VATO and OHA were set aside. The appeals were allowed with costs of Rs. 10,000 in each case.