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2018 (4) TMI 1800 - HC - VAT and Sales TaxInput tax credit - Default in payment of VAT amount - case of petitioner is that the amount is validly paid by them - onus to prove the payment - whether the benefit envisaged under the Rajasthan VAT Act especially under sub-Section (1) shall be allowed only after verification of deposit of the tax payable by the selling dealer in the manner as notified by the Commissioner? - Rule 18 of Rajasthan VAT Rules, 2006 - HELD THAT - It will be impossible for the petitioner to prove that the selling dealer has paid tax or not as while making the payment, the invoice including tax paid or not he has to prove the same and the petitioner has already put a summary on record which clearly establish the amount which has been paid to the selling dealer including the purchase amount as well as tax amount - In that view of the matter, we are of the opinion that Rule 18 if it is accepted, then the respondents will to take undue advantage and cause harassment. The purchasing dealer has to only prove that while making the payment, he takes the purchased amount. Petition disposed off.
Issues Involved:
1. Challenge to the provisions of the VAT Act by the petitioner. 2. Denial of Input Tax Credit (ITC) due to non-payment of VAT by the selling dealer. 3. Legal precedents and judgments related to the issue of ITC denial. 4. Validity and interpretation of Rule 18 of the Rajasthan VAT Rules, 2006. 5. Petitioner's compliance with VAT requirements and the role of the State Government. Detailed Analysis: 1. Challenge to the Provisions of the VAT Act by the Petitioner: The petitioner, a dealer under the Companies Act, 1956, engaged in the business of rolling MS/HT Billets Blooms into various steel products, challenged the provisions of the VAT Act. The petitioner argued that the denial of ITC due to the non-payment of VAT by the selling dealer (Respondent No. 5) was unjustified, as the petitioner had already paid the VAT amount to the selling dealer. 2. Denial of Input Tax Credit (ITC) Due to Non-Payment of VAT by the Selling Dealer: The petitioner paid a total amount of ?13,63,33,030/- inclusive of VAT to the selling dealer. The VAT amount paid was ?64,92,054/-. The petitioner regularly filed quarterly and annual returns for three years, claiming ITC for the VAT paid. However, after three years, Respondent No. 4 issued a show cause notice demanding ?12,04,945/- due to the non-payment of VAT by the selling dealer. The petitioner argued that the primary duty to submit VAT to the government treasury was on the selling dealer, and the petitioner should not be penalized for the selling dealer's default. 3. Legal Precedents and Judgments Related to the Issue of ITC Denial: The petitioner cited judgments from the Delhi High Court and the Punjab and Haryana High Court, which addressed similar issues. In the case of On Quest Merchandising India Pvt. Ltd. vs. Government of NCT of Delhi, the Delhi High Court held that treating innocent purchasers and guilty purchasers alike was violative of Article 14 of the Constitution. The court emphasized that a bona fide purchaser should not be denied ITC due to the selling dealer's default. The Supreme Court in Commissioner of Trade and Taxes Delhi vs. Arise India Ltd. upheld this view, dismissing the SLP against the Delhi High Court's decision. 4. Validity and Interpretation of Rule 18 of the Rajasthan VAT Rules, 2006: Counsel for the respondent relied on the Bombay High Court judgment in M/s. Mahalaxmi Cotton Ginning Pressing and Oil Industries vs. The State of Maharashtra, which upheld the constitutionality of Section 48(5) of the MVAT Act. The court held that the legislature could prescribe conditions for granting ITC and that a plea of hardship could not invalidate a statutory provision in a fiscal enactment. However, the Rajasthan High Court found that Rule 18, if accepted, would cause undue harassment to the petitioner. Therefore, the court read down the provisions of Rule 18 to ensure that ITC is allowed if the purchasing dealer proves that the payment, including tax, was made to the selling dealer. 5. Petitioner's Compliance with VAT Requirements and the Role of the State Government: The petitioner argued that the State Government should regularly verify records and ensure compliance by the selling dealer. The court agreed that it was impossible for the petitioner to prove the selling dealer's tax payment and that the petitioner had already provided a summary of payments made. The court emphasized that the purchasing dealer should only prove the payment of the purchase amount, including tax. The court followed the Delhi High Court's judgment and did not accept the view of the Bombay High Court. Conclusion: The petition was allowed to the extent that the purchasing dealer only needs to prove that the payment, including tax, was made to the selling dealer. The court read down the provisions of Rule 18 to prevent undue harassment and ensure that bona fide purchasing dealers are not penalized for the selling dealer's default.
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