2016 (4) TMI 1019 - HC - VAT and Sales Tax

Payment of VAT - Invisible loss of yarn pursuant to manufacturing activity - Held that - by following the earlier orders of the Principal Bench of this Court in the case of M/s. Asian Fabrix Private Ltd. Versus The Principal Secretary/Commissioner of Commercial Taxes And Others 2016 (4) TMI 1014 - MADRAS HIGH COURT , the petition is disposed of. Therefore, the directions given therein shall be followed by the respondents while passing fresh orders in respect of the issue related to invisible loss. - Petition disposed of

Summary

Issues:
Payment of VAT on invisible loss of yarn pursuant to manufacturing activity.

Analysis:

1. Nature of Circular and Assessment Orders:
The Writ Petition challenges a circular related to the payment of VAT on invisible loss of yarn following manufacturing activities. The Court clarified that the circular is non-statutory and serves as a guideline. The challenge to the circular was deemed unnecessary, and the prayer for quashing it was rejected. Additionally, the Court highlighted the importance of examining each manufacturing process to determine actual losses, emphasizing that a blanket adoption of a uniform percentage as invisible loss is unjustified.

2. Interpretation of TNVAT Act:
The judgment delves into the interpretation of Section 18 of the TNVAT Act, emphasizing that it is not an independent provision but subject to other sections, notably Section 19. The dealer seeking a refund under Section 18(2) must demonstrate more than just payment of Input Tax; they must also satisfy the Assessing Authority that the claim complies with the conditions under Section 19. The Assessing Officer is tasked with conducting a fact-finding exercise to ascertain the loss of goods and ensure compliance with statutory restrictions.

3. Reversal of Input Tax Credit and Refund Process:
The Court ruled that Assessing Authorities cannot arbitrarily adopt a uniform percentage as invisible loss and demand the reversal of Input Tax Credit without proper examination. It set aside notices and orders that reversed Input Tax Credit based on ad hoc percentages. However, Assessing Officers were granted liberty to issue appropriate show cause notices, inviting objections and proceeding lawfully. The judgment highlighted the importance of accurate information provided by dealers for refund purposes and emphasized that Section 18 is subject to the conditions outlined in Section 19 of the VAT Act.

4. Consistency with Previous Orders:
The judgment references previous orders related to similar issues, indicating that the present case aligns with those decisions. Consequently, the Court directed the respondents to follow the directions given in previous rulings when addressing the issue of invisible loss. The case was disposed of in line with earlier decisions, with no costs imposed, and connected miscellaneous petitions were closed.

Overall, the judgment provides clarity on the application of VAT regulations concerning invisible loss in manufacturing activities, emphasizing the need for thorough assessment by Assessing Authorities and adherence to statutory provisions outlined in the TNVAT Act.