2016 (6) TMI 905 - HC - VAT and Sales Tax

Reversal of Input Tax Credit on the estimated invisible loss of input used in the course of manufacture as per Section 19(5)(ii) of the TNVAT Act. - Reversal of credit towards interstate sales without C forms - Held that - The Assessing Officer did not embark a fact finding exercise to ascertain the quantum of loss of the goods which were purchased on which the tax was paid vis-a-vis the goods manufactured from and out of the goods purchased. No endeavor was made in this regard. Therefore, this Court has to necessarily interfere with the said finding with regard to the invisible loss in the process of manufacture which has now been fixed by the Assessing Officer at 4%. - AO has committed an error by adopting an Adhoc percentage. - Matter remanded back. Reversal of credit towards interstate sales without C forms - Held that - AO directed to comply with the direction issued by the revisional authority viz., the Joint Commissioner (CT)

Summary

Issues:
1. Invisible loss in the process of manufacture
2. Reversal of ITC on purchase of Furnace Oil used as fuel
3. Reversal of ITC towards inter-state sales without C forms

Analysis:
Issue 1: The petitioner challenged the reversal of Input Tax Credit on the estimated invisible loss of input used in the manufacturing process under Section 19(5)(ii) of the TNVAT Act. The High Court held that the Assessing Authority must conduct a fact-finding exercise to ascertain the quantum of loss of goods purchased against goods manufactured. The Court set aside the adhoc percentage adopted by the Assessing Officer and directed a detailed inspection of the manufacturing process to determine the invisible loss accurately.

Issue 2: The petitioner contested the reversal of ITC on the purchase of Furnace Oil used as fuel, arguing that it is an essential input material not damaged in transit. The Court noted discrepancies in the interpretation of input materials under different VAT Acts and found the Assessing Officer's reliance on a decision of the Haryana Tax Tribunal misplaced. The Court set aside the reversal of ITC on Furnace Oil and directed a reevaluation considering the specific circumstances of the case.

Issue 3: The reversal of ITC towards inter-state sales without C forms was also challenged by the petitioner. The matter had been raised in a revision petition before the Joint Commissioner, which was dismissed but directed for year-wise orders under Section 27(2) of the TNVAT Act. The High Court set aside the reversal of ITC on inter-state sales without C forms and instructed compliance with the directions of the revisional authority. The Assessing Officer was directed to follow the order issued by the Joint Commissioner.

In conclusion, the High Court allowed the writ petition, remitting the issues of invisible loss in the manufacturing process and reversal of ITC on purchase of Furnace Oil back to the respondent for fresh consideration. The respondent was directed to conduct an inspection of the factory, review objections, and make a decision in accordance with the law. Regarding the reversal of ITC on inter-state sales without C forms, compliance with the revisional authority's order was mandated. The miscellaneous petition was closed without costs.