2016 (7) TMI 1159 - HC - VAT and Sales Tax

Reversal of input tax credit (ITC) - local purchases from registration cancelled dealers - Held that - the exercise of jurisdiction of the Assessing Officer is ex-facie arbitrary and illegal. - Decided in favor of assessee.

Summary

Issues:
Challenge to assessment orders under Tamil Nadu Value Added Tax Act, 2006 for the years 2010-11 and 2013-14 based on reversal of Input Tax Credit (ITC) due to purchases from registration-cancelled dealers.

Analysis:
In the present case, the petitioner, a registered dealer under the TNVAT Act, contested assessment orders for 2010-11 and 2013-14 due to proposed reversal of ITC from purchases made from registration-cancelled dealers. The petitioner relied on previous judgments, including Althaf Shoes (P) Ltd. and Infinity Wholesale Ltd., to support their legal contention that the ITC cannot be reversed based on the circumstances presented by the respondent. The respondent dismissed the petitioner's objections, arguing that the petitioner cannot rely on judgments where they were not parties. However, the court found this reasoning flawed, emphasizing that the respondent failed to interpret the judgments correctly, thereby neglecting their duty as an Assessing Officer.

The court referred to key judgments, such as Althaf Shoes (P) Ltd. and Sri Vinayaga Agencies, to establish the legal principles governing ITC reversals. In Althaf Shoes (P) Ltd., it was held that as long as the purchasing dealer complies with requirements, the Revenue cannot deny the claim for ITC, even if the vendor has not remitted tax. Similarly, in Sri Vinayaga Agencies, it was ruled that if a dealer has followed the prescribed rules for ITC, they cannot be penalized for the selling dealer's failure to pay tax. These precedents formed the basis for the court's analysis of the petitioner's case.

The court further cited the decision in Infiniti Wholesale Limited, where a similar issue of short reporting of turnover by registered vendors was addressed. Following the principles laid down in previous judgments, the court deemed the Assessing Officer's jurisdiction in such cases as arbitrary and illegal. Despite the consistent legal position established by the court in various decisions, the Commercial Tax Department failed to adhere to these principles, leading to erroneous assessment orders and an abdication of duties by the Assessing Officer in the instant case.

Consequently, the court held the impugned orders to be legally unsustainable and set them aside, allowing the writ petitions filed by the petitioner. No costs were awarded, and the connected Miscellaneous Petitions were closed, bringing a resolution to the dispute based on the established legal precedents and principles governing ITC reversals under the TNVAT Act.