2016 (8) TMI 477 - HC - VAT and Sales Tax

Input tax credit transactions with registration cancelled dealers - effect of cancellation of registration certificate of the selling dealers on the purchasing dealers Tamil Nadu Value Added Tax principles of natural justice - Held that - The retrospective cancellation of the registration certificates issued to the selling dealers cannot affect the right of the petitioners/assessees, who have paid the tax on the basis of the invoices and thereafter claimed the benefit under Section 19 of the TNVAT Act, 2006. At the time when the sale was made, the selling dealers had valid registration certificates and the subsequent cancellation cannot nullify the benefit that the petitioners/assessees availed based on valid documents lots of confusion also existed on factual aspect personal hearing granted matter remanded writ petition allowed.

Summary

Issues:
Challenge to assessment orders under TN VAT Act for 2011-2012, 2013-2014, and 2014-2015; Violation of principles of natural justice; Reversal of Input Tax Credit (ITC) based on transactions with cancelled dealers; Confusion in assessment details; Effect of cancellation of registration certificates on purchasing dealers.

Analysis:
The petitioner, a registered dealer under the TN VAT Act, challenged assessment orders for multiple years, alleging violations of natural justice and questioning the reversal of Input Tax Credit (ITC) due to transactions with dealers whose registrations were cancelled. The primary contention was the confusion in the assessment process, with discrepancies noted in the officer's understanding and documentation. The petitioner argued that the cancellation of registration certificates of selling dealers should not retroactively impact purchasing dealers who had validly availed ITC based on genuine transactions.

The legal issue raised by the petitioner was supported by a previous judgment (Jinsasan Distributors case), emphasizing that the retrospective cancellation of selling dealers' registration certificates should not invalidate the ITC claimed by purchasing dealers in good faith. The court acknowledged the factual confusion and the necessity of a personal hearing to clarify the assessment details and rectify any misunderstandings. Consequently, the court quashed the impugned assessment orders, remanding the matter back to the respondent for a fresh assessment.

The court directed the assessing officer to conduct a new assessment after providing the petitioner with a personal hearing to address specific points of contention and present supporting documents. The officer was instructed to consider the legal precedent set by the court in the Jinsasan Distributors case while reevaluating the assessment in accordance with the law. The judgment highlighted the importance of procedural fairness and adherence to legal principles in tax assessments, ensuring that taxpayers are given a proper opportunity to present their case and substantiate their claims.