2016 (10) TMI 782 - HC - VAT and Sales Tax

Change of constitution of the firm - business of father carried on by son, when father died, without intimation to Department - input credit taken by son reversed and order of assessment made on son on the ground that the fact of father s death and business carried on by son was not intimated to Department and fresh registration not obtained - Held that - the mistake committed by the dealer can be treated only as an irregularity and not an illegality. Rule 5(3) of the said Rules states that whenever there is a change in constitution of the business of the dealer, the said dealer, within 30 days from the date of change in constitution, shall furnish details of the change to the Registering Authority and the Registering Authority, on satisfying itself, shall amend the certificate of registration accordingly - As rightly pointed out by the learned counsel for the petitioner, the Rule does not contemplate the consequences for non furnishing of information pertaining to change in constitution. The question would be as to whether all the transactions done during the interregnum could be invalidated for such a reason. As non furnishing of information, as required under Rule 5(3) of the said Rules, does not contemplate a situation to disbelieve all transactions especially transactions as done in the present case, the impugned orders reversing the input tax credit are wholly unsustainable. The respondent does not take a stand that on account of the non intimation, the registration has been canceled nor any such step has been taken. The interpretation is that on the demise of the father of the present proprietor of the petitioner, the registration becomes infructuous. This Court is not convinced with such a stand taken by the respondent, especially when even prior to the demise of the father of the present proprietor of the petitioner, the business was reconstituted as a partnership firm and it was recognized by their principal - M/s.Indian Oil Corporation Limited. The mistake committed by the petitioner can be treated only as an illegality, for which, a capital punishment cannot be imposed on the dealer. Furthermore, it is stated that a fresh registration has been granted in the name of the present proprietor of the petitioner on 25.6.2015 and only for the two assessment years, this problem has arisen. Therefore, this Court, exercising its extraordinary jurisdiction, is convinced to state that the reason for reversing the input tax credit, as done in the impugned orders, is not sustainable - petition allowed - decided in favor of petitioner.

Summary

Issues:
1. Change in constitution of the dealer from proprietorship concern to partnership firm and back to proprietorship concern.
2. Failure to intimate the tax department about the change in constitution.
3. Denial of input tax credit by the tax department.
4. Interpretation of Rule 5(3) and Rule 5(4)(b) of the Tamil Nadu Value Added Tax Rules, 2007.
5. Legality of reversing input tax credit due to non-intimation of the change in constitution.
6. Validity of the tax department's orders for assessment years 2013-14 and 2014-15.
7. Consideration of irregularity versus illegality in the dealer's actions.
8. Application of statutory provisions regarding change in constitution of the dealer.

Analysis:
The judgment of the Madras High Court revolves around the case where a dealer underwent a change in constitution from a proprietorship concern to a partnership firm and then back to a proprietorship concern due to the demise of the original proprietor. The court examined the failure of the dealer to intimate the tax department about this change, leading to the denial of input tax credit by the department for the assessment years 2013-14 and 2014-15. The court delved into the interpretation of Rule 5(3) and Rule 5(4)(b) of the Tamil Nadu Value Added Tax Rules, 2007, which mandate the furnishing of details regarding changes in the dealer's constitution to the Registering Authority within a specified time frame.

The court analyzed the legality of reversing input tax credit solely based on the non-intimation of the change in constitution, emphasizing the distinction between irregularity and illegality in the dealer's actions. It was observed that the statutory provisions did not explicitly outline the consequences for non-furnishing of information regarding changes in the dealer's constitution. The court highlighted the dealer's continuous compliance with filing returns and paying taxes, despite the procedural oversight in intimating the department about the change.

In its decision, the court noted that penalizing the dealer by denying the entire input tax credit for a mere irregularity was unjustified. The court emphasized that the transactions conducted by the dealer, especially in the distribution of LPG as part of the public distribution system, were legitimate and should not be invalidated due to a procedural lapse in intimation. The court also considered the recognition of the dealer by the principal company, M/s. Indian Oil Corporation Limited, further supporting the legitimacy of the dealer's operations.

Ultimately, the court held that the reversal of input tax credit by the tax department was unsustainable and set aside the impugned orders for the assessment years 2013-14 and 2014-15. The court concluded that the mistake made by the dealer in not intimating the department about the change in constitution should not warrant such severe penalties, especially when a fresh registration had been granted subsequently. The judgment highlighted the importance of distinguishing between irregularities and illegalities in tax matters and upheld the dealer's right to input tax credit in this case.