2016 (11) TMI 672 - HC - VAT and Sales Tax

Reversal of ITC - opportunity of being heard - Held that - One important point which has been lost sight of by the respondent is that Section 9 deals with levy and collection of tax and penalties which is in effect enabling provision and sub-section 2 states that the authorities exercising power under the State law will be entitled to exercise the power under the CST Act. However, that does not mean that the reversal should take place under the CST Act, but the reversal of ITC can be done only under the provisions of the TNVAT Act, since the concept of Input Tax Credit is alien to the CST Act. Thus, the error which has crept in the impugned order is on the account of the fact that while issuing the pre-revision notice, it has not been clearly spelt out as to which provision of law, the respondent proposes to reverse the ITC. Partially, the petitioner also has to be blamed because, the petitioner did not give objections, but only produced certain C forms. That apart, if the respondent had accepted few C forms and sought to not extend the benefit of concessional rate of tax in respect of certain transactions for non-production of C forms and ultimately resulting in reversal of Input Tax Credit, the respondent should have issued show-cause notice - the Assessment Proceedings have to be re-done in accordance with law - petition allowed.

Summary

Issues:
Challenge to assessment order under CST Act for the year 2014-15. Reversal of Input Tax Credit (ITC) under TNVAT Act or CST Act. Lack of clarity in pre-revision notice regarding ITC reversal. Opportunity of personal hearing not granted to the petitioner.

Analysis:
The petitioner, a registered dealer under TNVAT Act and CST Act, challenged the assessment order under the CST Act for the year 2014-15. The main contention was the reversal of ITC, which the petitioner argued should have been done under the TNVAT Act, not the CST Act. The petitioner raised concerns about the lack of specificity in the pre-revision notice regarding the provision under which the ITC reversal was proposed and the absence of a personal hearing opportunity.

In response, the respondent justified the action by citing Section 9(2) of the CST Act, which incorporates TNVAT Act provisions related to assessment, re-assessment, and tax enforcement. The respondent argued that the power to reverse ITC under TNVAT Act applies to CST Act as well, justifying the impugned order.

The court noted that while Section 9 of the CST Act enables state law authorities to exercise powers under the CST Act, it does not mandate ITC reversal under the CST Act. The court emphasized that ITC reversal should be done under the TNVAT Act since the concept is not part of the CST Act. The court highlighted the need for clarity in communication regarding the provision under which ITC reversal is proposed.

The court found fault on both sides, noting that the petitioner should have raised objections instead of only producing "C" forms. Additionally, if the respondent intended to reverse ITC due to non-production of forms, a show-cause notice should have been issued. Consequently, the court set aside the impugned order and remanded the matter to the respondent for fresh consideration. The petitioner was directed to file detailed objections within 15 days, and a personal hearing was to be provided before redoing the assessment in accordance with the law. No costs were awarded in this judgment.