2016 (11) TMI 896 - HC - VAT and Sales Tax

Input tax credit - payment of tax on purchases - credit claim by registered dealer - Held that - Sub- Section (16) of Section 19 states that the input tax credit availed of is provisional. It, however, does not empower the authority to revoke the input tax credit availed of on a plea that the selling dealer has not paid the tax. It only relates to incorrect, incomplete or improper calim of input tax credit by the dealer - the Petitioner-dealer, admittedly, had paid the tax to the selling dealer and claimed input tax credit and that was accepted at the time when the self-assessment was made. Even the pre-revision notices and the orders under challenge fairly state that the Petitioner-dealer had paid tax to the dealer. It is, therefore, for the Department to proceed against the selling dealer for recovery of tax in the manner known to law. The provision under which the present action has been initiated, namely, invoking sub-section(16) of Section(19) does not appear to be correct - if the selling dealer has not paid the collected tax and that liability has to be fastened on the selling dealer and it cannot be mulcted on the petitioners-purchasing dealers who had shown the proof of payment of tax on the purchase made. The petitioners already paid 25% of the tax amount - Therefore, the impugned orders are set aside and the matters are remitted back to the authority concerned and the authority shall give one more opportunity of hearing to the petitioner and thereafter pass appropriate orders on the same on merits and in accordance with law within a period of six weeks - petition allowed - decided in favor of petitioner.

Summary

Issues:
Challenge to impugned orders based on non-payment of tax by another dealer and petitioner's status as an active dealer.

Analysis:
The writ petitions were filed by the assessee challenging the impugned orders, arguing that the orders were based on another dealer not paying tax and claiming the petitioner was not an active dealer. The petitioner's counsel contended that documents were produced to establish the petitioner's status as a regular dealer, complying with conditions set by the Court in paying 25% of the tax amount, citing a previous Court ruling. On the other hand, the Additional Government Pleader for the respondents argued that no documents were produced by the petitioner during the order's passing.

Referring to a judgment in the matter of M/s. V.V.V & Sons Edible Oils Limited, the Court emphasized that the liability for tax non-payment by the selling dealer cannot be imposed on the purchasing dealer who demonstrated proof of tax payment on purchases. The Court highlighted the provisions of Section 19(1) regarding input tax credit and the importance of the selling dealer fulfilling their tax obligations. It was noted that the input tax credit availed of is provisional and cannot be revoked based on the selling dealer's non-payment, emphasizing the need for the Department to take action against the selling dealer for tax recovery.

Based on the above legal principles, the Court concluded that if the selling dealer did not pay the correct tax, the liability rests with the selling dealer and not the purchasing dealer who showed proof of payment. As the petitioners had already paid 25% of the tax amount, the impugned orders were set aside. The matters were remitted back to the authority for a fresh hearing and to pass appropriate orders within six weeks from the date of the Court's order. Consequently, the writ petitions were allowed, and the connected Miscellaneous petitions were closed.