2016 (12) TMI 757 - HC - VAT and Sales Tax

Reversal of ITC - manufacture of castings and valves out of the raw materials purchased from the local registered dealers - reversal on the ground that the ITC claimed on the capital goods is not eligible to be refunded to the dealer/petitioner, and restricted the claim of refund, by estimating 5% of the purchase value to be Invisible Loss and 1% of the Export sales turnover to be Visible Loss - Held that - reliance placed on the decision of the case of M/s. Interfit Techno Products Ltd. Versus The Principal Secretary/Commissioner of Commercial Taxes, The Assistant Commissioner (CT) (FAC) 2015 (4) TMI 935 - MADRAS HIGH COURT , where it was held that the Assessing Authorities are not justified in adopting uniform percentage as invisible loss and calling upon the dealer to reverse the input tax credit availed to that extent. Consequently, all notices issued to the petitioner for reopening and all consequential order passed reversing the input tax credit to the extent of either 4% or 5% or on adhoc percentage stands set aside. However, liberty is granted to the concerned Assessing Officer to issue appropriate show cause notices to the petitioners clearly setting out under what circumstances they propose to revise or call upon the petitioner to reverse refund sanctioned and after inviting objections proceed in accordance with law. Petition allowed - reversal of ITC set aside - liberty is granted to the concerned Assessing Officer to issue appropriate show cause notices to the petitioners clearly setting out under what circumstances they propose to revise or call upon the petitioner to reverse refund sanctioned and after inviting objections proceed in accordance with law - decided in favor of petitioner.

Summary

Issues involved:
Claim for Input Tax Credit (ITC) refund under TNVAT Act and CST Act.

Analysis:
The petitioner, a registered dealer under the TNVAT Act and CST Act, is a manufacturer of castings and valves. The petitioner, being an Exporter, filed Form W for refund of ITC for exports made between July 2011 to February 2013. The respondent reversed the petitioner's ITC claim on the basis that the ITC claimed on capital goods is not eligible for refund. The respondent also estimated 5% of the purchase value as 'Invisible Loss' and 1% of the Export sales turnover as 'Visible Loss'. The Writ Petitions challenge this decision. The issue is whether the restrictions and conditions under Section 19 of the VAT Act impact the ITC refund claim under Section 18(2) of the Act.

The learned Additional Government Pleader acknowledged that a similar issue was addressed in a previous case involving M/s. Interfit Techno Products Ltd. The court's decision in that case highlighted the importance of the Assessing Authority verifying the claim for refund and ensuring it complies with the restrictions and conditions under Section 19 of the VAT Act. It was emphasized that the Assessing Officer should not apply a uniform percentage for invisible loss and reverse the input tax credit without proper justification. The court set aside notices and orders reversing input tax credit based on ad hoc percentages. The dealer's undertaking in Form W is crucial for verification by the Assessing Officer, and any erroneous refund can be rectified under the provisions of the Act.

In line with the decision in the M/s. Interfit Techno Products Ltd. case, the present Writ Petitions were disposed of similarly. The court directed that the Assessing Officer should issue appropriate show cause notices clearly outlining the reasons for revising or reversing the refund sanctioned, allowing the petitioner to respond before any further action is taken. No costs were awarded, and the connected matters were closed.