2017 (3) TMI 279 - HC - VAT and Sales Tax

Interpretation of statute - proviso to Section 19(2)(v) of the TNVAT Act, 2006 - reversal of input tax credit - petitioner claims that all along, in consonance with the provisions of the 2006 Act, in particular, Section 19(2)(ii) of the 2006 Act, it was claiming Input Tax Credit (ITC) in respect of inputs, which had suffered tax, as they were being used in manufacturing the final product, i.e., Asbestos cement sheets/Hi-tech cement sheets. Held that - A plain reading of the provisions of sub-section (1) and sub-section (2) of Section 19 of the 2006 Act would show that, as long as specified goods, which suffer tax are used for any of the purposes set out in clauses (i) to (vi) of sub-section (2) of Section 19, the assessee should be able to claim the ITC, with a caveat in so far as clause (v) is concerned. The caveat being, the limitation, which is encapsulated in the proviso to Section 19(2) of the 2006 Act. Therefore, the limitation provided in the proviso would apply only vis-a-vis the purpose specified in clause (v) and not qua other purposes set out in clause (i) to (iv) and (vi) of Section 19(2) of the 2006 Act - The fact that, the proviso, on account of erroneous interpretation by the Revenue, was causing difficulties for the manufacturers, is exemplified by the Statement of Objects and Reasons which was set forth, at the time of introduction of Act 5 of 2015. Petition allowed - decided in favor of petitioner.

Issues Involved:
1. Interpretation of the proviso to Section 19(2)(v) of the Tamil Nadu Value Added Tax Act, 2006.
2. Eligibility for Input Tax Credit (ITC) on tax suffered inputs used in manufacturing.
3. Retrospective effect of the deletion of the proviso to Section 19(2).
4. Jurisdiction of assessing officers to reverse ITC.
5. Availability of alternate statutory remedies.

Detailed Analysis:

1. Interpretation of the proviso to Section 19(2)(v) of the Tamil Nadu Value Added Tax Act, 2006:
The core issue revolves around the interpretation of the proviso to Section 19(2)(v) of the Tamil Nadu Value Added Tax Act, 2006 (the 2006 Act). The petitioners, who are manufacturers, argued that the proviso should not limit their entitlement to ITC for inputs used in manufacturing goods within the state. They contended that the proviso applies only to clause (v) of Section 19(2), which pertains to sales in the course of Inter-State trade or commerce under Section 8(1) of the Central Sales Tax Act, 1956. The court agreed with the petitioners, concluding that the proviso limits ITC only for purposes specified in clause (v) and not for other purposes listed in clauses (i) to (iv) and (vi) of Section 19(2).

2. Eligibility for Input Tax Credit (ITC) on tax suffered inputs used in manufacturing:
The petitioners claimed that they should be allowed full ITC for inputs used in manufacturing, as these inputs had suffered tax within the state. The court held that as long as the inputs are used for purposes specified in clauses (i) to (vi) of Section 19(2), ITC should be allowed, with the limitation in the proviso applying only to clause (v). This interpretation supports the petitioners' position that manufacturers are entitled to ITC for tax suffered inputs used in manufacturing.

3. Retrospective effect of the deletion of the proviso to Section 19(2):
The petitioners argued that the deletion of the proviso by Act 5 of 2015 should be given retrospective effect, as it was curative in nature. The court, however, did not find it necessary to address this argument in detail, as it concluded that the proviso applied only to clause (v) of Section 19(2). Therefore, the deletion of the proviso did not impact the entitlement to ITC for manufacturers during the period it was in force.

4. Jurisdiction of assessing officers to reverse ITC:
The petitioners challenged the jurisdiction of the assessing officers to reverse ITC based on the proviso to Section 19(2). The court found that the assessing officers had erroneously interpreted the proviso, leading to unjustified reversals of ITC. Consequently, the court set aside the impugned orders that reversed ITC, affirming that the proviso did not apply to manufacturers using inputs for purposes other than those specified in clause (v).

5. Availability of alternate statutory remedies:
The respondents argued that the petitioners should have pursued alternate statutory remedies, such as appeals or revisions. The court rejected this argument, noting that the petitioners had approached the court under Article 226 of the Constitution on the grounds of lack of jurisdiction by the assessing officers. Given the prolonged pendency of the writ petitions and the specific legal question involved, the court deemed it appropriate to exercise its jurisdiction and provide relief to the petitioners.

Conclusion:
The court allowed the writ petitions, setting aside the impugned orders that reversed ITC. The decision in W.P.No.7969 of 2014 was applied to all other writ petitions, as the issues were common across the cases. The court concluded that the proviso to Section 19(2) of the 2006 Act applied only to clause (v) and did not limit ITC for manufacturers using inputs for other specified purposes. Consequently, the connected pending applications were also closed, with no order as to costs.

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