2019 (3) TMI 439 - HC - VAT and Sales Tax

Availing Input Tax Credit (ITC) wrongly - Whether the input tax credit availed by the assessee on the purchase of cement, which was used for the manufacture of RCC pipe can be curtailed, while they availed the benefit of a notification issued by the Government in G.O.Ms.No.79, Commercial Taxes and Registration (B2), dated 23.03.2007 whereby, the Government reduced the rate of tax payable by any dealer on the sale of certain goods under the TNVAT Act? Held that - In the instant case, the assessee manufactures RCC pipes. For the assessee to be entitled to the reduced rate of tax at 4%, he should not avail the input tax credit on the purchase of same. This is a restriction or a condition specified in the notification. The Court cannot substitute words, nor delete any portion of the notification and redo the same as interpreted by the assessee. Very recently, the Hon ble Supreme Court has held that strict interpretation has to be given to any exemption notification and the interpretation should lean in favour of the Revenue. Therefore, the contention advanced by the assessee does not merit acceptance. Penalty u/s 27(4) - Held that - The Assessing Officer has clearly recorded a finding as to how the assessee has wrongly availed the input tax credit - the case would fall under Section 27(2) of the TNVAT Act and the penalty under Section 27(4) is automatic - penalty upheld. Tax case revision dismissed - decided against assessee.

Summary

Issues involved:
1. Interpretation of Section 30 of the Tamil Nadu Value Added Tax Act, 2006 regarding the power of the Government to deny input tax credit.
2. Whether the input tax credit availed by the assessee on the purchase of cement for manufacturing RCC pipes can be curtailed under a notification issued by the Government.
3. Application of restrictions and conditions specified in the notification reducing the tax rate to 4% for certain goods under the TNVAT Act.
4. Justification of penalty imposed under Section 27(4) for wrongly availing input tax credit.

Analysis:
1. The petitioner challenged the orders passed by the Tamil Nadu Sales Tax Appellate Tribunal, raising substantial questions of law regarding the denial of input tax credit under Section 30 of the Act. The Tribunal dismissed the appeal, leading to the primary issue of whether the Government can restrict the benefit of input tax credit granted under the Act.

2. The core issue revolved around whether the input tax credit availed by the assessee on the purchase of cement for manufacturing RCC pipes could be curtailed based on a notification issued by the Government. The notification reduced the tax rate payable by any dealer on the sale of certain goods, including RCC pipes, to 4%. The contention was whether the restriction on availing input tax credit applied to purchases or only sales of goods.

3. The judgment emphasized the strict interpretation of exemption notifications issued by the Government under Section 30 of the TNVAT Act. The notification reducing the tax rate to 4% for specific goods, including RCC pipes, specified a condition that no input tax credit should be availed on the purchase of cement. The Court held that such conditions specified in notifications must be adhered to, and any interpretation should lean in favor of the Revenue.

4. Regarding the penalty imposed under Section 27(4) for wrongly availing input tax credit, the Assessing Officer's findings were crucial. The Court upheld the penalty under Section 27(4) as the assessee was deemed to have wrongly availed the input tax credit, falling under Section 27(2) of the TNVAT Act. The penalty was considered automatic in such cases.

In conclusion, the High Court dismissed the tax case revisions, ruling against the assessee on the substantial questions of law raised. The judgment highlighted the importance of adhering to conditions specified in exemption notifications and upheld the penalty for incorrectly availing input tax credit.