2019 (7) TMI 2 - HC - VAT and Sales Tax

Reversal of ITC at 1% on burning loss in the manufacturing process - Section 19(9)(iii) of TNVAT Act - According to writ petitioner uniform 1% is incorrect - Opportunity of personal hearing not provided - principles of natural justice - HELD THAT - There is no disputation or disagreement before this Court that the Circular No.7/14 is operating and binding on the respondent - If Circular No.7/14 is operating, it is necessary to give a personal hearing to the writ petitioner giving the date, time and venue with specificity and clarity. Learned counsel for writ petitioner, on instructions, submits that if a personal hearing is given giving the date, time and venue with specificity and clarity, the writ petitioner company's duly authorised representative or advocate will go before the respondent and furnish quantitative details for all the eight assessment years regarding burning loss - the impugned orders are set aside solely on the ground of personal hearing not being afforded. Matter remanded for reconsideration - appeal allowed by way of remand.

Summary

Issues:
Revised assessment orders under TNVAT Act for eight successive assessment years. Core issue of burning loss in manufacturing process and reversal of Input Tax Credit at 1%.

Analysis:
The judgment by the High Court of Madras involves eight writ petitions concerning revised assessment orders under the Tamil Nadu Value Added Tax Act, 2006 (TNVAT Act). The petitions pertain to eight successive assessment years from 2007-08 to 2014-15. The primary issue across all petitions is the burning loss in the manufacturing process and the reversal of Input Tax Credit (ITC) at 1%. The writ petitioner, a manufacturer of TMT bars and steel products, challenged the proposed revision of deemed assessments and penalty under the TNVAT Act based on monthly returns. The main contention revolved around the quantum of burning loss and the correctness of applying a uniform 1% loss rate.

The objections raised by the writ petitioner post-revision notice focused on the enforcement authorities' adoption of a uniform percentage for burning loss without providing quantitative details to substantiate the actual loss. The court highlighted the importance of a fact-finding exercise to ascertain the quantum of loss vis-a-vis the goods purchased and manufactured. The petitioner argued against the 1% burning loss assumption, citing a judgment emphasizing the need for the assessing authority to conduct a thorough examination before levying penalties or reversing ITC.

Regarding the issue of personal hearing, the court noted that the revision notice allowed for objections and a personal hearing within 15 days. However, the petitioner contended that the provision for personal hearing lacked specificity, referencing a previous court order emphasizing the need for a clear date, time, and venue for an effective hearing. The court also considered a circular mandating personal hearings for dealers, irrespective of their choice, to ensure procedural fairness.

In light of the above, the court set aside the impugned orders solely due to the lack of a proper personal hearing process. The judgment did not delve into the merits of the case but emphasized the importance of affording the writ petitioner a meaningful opportunity to present quantitative details regarding burning loss. The court directed a fresh assessment process, incorporating the principles outlined in the Interfit Techno Products judgment. The respondent was instructed to complete the reassessment within six weeks of the personal hearing, with the revised assessment order to be served promptly to the petitioner. All eight writ petitions were disposed of with these directions, and no costs were awarded.