2019 (12) TMI 928 - HC - VAT and Sales Tax

Revision of assessment - purchases of old gold - Pre-assessment notices had been issued proposing revision of assessments, on the grounds that the tax in respect of the purchases had not been paid and that the ITC claimed on the gold sent outside the state of Tamil Nadu for the manufacture of jewellery and sold, thereafter admittedly within the state of Tamil Nadu, was not permissible in terms of Section 19(2)(ii) of the Act. HELD THAT - The assessing authority has not appreciated the methodology followed in the proper perspective. What the petitioner has done is, as apparent from the tabulation and reply extracted above, to remit the purchase tax by taking credit in respect thereof against the credit available in the immediately preceding month. Thus, at the end of the period in question, the liability to purchase tax is taken to be remitted in full by set-off of such liability against credit admittedly available in the monthly returns. This methodology has found acceptance and approval by the Commissioner of Commercial Taxes, Chennai, in proceedings dated 29.11.2007. There are no infirmity with the methodology adopted by the petitioner. Clearly, the petitioner has remitted tax on purchases and this fact is not denied. What is disputed is only the methodology of set-off against the monthly returns which, when approved by the Commissioner in proceedings dated 29.11.2007 ought not to have been rejected by the assessing authority - issue held in favor of petitioners. Reversal of ITC on worn-out jewellery sent outside the state for manufacture and received back and sold within the State - HELD THAT - The issue has been held in favour of the assessee by a Division Bench of this Court in the case of PATINA GOLD ORNAMENTS PVT. LTD. VERSUS THE ASSISTANT COMMISSIONER (CT) , THE STATE OF TAMIL NADU 2017 (10) TMI 185 - MADRAS HIGH COURT , where it was held that the mere fact that the manufacturing unit is located outside the State of Tamil Nadu cannot be the basis, for denial of ITC, under section 19(1) of the 2006 Act. Clause (ii) of sub-section (2) of section 19 of the 2006 Act is, thus, declared bad in law - this issue is also held in favour of the assessee. Petition allowed - decided in favor of assessee.

Summary

Issues Involved:

1. Demand under Section 12 of the Tamil Nadu Value Added Tax Act, 2006.
2. Reversal of Input Tax Credit relying on the provisions of Section 19(2) and Section 19(4) of the Act.
3. Penalty for the aforesaid additions/enhancements to turnover based on Section 27(3)(a) of the Act.

Detailed Analysis:

Demand under Section 12 of the Act:

The petitioners, who are manufacturers and traders in gold and silver jewellery, contended that they were entitled to credit of tax paid on the purchase of gold which was converted into jewellery and sold, with the turnover suffering output tax. They set-off such credit against their monthly output tax liability. The respondent, however, argued that the petitioners should have remitted the tax liability in full and then separately sought credit under Section 12(2) of the Act. The court found that the petitioners had remitted the purchase tax by taking credit against the credit available in the immediately preceding month, a methodology approved by the Commissioner of Commercial Taxes in proceedings dated 29.11.2007. The court held that there was no infirmity with the methodology adopted by the petitioners and ruled in their favor on this issue.

Reversal of Input Tax Credit (ITC) under Section 19(2) and Section 19(4):

The second issue pertained to the reversal of ITC on worn-out jewellery sent outside the state for manufacture and received back and sold within the State. The respondent argued that the details of job work carried out in Kerala were not furnished and that the petitioner had not maintained the required registers. The court referred to a Division Bench decision in the case of Patina Gold Ornaments Pvt. Ltd. v. Assistant Commissioner (CT), which held that ITC need not be reversed merely because goods purchased are sent temporarily outside the State for job-work. The court declared Section 19(2)(ii) invalid to the extent it denied ITC for units that dispatched tax-suffered raw materials outside the State for conversion and received back for sale within Tamil Nadu. This issue was also held in favor of the petitioners.

Penalty under Section 27(3)(a) of the Act:

The penalty imposed for the additions/enhancements to turnover was linked to the issues of demand under Section 12 and ITC reversal under Sections 19(2) and 19(4). Since both these issues were decided in favor of the petitioners, the penalties imposed were also set aside.

Conclusion:

The court allowed all the writ petitions, ruling in favor of the petitioners on all issues. The methodology adopted by the petitioners for tax remittance was found to be valid, and the denial of ITC for goods sent outside the State for job-work was declared invalid. The penalties imposed were also set aside. No costs were awarded, and the connected Miscellaneous Petitions were closed.