2020 (2) TMI 296 - HC - VAT and Sales Tax

Input tax credit - levy of purchase tax - Section 12(1) of the TNVAT Act, 2006 - HELD THAT - Value Added Tax (tax) is payable on the sale of goods under Section 3 of the Act. Section 12(1) of the Act is an exception. As per Section 12(1) of the Act purchase tax is payable by a recipient-dealer who in the course of his business, purchases any goods (the sale or purchase of which is liable to purchase tax under the Act) under the circumstances prescribed therein. This provision is subject to the charging provisions of section 3(1) of the Act - These two taxes are available as an input tax credit under Section 19 and Section 12(2) of the Act respectively. As per section 12(2) of the Act, such dealer is also entitled to input tax credit (ITC) on the tax paid on the goods specified in the 1st schedule. In other words, purchase tax payable under section 12(1) of the Act is available as an input tax credit. This provision is also exception to Section 19 of the Act. Input tax credit that is made available under Section 12(2) and under Section 19 of the Act can be adjusted under Section 3(3) of the said Act. As per Section 3(3) of the Act, tax payable under Section 3(2) by a registered dealer is to be reduced in the manner prescribed to the extent of tax paid on the purchase of goods specified in Part B or Part C of the 1st schedule, inside the State, to the registered dealer, who sold the goods to him - there is no scope for ambiguity. Input tax credit can be adjusted only for payment of tax under Section 3(2) and not under Section 12(1) of the Act. Purchase tax payable under Section 12(1) of the Act has to be paid in cash. Such purchase tax can be adjusted on the output tax in terms of section 3(3) of the Act. The impugned order passed by the 1st respondent is sustainable - the above writ petition is liable to be dismissed and it is hereby dismissed.

Summary

Issues:
Challenge to impugned order passed by Principal Secretary/Commissioner of Commercial Taxes regarding purchase tax liability under TNVAT Act, 2006 for worn out jewellery purchases.

Analysis:
The petitioner challenged the impugned order passed by the Principal Secretary/Commissioner of Commercial Taxes regarding the liability to pay purchase tax under section 12(1) of the TNVAT Act, 2006 for purchases of worn out jewellery. The impugned order directed the dealers to pay the purchase tax demanded for the years 2007-2008 to 2009-2010 and avail input tax credit. The petitioner had previously withdrawn a writ petition challenging an assessment order and later filed writ petitions to quash recovery proceedings and distraint notices. The impugned order clarified the liability of the petitioner as a registered dealer under the TNVAT Act, 2006 to discharge purchase tax liability in cash for purchases from unregistered dealers.

The petitioner relied on a previous court decision regarding methodology for remittance of purchase tax and approval by the Commissioner of Commercial Taxes. The petitioner argued that the impugned clarification should be quashed based on the previous court decision. The petitioner also contended that the issue was revenue neutral as tax payable under section 12(1) of the TNVAT Act was available as input tax credit under section 12(2) of the Act. The petitioner cited relevant court decisions to support their arguments.

The Additional Government Pleader (Tax) defended the impugned clarification, stating that purchase tax must be paid in cash before being available as input tax credit under section 12(2) of the TNVAT Act, 2006. The court analyzed the provisions of the Act, highlighting that purchase tax under section 12(1) is payable in cash and can be adjusted against output tax. Input tax credit under sections 12(2) and 19 can be adjusted only for payment of tax under section 3(2) of the Act.

The court emphasized that the purpose of allowing input tax credit is to reduce the cascading effect of taxes on inputs at each stage of sale and purchase. It clarified that input tax credit cannot be used to discharge purchase tax liability under section 12(1) of the TNVAT Act. The court distinguished the cited Supreme Court decision in a different context and dismissed the relevance of previous court decisions relied upon by the petitioner. Consequently, the court upheld the impugned order, dismissing the writ petition and closing the connected Miscellaneous Petition.