2020 (2) TMI 1189 - HC - VAT and Sales Tax

Reversal of input tax credit - inputs utilised in the manufacture of internal combustion engine - clearance to SEZ unit - petitioner had effected sale to units located in Special Economic Zones outside the State of Tamil Nadu and therefore the 1st respondent has taken a stand that the petitioner was not entitled to proportionate input tax credit on the inputs used in the manufacture of ICE cleared to such units - Section 19(1) of the TNVAT Act, 2006. HELD THAT - From section 19, it is clear that if goods are used for manufacturing or processing of goods in the state, a registered dealer would be entitled to avail credit on the tax paid by the seller - it is evident that input tax credit could be denied only Section 19(5)(a),(b) (c) of the TNVAT Act, 2006 on inputs. The restrictions in Section 19(5)(a) of the TNVAT Act, 2006, will apply only to such inputs which are bought and sold as such and not to inputs used in the manufacture of goods. 19(5)(b) is not relevant for the present case. Under Section 19(5)(c) of the TNVAT Act, 2006, no input tax credit can be allowed on the purchase of goods sold as such or used in the manufacture of other goods and sold in the course of inter-State trade or commerce falling under sub-Section (2) of Section 8 of the Central Sales Tax Act, 1956 - Thus, the sale effected under an exemption in terms of Section 8(6) is not covered by the exception in 19(5)(c ) of the TN VAT Act, 2006. If the sale in question does not fall under Section 8(2) of the CST Act, 1956, but under Section 8(6) of the CST Act, 1956, the credit cannot be denied - The sale of Internal Combustion Engine by the petitioner to units located in Special Economic Zones, outside the State of Tamil Nadu was not an exempted sale within the meaning of Section 15 of the TNVAT Act, 2006 - Such sale is neither exempted under 4th Schedule of the TNVAT Act, 2006 nor exempted under a Notification of the State Government as the expression of Government in Section 15 can only mean the State Government has defined Section 2(22) of the said Act. If Section 19(5) of the TNVAT Act, 2006 is applied plainly to the facts of the case, it is evident, credit cannot be denied on inputs merely because inputs were used in the manufacture of goods and such manufactured goods were sold to a buyer without payment of tax under Section 8(6) of the CST Act, 1956. Unless, there is a specific restriction imposed under the Act, credit cannot be denied. As there is no provision for denying credit under the circumstances, the demand proposed in the impugned notices may not be correct - this writ petitions is partly allowed by relegating the petitioner to file a reply to the impugned notices within a period of thirty days from date of receipt of a copy of this order - Petition allowed in part.

Summary

Issues:
Challenge to notices for reversal of input tax credit on inputs used in the manufacture of internal combustion engine sold to units in Special Economic Zones outside Tamil Nadu.

Analysis:
1. The petitioner challenged notices calling for the reversal of input tax credit on inputs used in manufacturing internal combustion engines sold to units in Special Economic Zones outside Tamil Nadu.
2. The respondents argued that sales to Special Economic Zones are exempted under Section 15 of the TNVAT Act, 2006, and thus, the petitioner should reverse input tax credit.
3. The petitioner contended that sales to Special Economic Zones should be treated as zero-rated sales under Section 18 of the TNVAT Act, 2006, and input tax credit cannot be denied.
4. The petitioner sold internal combustion engines under Section 8(6) of the Central Sales Tax Act, 1956, and claimed that they are not liable to reverse input tax credit.
5. The court analyzed Section 19 of the TNVAT Act, 2006, which governs input tax credit, and noted that denial of credit is restricted under specific circumstances in Section 19(5).
6. The court interpreted Section 19(5)(a), (b), and (c) to determine the applicability of input tax credit denial in the present case.
7. It was established that the restrictions in Section 19(5)(a) and (c) do not apply to inputs used in manufacturing goods sold under Section 8(6) of the CST Act, 1956.
8. The court referred to judicial precedents emphasizing the importance of interpreting tax laws strictly and not implying restrictions that are not expressly stated.
9. Ultimately, the court concluded that there was no provision to deny input tax credit in the circumstances of the case and allowed the writ petitions partially.
10. The petitioner was directed to respond to the notices, and the respondents were instructed to consider the submissions and pass appropriate orders in accordance with the law.

This comprehensive analysis of the judgment highlights the key arguments, legal provisions, and the court's interpretation, providing a detailed understanding of the case.