2020 (4) TMI 141 - HC - VAT and Sales Tax

Input tax credit - Denial of ITC in the hands of purchasing dealer or recovery from the seller for failure to deposit the tax - right to claim input tax credit against his out put tax credit under the provisions of 19(1) of the Act - HELD THAT - Prior to amendment and substitution of proviso under Section 19(1) of the Act, with effect from 29.1.2016, the period in question, is covered by the pre-amendment position of law and since the proviso (1) to section 19, which is prior to 29.1.2016, only requires the registered dealer namely, the purchasing dealer to establish that the tax due on such purchase has been paid by him in the manner prescribes, this fact was duly proved by the purchasing dealer in the present case and the assessing authority himself has noted the said fact, therefore, there was no question of denying the input tax credit in the hands of the purchasing dealer against out put dealer, in terms of 19(1) of the Act, as it stood for the period in question 2009-2010. Such giving of input tax credit in the hands of purchasing dealer, however does not deprive Revenue authorities to proceed against the selling dealer M/s Tvl.Classic Enterprises, to recover the tax paid by the Purchasing dealer. In the present case, for non-deposit of due tax collected form the purchasing dealer M/s.Vinayaga Agencies, the Revenue is therefore free to hold enquiry against the selling dealer and collect the Revenue from the selling dealer, which money in the hands of selling dealer, is held in trust for the State by the selling dealer. It is not the case of the Revenue before us that the selling dealer in the present case is a non- existent or a ghost dealer. The identity and registration of the selling dealer and the fact that he collected the tax from the purchasing dealer in question are duly proved on record and are not disputed. The respondent are directed to allow the ITC in the hands of purchasing dealer under Section 19(1) of the Act - appeal dismissed.

Summary

Issues:
1. Appeal against order allowing input tax credit under TNVAT Act, 2006.
2. Claim of input tax credit by purchaser based on payment to selling dealer.
3. Interpretation of Section 19(1) proviso prior to 2016 amendment.
4. Revenue's contention on safeguarding interest in case of non-payment by selling dealer.
5. Justification of allowing input tax credit to purchasing dealer.
6. Authority to proceed against selling dealer for tax recovery.

Analysis:
1. The appeal challenged the order allowing input tax credit to the purchaser under the Tamil Nadu Value Added Tax (TNVAT) Act, 2006. The Single Judge had ruled in favor of the assessee, Tvl.Vinayaga Agencies, stating that the purchaser is entitled to claim input tax credit under Section 19(1) of the Act if they prove payment of due tax to the selling dealer. The judgment emphasized the importance of complying with Rule 10(2) for availing the proviso to Section 19(1) of the TNVAT Act.

2. The assessing authority confirmed that the petitioner had paid the tax to the selling dealer, Tvl.Classic Enterprises, for lubricant purchases. Despite the selling dealer's failure to deposit the tax with the department, the petitioner was justified in claiming input tax credit as they had fulfilled their tax obligations. The judgment highlighted the distinction between the responsibilities of the purchasing and selling dealers in tax transactions.

3. The Court analyzed the pre-amendment position of Section 19(1) of the TNVAT Act before the 2016 changes. It was established that the purchasing dealer, by proving payment of due tax to the selling dealer, should not be denied input tax credit. The judgment clarified that allowing input tax credit to the purchasing dealer did not prevent the Revenue authorities from taking action against the selling dealer for tax recovery.

4. The Revenue's argument regarding safeguarding its interest in cases where the selling dealer does not deposit the tax was considered. The Court emphasized that the Revenue could pursue the selling dealer for tax recovery, as the tax collected by the selling dealer was held in trust for the State. The judgment underscored the importance of differentiating between genuine selling dealers and non-existent or ghost dealers.

5. The Court upheld the Single Judge's decision to allow the writ petition filed by the assessee, directing the respondent to permit input tax credit to the purchasing dealer under Section 19(1) of the TNVAT Act. The judgment reinforced the legal position that the purchasing dealer, upon proving tax payment to the selling dealer, should not be deprived of input tax credit against their output tax liability.

6. In conclusion, the appeal was dismissed, and no costs were awarded. The judgment affirmed the authority's right to proceed against the selling dealer for tax recovery, ensuring that the tax system's integrity and compliance were maintained.