2020 (10) TMI 816 - HC - VAT and Sales Tax

Scope of Section 7(1)(a) of the Tamil Nadu Value Added Tax Act - allegation that the petitioners had claimed ITC while effecting local sales of food and drinks, they would fall under Section 7(1)(a) - whether the Department was right in bringing the petitioners, which are Hotels, of non-star category, under the purview of Section 7(1)(a) of the Tamil Nadu Value Added Tax Act, on the ground that they have claimed the Input Tax Credit (ITC). HELD THAT - Perusal of the Act clearly reveals that while Section 7(1)(a) applies to Star Hotels, Section 7(1)(b) would be made applicable for the Hotels, which are not under the Star Category . The distinction is very clear on a bare reading of the section itself. As such, the very basis on which the petitioner has been brought under the purview of Section 7(1)(a), is contrary to the provision. As rightly pointed out by the learned counsel for the petitioner, even assuming that the petitioner had wrongly claimed ITC, the only option available to the Department would be to reverse the ITC as provided under Section 27(2) of the TNVAT Act. Such a submission is correct and proper. As such, if the respondent was of the view that the claim of ITC has been wrongly made, the only option available is to reverse such an ITC instead of bringing them under the purview of Section 7(1)(a) of the TNVAT Act. As such, the levy of tax under Section 7(1)(b) and the consequential penalty imposed, cannot be sustained. However, if the respondent is granted an opportunity to rework the issue by taking into consideration the observations made in this order, the ends of justice could be secured. Matter are remanded back to the respondent for fresh consideration after giving due opportunity of personal hearing to the petitioner, as expeditiously as possible - petition allowed by way of remand.

Summary

Issues:
Interpretation of Sections 7(1)(a) and 7(1)(b) of the TNVAT Act regarding the tax liability of non-star category Hotels claiming Input Tax Credit (ITC).

Analysis:
The primary issue in this case revolved around the correct application of Sections 7(1)(a) and 7(1)(b) of the TNVAT Act to non-star category Hotels claiming Input Tax Credit (ITC) for local sales of food and drinks. The Department contended that since the petitioners had claimed ITC, they should be brought under the purview of Section 7(1)(a), applicable to Star Hotels. On the other hand, the petitioner argued that being a non-Star Hotel, they should only be liable to pay tax under Section 7(1)(b) of the TNVAT Act.

Upon a careful examination of the provisions of the TNVAT Act, the Court observed that Section 7(1)(a) specifically pertains to Star Hotels, while Section 7(1)(b) is intended for Hotels not falling under the Star category. The distinction between the two sections is evident from a plain reading of the law. Therefore, the basis on which the petitioners were brought under Section 7(1)(a) was found to be contrary to the statutory provision.

Furthermore, the Court emphasized that even if the petitioners had erroneously claimed ITC, the appropriate recourse for the Department would be to reverse the ITC as per Section 27(2) of the TNVAT Act. Bringing the petitioners under Section 7(1)(a) was deemed improper, and the levy of tax under Section 7(1)(b) along with any penalties imposed could not be upheld. The Court directed the respondent to reconsider the matter, granting the petitioner a fair opportunity for a personal hearing to rectify the issue promptly.

Conclusively, the Court set aside the impugned orders passed by the respondent and remanded the matters for fresh consideration in light of the observations made in the judgment. All the Writ Petitions were allowed, and the connected Miscellaneous Petition was closed without any costs being imposed.