2021 (3) TMI 896 - HC - VAT and Sales Tax

Exemption in terms of Entry 65/Schedule A of TNVAT Act - turnover from sale of rice bran oil less than ₹ 5.00 crores - forfeiture of tax in terms of Section 40(2)(ii) - reversal of input tax credit - HELD THAT - The Central Excise Act 1944 permits the issuance of Notifications in terms of Section 37B of that enactment. There is not, in my view, any discernible distinction between an exemption offered under Notification (as is the case under Central Excise law) or under the Schedule to the Act (as in the case before me. The crux of the matter remains that the assessee must have freedom to choose whether or not it wishes to avail of the benefit offered The exemption available under Entry 65/Schedule A is an option that has not been availed by the present petitioner and I see no legal flaw in the choice made. The petitioner will have to sink or sail on the basis of the decision taken by it, qua exemption. In this case, the petitioner has, while eschewing exemption, claimed ITC on purchases. The respondent, while rejecting the claim for ITC has fortified the tax collected in terms of Section 41 of the TNVAT - The grant of credit is conditional upon the status of a dealer as taxable , and hence a dealer falling outside the ambit of taxability was not extended the benefit of ITC, which is a concession under the statute, as seen from a reading of the charging section, Section 3, read with Section 19, dealing with Input tax credit. The feature of input tax credit is what gives value added taxes their main economic characteristic, that of neutrality. The full right to deduction of input tax through the supply chain, with the exception of the final consumer, ensures neutrality of the tax, whatever be the nature of the product, the structure of the distribution chain and the technical means used for its delivery, either via brick and mortar establishments, physical delivery or the Internet. This is a measure of avoiding the ills of cascading taxes. To deny the petitioner the benefit of ITC by thrusting an exemption not claimed by it, upon it, will be contrary to the scheme of the enactment. Petition allowed.

Summary

Issues:
1. Whether the petitioner is entitled to exemption under Entry 65/Schedule A of the Tamil Nadu Value Added Tax Act, 2006?
2. Can an exemption be forced upon an assessee even if they are eligible to claim it?
3. Is the grant of Input Tax Credit (ITC) conditional upon the turnover of the dealer?
4. Whether the amended provision regarding ITC eligibility is applicable for prior periods?
5. Does the denial of ITC contradict the neutrality principle of value-added taxes?

Analysis:

1. The petitioner, a dealer under the Tamil Nadu Value Added Tax Act, 2006, was initially proposed to forfeit tax collected due to turnover below the exemption limit. However, after a factual dispute regarding turnover, it was established that the turnover was above the limit, making the petitioner ineligible for exemption under Entry 65/Schedule A.

2. The court examined whether an exemption can be thrust upon an assessee even if they are eligible. Drawing from analogous situations under the Central Excise Act, it was concluded that the petitioner should have the choice to avail or eschew the exemption, as long as it falls within the legal framework.

3. The issue of Input Tax Credit (ITC) eligibility was raised, emphasizing that an eligible assessee should have the option to claim the exemption. The court highlighted that the denial of ITC should not contradict the legal provisions, and the assessee should be allowed to decide on the exemption.

4. Regarding the applicability of the amended provision for ITC eligibility to prior periods, the court analyzed the prospective nature of the amendment. It was clarified that entities falling below the taxable limit but remitting tax in time are now given the benefit of ITC, provided they meet the tax liability.

5. Lastly, the court discussed the economic characteristic of value-added taxes, emphasizing the importance of ITC in maintaining tax neutrality. Denying the petitioner the benefit of ITC by imposing an unclaimed exemption was deemed contrary to the tax scheme and the principle of neutrality.

In conclusion, the Writ Petition was allowed, with no costs, and connected Miscellaneous Petitions were closed, based on the detailed analysis of the issues involved in the judgment delivered by the Madras High Court.