2024 (12) TMI 462 - HC - VAT / Sales Tax

Reversal of input tax credit pursuant to cancellation of selling / purchasing registration - HELD THAT - The law on this aspect has been settled by the Division Bench of this Court, rendered in the case of Sahyadri Industries Ltd. vs. State of Tamil Nadu 2023 (4) TMI 912 - MADRAS HIGH COURT where it was held that ' it was incumbent on the part of a registered dealer like petitioner-appellants availing input tax credit to prove that indeed a transaction of sale had taken place. They should not only preserve but also produce collateral evidence in the form of transport documents, such lorry receipts or consignment note, etc. When called upon failing which it cannot be said they have discharged the burden of proof required to be discharged under Section 17(2) of the T.N. Vat Act, 2006.' The ratio of the said decision will apply to the facts of this case. Under thes circumstances, the impugned order is set aside and the matter remitted back to the Assessing Officer in light of the decision of this Court rendered in the case of Sahyadri Industries Ltd. - The respondent herein is entitled to produce all documents and is also entitled to file a detailed submission to the notices that were issued prior to the order dated 22.07.2015. Appeal disposed off.

Summary

Issues:
Challenge to order on reversal of input tax credit due to cancellation of registration.

Analysis:
The appellant challenged an order regarding the reversal of input tax credit following the cancellation of selling/purchasing registration. The impugned order was set aside based on precedents cited, including a decision of the Apex Court and a Division Bench of the High Court. The appellant challenged an order dated 22.07.2015, where it was found that ITC was availed without evidence of tax payment by the selling dealer, whose registration was cancelled. The respondent's reply lacked sufficient documentation to prove the sale transaction with the dealer. The law on this matter was clarified by a Division Bench judgment, emphasizing the burden of proof on the dealer availing credit to prove the actual sale transaction.

The Division Bench judgment highlighted that registration obtained solely for availing tax credit without actual sale could lead to denial of credit. The court emphasized the need for registered dealers to provide evidence of sale transactions to substantiate ITC claims. The judgment also addressed the consequences of registration cancellation and the requirement for dealers to repay ITC if no sale evidence is provided. The burden of proof lies with the dealer claiming input tax credit, and failure to provide necessary documents may result in the revocation of credit.

In light of the Division Bench judgment's principles, the impugned order was set aside, and the matter was remitted back to the Assessing Officer for reconsideration. The respondent was granted the opportunity to submit all relevant documents and detailed responses to the notices issued before the order in question. The writ appeal was disposed of with no costs awarded, and related proceedings were closed. The decision emphasized the importance of proving actual sale transactions to support input tax credit claims and highlighted the consequences of failing to discharge the burden of proof required under the law.