2025 (4) TMI 424 - HC - VAT / Sales Tax

Wrong availment of Input Tax Credit pursuant to the mismatch noticed between the Input Tax Credit availed by the petitioner and the documents that were filed during the assessment - HELD THAT - A reading of Section 27(4) of TNVAT Act indicates that both before amendment and after amendment there is no scope for any discretion. The petitioner has availed Input Tax Credit which was sought to be denied based on the information gathered by the Commercial Tax Department from the checkpost and web portal - Although Sub-Section 4 to Section 27 of TNVAT Act leaves no scope for discretion in the matter of levy of penalty this Court is of the view that the present case cannot be strictly fit into the penalty as the tax itself has been confirmed pursuant to information gathered from checkpost which is not conclusive of mistakes. Since this case cannot be strictly covered within the purview of Section 27(4) of TNVAT Act although there has been determination under Section 27(2) of TNVAT Act imposition of penalty cannot be justified. Under these circumstances the Impugned Assessment Orders dated 07.02.2017 are partly set aside insofar as the imposition of penalty on the petitioner is concerned. Petition allowed.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

Whether the petitioner wrongfully availed Input Tax Credit (ITC) due to a mismatch between claimed credits and filed documents.
Whether the imposition of a penalty under Section 27(4) of the Tamil Nadu Value Added Tax (TNVAT) Act was justified.
The applicability and interpretation of Circular No.5/2021 issued by the Principal Secretary/Commissioner of Commercial Taxes concerning the resolution of ITC mismatches.

ISSUE-WISE DETAILED ANALYSIS

Input Tax Credit Mismatch

Relevant legal framework and precedents: The TNVAT Act governs the availing of ITC. The Court previously set aside the assessment orders due to procedural discrepancies, referencing the case of M/s.JKM Graphics Solutions Private Limited, which provided guidance on handling ITC mismatches.
Court's interpretation and reasoning: The Court recognized that the mismatch arose from discrepancies in data gathered by the Commercial Tax Department, which were not entirely accurate or conclusive.
Key evidence and findings: The Court noted that the petitioner had already paid the disputed tax and focused on the penalty's validity. The mismatch was due to data from checkposts and web portals, which were not reliable.
Application of law to facts: The Court applied the principles from the JKM Graphics case, emphasizing the need for accurate data verification before denying ITC.
Treatment of competing arguments: The petitioner argued there was no suppression of facts, while the respondents maintained the penalty was justified. The Court sided with the petitioner, highlighting procedural deficiencies.
Conclusions: The Court concluded that the ITC denial was based on unreliable data, necessitating a reconsideration of the penalty imposition.

Imposition of Penalty under Section 27(4) of TNVAT Act

Relevant legal framework and precedents: Section 27(4) of the TNVAT Act prescribes penalties for wrongful ITC claims. The Court examined the scope of discretion under this section.
Court's interpretation and reasoning: The Court found that the section does not allow for discretion in penalty imposition. However, it recognized that the present case involved unique circumstances that did not fit the typical penalty framework.
Key evidence and findings: The Court observed that the tax was confirmed based on flawed data collection processes, and the petitioner had paid the tax under protest.
Application of law to facts: The Court determined that the imposition of a penalty was unjustified, given the procedural issues and the lack of conclusive evidence of wrongdoing.
Treatment of competing arguments: The Court considered the respondents' reliance on Circular No.5/2021 but found it insufficient to justify the penalty.
Conclusions: The Court set aside the penalty portion of the assessment orders, emphasizing the need for fair and accurate tax administration.

Applicability of Circular No.5/2021

Relevant legal framework and precedents: Circular No.5/2021 outlines procedures for resolving ITC mismatches, emphasizing cross-verification and communication between assessing authorities.
Court's interpretation and reasoning: The Court highlighted the circular's role in ensuring accurate assessments and noted its directives were not fully adhered to in this case.
Key evidence and findings: The Court referenced communications between various tax authorities that failed to conclusively resolve the ITC discrepancies.
Application of law to facts: The Court applied the circular's principles to assess the procedural adequacy of the respondents' actions.
Treatment of competing arguments: The respondents argued compliance with the circular, but the Court found procedural lapses.
Conclusions: The Court concluded that the circular's directives were not fully implemented, undermining the penalty's validity.

SIGNIFICANT HOLDINGS

The Court held that the imposition of a penalty under Section 27(4) of the TNVAT Act was unjustified due to procedural deficiencies and unreliable data.
It emphasized the importance of accurate data verification and adherence to procedural guidelines outlined in Circular No.5/2021.
The Court set aside the penalty portion of the assessment orders, providing relief to the petitioner.
Key legal reasoning: "Although Sub-Section 4 to Section 27 of TNVAT Act leaves no scope for discretion in the matter of levy of penalty, this Court is of the view that the present case cannot be strictly fit into the penalty as the tax itself has been confirmed pursuant to information gathered from checkpost which is not conclusive of mistakes."

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