2013 (4) TMI 215 - HC - VAT and Sales Tax

Input tax credit denied - as per dept.selling dealer has not paid the tax - Held that - Sub-section (16) of Section 19 states that the input tax credit availed is provisional. It, however, does not empower the authority to revoke the input tax credit availed on a plea that the selling dealer has not paid the tax. It only relates to incorrect, incomplete or improper claim of input tax credit by the dealer. In the present case, the petitioner-dealer, admittedly, had paid the tax to the selling dealer and claimed input tax credit and that was accepted at the time when the self-assessment was made. Even the pre-revision notices and the orders under challenge fairly state that the petitioner-dealer had paid tax to the dealer. It is, therefore, for the department to proceed against the selling dealer for recovery of tax in the manner known to law. The provision under which the present action has been initiated, namely invoking sub-section (16) of Section 19, does not appear to be correct on the admitted facts as above. All the revision orders revising the input tax credit on the admitted case of tax having been paid to the selling dealer, therefore, are found to be totally incorrect, erroneous and contrary to the provisions of the TNVAT Act and Rules. As a result, all the orders are liable to be set aside.

Summary

Issues:
1. Incorrect reversal of input tax credit by the authority.
2. Interpretation of Section 19(1) and Section 19(16) of the TNVAT Act.
3. Liability of the purchasing dealer for non-payment of tax by the selling dealer.

Analysis:

1. The High Court of Madras addressed the issue of incorrect reversal of input tax credit by the authority. Despite the availability of an alternative remedy, the Court found a gross error on the part of the authority in holding the petitioner liable for non-payment of tax by the selling dealer. The Court exercised power under Article 226 to correct this injustice, arbitrariness, and error apparent on the face of the record.

2. The interpretation of Section 19(1) and Section 19(16) of the TNVAT Act was crucial in this case. Section 19(1) allows input tax credit if the purchasing dealer establishes that the tax due on the purchase has been paid in the prescribed manner. The Court noted that the petitioner had paid the tax to the selling dealer, complying with the proviso to Section 19(1) and Rule 10(2) of the TNVAT Act. On the other hand, Section 19(16) states that input tax credit is provisional and can be revoked for incorrect, incomplete, or improper claims. However, this provision does not empower the authority to revoke input tax credit based on the selling dealer's non-payment of tax.

3. The issue of liability of the purchasing dealer for the non-payment of tax by the selling dealer was also examined. The Court emphasized that the selling dealer's liability for non-payment of collected tax should not be imposed on the purchasing dealer who had already paid the tax and claimed input tax credit correctly. The Court highlighted that the department should pursue recovery of tax from the selling dealer through legal means instead of penalizing the purchasing dealer.

4. In conclusion, the High Court set aside the impugned orders, ruling in favor of the petitioner. The Court found the orders to be irrational, arbitrary, and contrary to the TNVAT Act and Rules. The Court emphasized that all the revision orders were incorrect and erroneous, leading to the decision to allow the writ petitions and close the related motions without costs.