2015 (5) TMI 295 - HC - VAT and Sales Tax

Adjustment of carried forward input tax credit - Levy of penalty - Demand of interest - Held that - when on assessment the assessee / dealer is held to be entitled to a particular Input Tax Credit, in that case, the assessee/dealer is entitled to the benefit of Rule 18 of the Rules, 2006 and is entitled to adjust such Input Tax Credit against its output tax liability under the VAT Act of the current year under consideration. Merely because while submitting the Form No.108 the assessee/dealer submitted the claim of Input Tax Credit more than which is held to be admissible on assessment may be original assessment or even audit assessment or even reassessment, by that itself is no ground to deny the assessee/dealer to adjust the admissible Input Tax Credit against its output tax liability of VAT Act of the current year under consideration. Dealer can adjust the tax liability out of the amount in the current year of tax liability out of the Input Tax Credit available in the credit of the dealer. - Decision of State of Gujarat Versus Cosmos International Ltd. 2015 (4) TMI 779 - GUJARAT HIGH COURT followed - Decided against Revenue.

Issues Involved:
1. Whether the Tribunal erred in adjudicating on merits despite the first appellate authority adjudicated on the issue of pre-deposit?
2. Whether the Tribunal erred in deleting the levy of penalty merely because the assessee had excess input credit adjustable against tax demand?
3. Whether the Tribunal erred in directing that interest is payable on demand reduced by input tax credit carried forward and tax paid after assessment?

Issue-wise Detailed Analysis:

1. Adjudication on Merits Despite Pre-deposit Issue:
The appellant-State argued that the Tribunal should not have entered into the merits of the case as the appeal before the Tribunal was against the order of the first appellate authority, which dismissed the appeal on the ground of non-deposit of pre-deposit. The appellant cited previous decisions of the Court to support this claim. The respondent-dealer conceded that the Tribunal should have restricted the appeal to the issue of pre-deposit and not delved into the merits of the case. However, it was argued that since the main issue regarding tax liability and Input Tax Credit (ITC) had already been conclusively decided by the Division Bench of the Court in the case of State of Gujarat Vs. Cosmos International Ltd., remanding the matter would be academic and unnecessary. The Court agreed that the Tribunal's decision to delve into the merits was inappropriate but chose to consider the issue on merits due to the conclusive nature of the Cosmos International Ltd. decision.

2. Deletion of Penalty Due to Excess Input Credit:
The Tribunal's decision to delete the penalty imposed on the assessee was challenged on the grounds that the assessee had excess input credit adjustable against the tax demand. The Court referenced the Cosmos International Ltd. decision, which confirmed that a dealer is entitled to adjust the tax liability out of the amount in the current year of tax liability from the ITC available in the dealer's credit. The Court reiterated that the admissible ITC should be adjusted against the output tax liability of the current year, and any remaining ITC should be carried forward to the next year. The Tribunal's decision to delete the penalty was thus upheld as it aligned with the established legal framework.

3. Interest Payable on Demand Reduced by Input Tax Credit:
On the issue of whether interest is payable on demand reduced by ITC carried forward and tax paid after assessment, the Court again referred to the Cosmos International Ltd. decision. It was held that the assessee is liable to pay interest only on the dues arising after adjusting the admissible ITC against the tax liability. The Tribunal's direction that interest is payable on the adjusted amount was thus affirmed, as it was consistent with the provisions of the Gujarat Value Added Tax Act and Rules, 2006.

Conclusion:
The Court dismissed the present Tax Appeal, noting that no substantial questions of law arose as proposed by the appellant-State. The decision of the Tribunal was upheld in light of the Cosmos International Ltd. ruling, which had conclusively addressed the issues on merits. The Court found that remanding the matter would serve no fruitful purpose as the first appellate authority would be bound to follow the established decision. Consequently, the Tribunal's decisions on deleting the penalty and directing the payment of interest on the adjusted demand were affirmed. No costs were awarded.

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