2016 (4) TMI 1014 - HC - VAT and Sales Tax

Payment of VAT - Invisible loss of yarn pursuant to manufacturing activity - by following the earlier orders of the Principal Bench of this Court in the case of M/s. Global Calcium P. Ltd. Versus The Assistant Commissioner (Commercial Taxes) 2016 (4) TMI 1013 - MADRAS HIGH COURT , the petition is disposed of. Therefore, the directions given therein shall be followed by the respondents while passing fresh orders in respect of the issue related to invisible loss. - Petition disposed of

Summary

Issues involved:
Challenge to circular on VAT payment for invisible loss of yarn, interpretation of Section 18 and Section 19 of TNVAT Act, validity of assessment orders, examination of manufacturing process for invisible loss, reversal of Input Tax Credit, uniform percentage adoption by Assessing Authorities, remedy for wrong refund under Section 18.

Analysis:

The High Court of Madras addressed various issues related to the payment of VAT on the invisible loss of yarn in a series of Writ Petitions. The Court considered the challenge to a circular regarding VAT payment for invisible loss of yarn and the interpretation of Section 18 and Section 19 of the TNVAT Act. The Court emphasized that Section 18 is not an independent provision but is subject to the restrictions and conditions under Section 19 of the VAT Act. It was highlighted that a dealer claiming refund under Section 18(2) must demonstrate more than just paying Input Tax on purchased goods; they must satisfy the Assessing Authority that the claim complies with Section 19 restrictions. The Court stressed the duty of the Assessing Authority to conduct a fact-finding exercise to ascertain the quantum of loss and ensure compliance with Section 19 restrictions, particularly Section 19(9) of the VAT Act.

Regarding the examination of the manufacturing process for invisible loss, the Court held that Assessing Authorities cannot adopt a uniform percentage as invisible loss without proper examination. Any notices issued for reopening and subsequent orders reversing Input Tax Credit based on adhoc percentages were set aside. The Court granted liberty to Assessing Officers to issue appropriate show cause notices, clearly stating the circumstances for revising or reversing refunds, and allowing dealers to object before proceeding further.

Furthermore, the Court emphasized that the undertaking given by the dealer in Form W is crucial for verification by the Assessing Officer under Rule 11(2) of the VAT Rules for refund entitlement under Section 18(2). The Court clarified that Section 18 is not an independent provision but is subject to the restrictions and conditions under Section 19 of the VAT Act. The judgment provided guidance for Assessing Authorities to follow while addressing issues related to invisible loss, based on previous orders of the Principal Bench of the Court. Ultimately, the Court disposed of the Writ Petitions, directing the respondents to adhere to the earlier orders and procedures outlined in the judgment for handling matters concerning invisible loss.