2016 (12) TMI 510 - HC - VAT and Sales Tax

Partial rejection of the petitioner's applications for refund of the input tax credit for the period from July 2015 to June 2016 - wastage under Section 19(9) of the TNVAT Act - the respondent adopted a percentage of 5% and 1% respectively - Held that - to ascertain as to whether there are quantum of loss of goods, which were purchased, on which, tax was paid, the Assessing Officer has to conduct an exercise, by which, he has to ascertain as to what would be the loss and uniform or ad hoc percentage cannot be adopted. To do so, it would be necessary for the Assessing Officer to conduct an inspection of the place of business of the petitioner to acquaint himself with the manufacturing process. However, since the respondent has adopted a uniform percentage, the same calls for interference. With regard to the second issue wherein the respondent rejected the claim for input tax credit on certain purchases effected on the ground that the commodities were not exported is concerned, the petitioner's case is that those products are used in the manufacture of other goods, which are exported, as specified under Sub-Section (1) of Section 8 of the State Act and they are entitled to avail the input tax credit. However, the petitioner had no opportunity to put forth their objections on the above head. The last issue is with regard to the rejection of the claim for refund of input tax credit on capital goods. The respondent has not assigned any specific reasons for rejection, but stated that the claim is in dispute. The nature of the dispute has not been spelt out in the impugned order. That apart, the petitioner did not have any opportunity to put forth their objections. Therefore, the findings rendered by the respondent on all the above three heads call for interference. The writ petitions are allowed by setting aside the findings of the respondent on the above three heads and the respondent is directed to issue a show cause notice to the petitioner on all the above three heads. On receipt of the notice, the petitioner shall file their objections and on receipt of the objections, the respondent shall cause an inspection of the petitioner's factory to acquaint himself regarding the manufacturing process so as to enable him to ascertain the invisible loss and the visible loss and thereafter, after affording an opportunity of personal hearing to the petitioner, redo the assessment on the above three heads by passing a speaking order in accordance with law - appeal allowed by way of remand.

Summary

Issues involved:
Challenged partial rejection of refund applications for input tax credit; reversal of input tax credit on wastage under Section 19(9) of the State Act; ineligible claim of input tax credit for certain purchases; claim of input tax credit on capital goods.

Analysis:

1. Reversal of Input Tax Credit on Wastage:
The petitioner challenged the rejection of refund applications for input tax credit. The court noted that no show cause notice was issued before rejecting the claim, violating principles of natural justice. The respondent adopted uniform percentages for invisible and visible loss, contrary to the requirement of a fact-finding exercise. Citing a previous case, the court emphasized the need for the Assessing Officer to conduct an inspection to determine actual loss instead of relying on uniform percentages. The court held that the rejection based on uniform percentages was not sustainable and called for interference.

2. Ineligible Claim of Input Tax Credit:
The respondent rejected the input tax credit claim on certain purchases, alleging non-export of commodities. The petitioner contended that the goods were used in manufacturing exported products, entitling them to the credit. Referring to a similar case, the court highlighted the importance of considering whether the purchased raw materials were used in manufacturing goods specified for export. The court directed the respondent to reconsider the claim after conducting an inspection to understand the manufacturing process. The court found the rejection under this head required interference.

3. Claim of Input Tax Credit on Capital Goods:
The respondent rejected the claim for input tax credit on capital goods without specifying reasons or providing an opportunity for objections. The court held that the lack of reasons and absence of opportunity for the petitioner to present objections warranted interference. The court directed the respondent to issue a show cause notice, allowing the petitioner to file objections and conducting an inspection of the factory before reassessing the claim on all three heads. The court emphasized the need for a speaking order in accordance with the law.

In conclusion, the court allowed the writ petitions, setting aside the findings of the respondent on all three issues and directing a detailed reassessment process in compliance with the principles of natural justice and legal requirements.