2017 (10) TMI 257 - HC - VAT and Sales Tax

Reversal of ITC - interpretation of statute - proviso to Section 19 (2) (ii) of TNVAT Act - Held that - it appears that the State is in the process of preferring Appeals, by re-presenting the Appeal papers and the Appeals are yet to be numbered. The settled legal position being that, mere pendency of the Appeal(s), without interim order(s), will not amount to the grant of stay of the order(s) passed by the Lower Court or Lower Forum - In the instant cases, it appears that the Appeals filed by the State are yet to be numbered - the decision in the case of M/s. Everest Industries Limited Versus The State of Tamil Nadu, The Deputy Commissioner (CT) (FAC) 2017 (3) TMI 279 - MADRAS HIGH COURT apply, where it was held that the limitation provided in the proviso would apply only vis-a-vis the purpose specified in clause (v) and not qua other purposes set out in clause (i) to (iv) and (vi) of Section 19(2) of the 2006 Act. Writ Petitions are disposed of, by directing the respondent to consider the petitioner s petitions/letters/representations, dated 30.03.2017, taking note of the decision of the Court in M/s. Everest Industries Ltd. s case - petition allowed by way of remand.

Summary

Issues:
Challenge to amendment in Section 19(2) of TNVAT Act regarding input tax credit calculation for inter-state sales supported by Form-C declarations.

Analysis:
The petitioner, a registered dealer under TNVAT Act and CST Act, engaged in hosiery garment manufacturing, challenged an amendment to Section 19(2) of TNVAT Act introduced in November 2013. The amendment, through a proviso, restricted input tax credit to 3% for sales in the course of inter-State trade or commerce under Section 8(1) of CST Act. The petitioner contended that this restriction did not affect their right to claim input tax credit for using tax-suffered goods in manufacturing processes. They relied on a previous judgment, Everest Industries Limited v. State of Tamil Nadu, to support their case.

The respondent, represented by the Government Advocate, mentioned that the Department had appealed the Everest Industries Limited decision. However, the appeal was pending without a number assigned, and certain compliance issues existed. The respondent argued against interference with the impugned orders based on this appeal status.

The Court clarified that the pendency of an appeal did not automatically stay the lower court's order. As the appeal was yet to be numbered, the respondent was bound by the Everest Industries Limited judgment. The Court's analysis of Section 19(2)(v) of TNVAT Act emphasized that the limitation on input tax credit applied only to sales specified in clause (v) and not other purposes listed in the provision.

Consequently, the Court allowed the writ petitions, set aside the impugned orders, and remanded the matter to the respondent for fresh consideration. The respondent was directed to issue notice to the petitioner, provide a personal hearing, review objections, consider the Everest Industries Limited judgment, and redo assessments within twelve weeks. No costs were awarded in this judgment.