2018 (6) TMI 902 - HC - VAT and Sales Tax

Validity of Assessment Order - TNVAT Act - denial of Input Tax Credit - Stock Variation - Penalty u/s 27(3) of the Act - whether the manner in which the impugned Assessment made is legally sustainable? - Held that - The only reason given by the respondent for denying the Input Tax Credit on the said amount is that their selling dealers have not paid the tax collected from the petitioner into the Government Treasury. Thus, it is not on account of the default committed by the petitioner, but even as per the demand of the respondent, it is on account of the fact that petitioner s selling dealer has not remitted the tax collected into the Government Treasury. This cannot be a reason for reversing the Input Tax Credit, as held by this Court in Sri Vinayaga Agencies Vs. Assistant Commissioner (CT), Vadapalani 2013 (4) TMI 215 - MADRAS HIGH COURT - denial of credit unsustainable. Stock variation - The respondent has failed to take note of any of the objections filed by the petitioner in their reply dated 10.01.2018 - Held that - The respondent merely proceeded on the basis that the defects were admitted during the course of inspection. This finding is illegal and not sustainable - The respondent, being a statutory authority, is bound to consider the objections filed by the petitioner and the documents produced, examine the correctness of the same and then take a decision - the finding with regard to the second issue set aside. Penalty u/s 27(3) of the Act - Held that - The respondent should bear in mind the legal principle, which has been evolved in various decisions and as to when and under what circumstances, penalty would be attracted - in the absence of any specific reason recorded by the authority, attributing mens rea to the petitioner, the question of levy of penalty or making equal time addition does not arise - penalty set aside. Petition allowed.

Summary

Issues:
1. Denial of Input Tax Credit due to mismatch and stock variation.
2. Failure to consider objections filed by the petitioner.
3. Levy of penalty under Section 27(3) of the Act.

Analysis:

Issue 1: Denial of Input Tax Credit
The petitioner challenged the Assessment Order under the Tamil Nadu Value Added Tax Act for the year 2015-16, contesting the reversal of Input Tax Credit. The respondent alleged a mismatch in the Department Web portal and stock variation during inspection. The petitioner argued that they had provided all details accurately and supported their claim with relevant documents. They cited previous court judgments to support their position. The High Court found the denial of Input Tax Credit unjustified, as it was due to the selling dealer's failure to remit taxes, not the petitioner's fault. The Court emphasized that the denial based on this reason was unsustainable in law, citing precedent cases. The respondent's misunderstanding of legal principles and misapplication of judgments led to the setting aside of the denial of Input Tax Credit.

Issue 2: Failure to Consider Objections
Regarding stock variation, the petitioner raised objections to the inspection findings, highlighting discrepancies in tax rates applied and the methodology used. However, the respondent failed to address these objections and proceeded with the assessment based on assumed defects. The High Court ruled that the respondent's failure to consider the objections and documents submitted by the petitioner rendered the assessment illegal and unsustainable. The statutory authority's obligation to review objections and evidence before making a decision was emphasized, leading to the setting aside of the assessment on stock variation for fresh consideration.

Issue 3: Levy of Penalty
The High Court addressed the issue of penalty under Section 27(3) of the Act, noting the absence of specific reasons attributing mens rea to the petitioner in the assessment order. The Court emphasized the necessity of recording reasons for penalty imposition and equal time addition, citing legal principles from previous judgments. As the respondent failed to provide adequate justification for the penalty, the High Court set aside the levy of penalty.

In conclusion, the High Court allowed the writ petition, directing the respondent to grant Input Tax Credit, reconsider stock variation issues, and set aside the penalty imposition due to the lack of proper reasoning. The judgment highlighted the importance of legal principles, proper consideration of objections, and justification for penalties in assessment proceedings under the Tamil Nadu Value Added Tax Act.