2019 (12) TMI 66 - HC - VAT and Sales Tax

Principles of natural justice - allegation that the Department had not revealed its mind as to the modification that it seeks to effect to the returned turnover - It is only in the impugned order of assessment that the Assessing Officer reveals what exactly he had in mind in regard to the proposed modification - petitioner has utilised the CPP to generate electricity, the turnover from which is exempt from tax - Applicability of provisions of Section 19(6) of TNVAT Act - HELD THAT - In the present case, the pre-assessment notices dated 24.06.2014 and 31.07.2014 call for details of nature of capital goods purchased, date of commencement of production, location and plant where the capital goods are used and commodity code. To what use the Assessing Officer intends to put these details are unknown till the order of assessment is actually received by the assessee. Though opportunity has been extended, it can hardly be said to be effective in the present case. The prevailing position in law is to the effect that an assessee is entitled to ITC pro rata on capital goods used both in the manufacture of taxable as well as exempt commodities. This aspect of the matter requires adjudication by the Officer. The impugned assessment order is thus set aside in the light of the fact that this position has neither been effectively captured or dealt with by the Assessing Officer in the impugned order nor for the reason that the pre-assessment proposals issued prior to completion of assessment do not put this issue for rebuttal to the assessee. The assessee is directed to appear before the Assessing Officer along with written submissions and quantification of the proportionate proposed claim of ITC and all supporting details in connection therewith - petition allowed by way of remand.

Summary

Issues:
1. Adherence to principles of natural justice in assessment process.
2. Eligibility of Input Tax Credit (ITC) on capital goods used for power generation.
3. Interpretation of Section 19(6) of the Tamil Nadu Value Added Tax Act, 2006.
4. Provisions of ITC on capital goods used in the manufacture of both taxable and exempt goods.
5. Adequacy of notice and opportunity given to the assessee for effective response.

Analysis:

1. The judgment addresses the issue of adherence to principles of natural justice in the assessment process. While acknowledging that there was no strict non-adherence, the court notes that the Department failed to reveal its mind regarding the modification sought in the returned turnover, impacting the effectiveness of the assessment process.

2. The case revolves around the eligibility of Input Tax Credit (ITC) on capital goods used for power generation by the petitioner, a steel manufacturer. The Assessing Officer contended that since the turnover from electricity generation was exempt from tax, ITC on capital goods exclusively used for this purpose should not be allowed under Section 19(6) of the Act.

3. Section 19(6) of the Act prohibits ITC on capital goods exclusively used in the manufacture of goods exempted under Section 15. The court notes that the Officer revealed the modification sought only in the final assessment order, creating ambiguity for the assessee and hindering a fair opportunity to respond effectively.

4. The judgment delves into the provisions of Section 19(2)(iv) and 19(6), highlighting the denial of ITC on capital goods exclusively used in the manufacture of exempt goods. It mentions the amendment by Tamil Nadu Act 21 of 2007, allowing prorata ITC on capital goods used for both taxable and exempt goods, emphasizing the need for proper assessment and calculation of ITC entitlement.

5. The court finds that the notices issued to the assessee lacked specificity on the intended use of the details requested, leading to ineffective communication of the issues at hand. It sets aside the impugned assessment order, directing the assessee to appear before the Assessing Officer for a de novo assessment with clear submissions on the proportionate ITC claim and supporting details.

In conclusion, the judgment emphasizes the importance of clarity and effective communication in the assessment process, ensuring that the assessee is adequately informed and afforded a fair opportunity to respond.