2020 (3) TMI 482 - HC - VAT and Sales Tax

Reversal of input tax credit - inter-state sales - case of Revenue is that the petitioner was eligible for ITC only in excess of 3% of Central Sales Tax under Section 8(1) of Central Sales Tax Act, 1956 on the inputs locally purchased by the petitioner whereas case of petitioner is that the petitioner was entitled to avail input tax credit (ITC) under Section 19(1) of the TNVAT Act, 2006 for the purposes enumerated in Section 19(2) of the said Act without any limitation - Section 19(5)(c) of the TNVAT Act. HELD THAT - A plain reading of the section 19(2)(v) as it stood during the period in dispute and thereafter shows that it applies only to the sale of the goods as such. In other words, intention was to restrict the credit only in the case of dealers who were purchasing goods at higher rate of tax and accumulating credit and selling final product under interstate sale at a lower rate of tax - Section 19(2)(v) was never intended apply to a manufacturer as the input tax credit availed by a manufacturer under section 19(1) of TNVAT Act, 2006 was allowed on such input used in the manufacture or process of goods in the State. Since the proviso to Section 19(2) was confined to situations contemplated under Section 19(1)(v) alone, the restrictions contained therein could not apply to dealer engaged in the manufacture or process of goods in the state. The case is remitted back to the respondent to pass fresh order - The respondent shall pass a speaking order in terms of the observation in this order - petition allowed by way of remand.

Summary

Issues:
1. Eligibility for input tax credit under Section 19(2)(v) of the TNVAT Act, 2006.
2. Interpretation of the proviso to Section 19(2)(v) and its applicability to manufacturers.
3. Impact of subsequent amendments on the provisions regarding input tax credit.
4. Judicial interpretation of the statutory provisions and previous decisions.

Analysis:
1. The petitioner challenged an order requiring the reversal of input tax credit under Section 19(5)(c) of the TNVAT Act, 2006. The dispute centered around the eligibility of the petitioner to claim ITC in excess of three percent for sales under Section 8(1) of the Central Sales Tax Act. The impugned order proposed the reversal of ITC based on the formula prescribed for such transactions.

2. The impugned order contended that the petitioner, engaged in inter-state sales under Section 8(2) of the CST Act, was eligible for restricted ITC under Section 19(2)(v) of the TNVAT Act. The commercial tax department argued that the petitioner could claim ITC only in excess of three percent of CST under Section 8(1) for locally purchased inputs. However, the petitioner asserted entitlement to ITC without limitations under Section 19(1) for various purposes, challenging the applicability of the proviso to Section 19(2)(v) on inter-state sales.

3. The court noted the insertion and subsequent deletion of the proviso to Section 19(2)(v) through amendments, aiming to withdraw the restriction on tax credit to enhance competitiveness. The statutory changes reflected the intention to limit credit accumulation for dealers selling goods under inter-state trade. The amendments clarified the scope of ITC provisions and removed the earlier restrictions imposed on manufacturers regarding input tax credit.

4. Relying on a previous decision, the court emphasized that Section 19(2)(v) was not intended to apply to manufacturers availing ITC under Section 19(1) for goods manufactured or processed within the state. The court concurred with the view that the impugned order was unsustainable and required quashing. However, to ensure justice, the case was remanded for a fresh order considering the observations and pending decisions, indicating the need for a speaking order in alignment with the statutory provisions and judicial interpretations.

In conclusion, the judgment addressed the complexities of input tax credit eligibility, statutory amendments, and the proper application of provisions to different categories of taxpayers, emphasizing the need for clarity and consistency in tax laws and administrative decisions.