2020 (9) TMI 298 - HC - VAT and Sales Tax

Recovery of tax alongwith Interest - allegation that the defendant has failed in paying the tax collected from the plaintiff and so also, the defendant has not filed VAT- 100 Returns - cause of action for the plaintiff to file the suit, present or not. Whether the Trial Court has committed an error in dismissing the suit in coming to the conclusion that there is no cause of action for the plaintiff to sue the defendant? - HELD THAT - The Trial Court has not committed any error in coming to the conclusion that mere demand made by the Department against the plaintiff cannot raise any cause of action to institute the suit against the defendant. It is also pertinent to note that in Exs.P1 and P3, the Department while passing the order made an observation that the purchase made by the assessee- Company paid the tax, but such of those purchase transactions are bogus and not genuine business transactions. The same goes against the assessee- Company and further observed that the details of input tax availed by the assessee-Company is incorrect and when such an observation has been made and when the assessee-Company has not placed any semblance of material before this Court for having again paid the tax which has not been paid by the defendant, no cause of action arises for the plaintiff to recover the same from the defendant. This Court has already observed that in terms of Exs.P2 and P4, there was a demand and having paid the tax again in terms of Exs.P2 and P4 insofar as non-payment of the tax by the defendant, if any payment is made, then automatically, the plaintiff would get the cause of action to institute the suit against the defendant and no such material is placed for having paid the amount in terms of demand made as per Exs.P2 and P4. When such being the case, there are no error committed by the Trial Judge in appreciating the material available on record. The appeal is dismissed.

Summary

Issues:
Challenge to judgment and decree of dismissal for recovery of VAT amount with interest at 18% per annum.

Analysis:
1. The plaintiff, a private limited company, purchased input materials from the defendant, paid VAT, and took credit in their accounts. The VAT Department denied credit of certain amounts, alleging that the defendant failed to remit taxes collected from the plaintiff.
2. The plaintiff demanded the defendant to make good the amount owed, but the defendant did not respond. The plaintiff filed a suit for recovery, and the Trial Court issued notice to the defendant, who did not appear and was placed ex-parte.
3. The Trial Court dismissed the suit, stating no cause of action for the plaintiff. The plaintiff contended errors in the Trial Court's judgment, emphasizing the defendant's failure to fulfill statutory obligations and the plaintiff's payment of VAT to the defendant.
4. The plaintiff argued that the Trial Court misconstrued facts and failed to consider crucial evidence, including final orders of assessment and demand notices issued by the VAT Department.
5. The appellant's counsel highlighted that the defendant collected tax but did not remit it to the Department, leading to proposition notices and demands against the plaintiff. The Trial Court's conclusion of no cause of action was challenged.
6. The Court analyzed the evidence, including orders under Section 39(1) of the Act, and observed that the plaintiff did not provide proof of paying VAT to the Department after demands were made. Without such proof, the Court found no cause of action to sue the defendant.
7. The Court noted that the Trial Court's decision was not erroneous, as the plaintiff failed to demonstrate payment of VAT to the Department, which was crucial for establishing a cause of action.
8. The appellant's argument based on Sections 38 and 39 of the Act was considered, but the Court upheld the Trial Court's decision, dismissing the appeal due to the lack of evidence supporting the plaintiff's claim.

Conclusion:
The Court dismissed the appeal, affirming the Trial Court's decision that there was no cause of action for the plaintiff to sue the defendant for recovery of the VAT amount. The lack of evidence of VAT payment to the Department after demands were made led to the dismissal of the suit.