2020 (9) TMI 299 - HC - VAT and Sales Tax

Input Tax Credit - restriction of the amount of Input Tax Credit claimed in Form W for the months of December 2013 to May 2014 - Prior sufferance of Taxes - ITC on reversal on wastage - Ineligible claim of ITC on goods. Restriction of the amount for prior sufferance of taxes - HELD THAT - This issue has been dealt with in the case of Assistant Commissioner (CT), presently ASSISTANT COMMISSIONER (CT) , PRESENTLY THIRUVERKADU ASSESSMENT CIRCLE, KOLATHUR, CHENNAI VERSUS INFINITI WHOLESALE LTD. 2016 (9) TMI 1431 - MADRAS HIGH COURT , wherein it has held that Input Tax Credit cannot be disallowed on the ground that the seller has not paid tax to the Government, when the purchaser is able to prove that the seller has collected tax and issued invoices to the purchaser. As such, restriction of the amount of Input Tax Credit on this ground, cannot be sustained and requires re-consideration. Restriction of Input Tax Credit claim wastages - HELD THAT - This Court in the case of M/S. SHRI RANGANATHAR VALVES PRIVATE LIMITED VERSUS THE ASSISTANT COMMISSIONER (CT) 2016 (12) TMI 510 - MADRAS HIGH COURT has held that To ascertain as to whether there are quantum of loss of goods, which were purchased, on which, tax was paid, the Assessing Officer has to conduct an exercise, by which, he has to ascertain as to what would be the loss and uniform or ad hoc percentage cannot be adopted. To do so, it would be necessary for the Assessing Officer to conduct an inspection of the place of business of the petitioner to acquaint himself with the manufacturing process. However, since the respondent has adopted a uniform percentage, the same calls for interference - Thus, it is open to the Assessing Officer to issue a show cause notice to the petitioner calling for his objections with regard to Input Tax Credit on reversal on wastage and Ineligible claim of ITC on goods are concerned. The issue with regard to restriction of the amount of Input Tax Credit for prior sufferance of taxes is remanded back to the Assessing Officer for fresh consideration - Petition disposed off.

Summary

Issues:
Restriction of Input Tax Credit (ITC) claimed in Form W for the months of December 2013 to May 2014 for separate orders for every month based on (a) Prior sufferance of Taxes, (b) ITC on reversal on wastage, and (c) Ineligible claim of ITC on goods.

Analysis:

1. Prior Sufferance of Taxes:
The Assessing Officer restricted the ITC amount based on the premise that some sellers from whom the petitioner purchased goods had not paid taxes to the Government. However, a precedent case highlighted that ITC cannot be disallowed solely because the seller did not pay taxes if the purchaser can prove that the tax was collected and proper invoices were issued. Therefore, the restriction on ITC due to prior sufferance of taxes was deemed unsustainable and required reconsideration.

2. ITC on Reversal on Wastage:
The judgment referred to a case where the Assessing Officer adopted uniform percentages for invisible and visible loss in the reversal of ITC claim on wastage. The court emphasized that a fact-finding exercise was necessary to ascertain the actual loss of goods purchased, and uniform percentages should not be arbitrarily applied. The Assessing Officer was directed to conduct an inspection of the petitioner's business premises to understand the manufacturing process accurately. The court set aside the orders that reversed ITC based on uniform percentages and allowed the Assessing Officer to issue appropriate show cause notices for a fair assessment.

3. Ineligible Claim of ITC on Goods:
The judgment also addressed the rejection of ITC claims on goods that were not exported. The petitioner argued that these goods were used in manufacturing other goods that were exported, making them eligible for ITC under the State Act. However, the petitioner was not given an opportunity to present objections on this issue. Following the precedent case, the court suggested calling for objections from the petitioners to ensure a fair evaluation of the ITC claims on goods.

Conclusion:
The impugned orders were set aside, and the issue of restricting the ITC amount for prior sufferance of taxes was remanded to the Assessing Officer for fresh consideration. The Assessing Officer was directed to provide a personal hearing to the petitioner and complete the proceedings within twelve weeks. Additionally, the Assessing Officer was permitted to issue show cause notices regarding the reversal of ITC on wastage and the ineligible claim of ITC on goods, following the guidelines established in the judgment. The Writ Petition was disposed of with no costs incurred.