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TMI Blog2018 (4) TMI 1800X X X X Extracts X X X X X X X X Extracts X X X X ..... .2013. The Petitioner Company had paid a total amount of Rs. 13,63,33,030/- inclusive of VAT. The said amount was paid vide various letter of credit, RTGS, cheque. The Petitioner paid a sum of Rs. 13,63,33,030/-, inclusive of all the taxes and VAT within which the amount of Rs. 64,92,054/- was paid by the Petitioner on account of VAT calculated at the rate of 5%. 2.3. The petitioner was filing his quarterly and annual returns with the department on a regular basis for availment of Input Tax Credit, herein after referred to as "ITC" for the VAT amount which was paid to the Respondent No. 5. In fact, the returns were continuously filed for 3 years i e. for the FY 2011- 2012, 2012-2013 & 2013-2014. The Petitioner was never questioned for the default in the VAT amount, it is after the completion of 3 years when the Respondent No. 4 construed a penal action by producing the show cause notice over the Petitioner by virtue of which it claimed that the amount of Rs. 12,04,945/- is due after adjusting an amount of Rs. 64,92,054/-. The amount of Rs. 12,04,945/ cannot be demanded as the petitioner has already paid the same and has the legal right to claim the input credit as per Section 18( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant point needs to be considered that the authority Respondent No. 4 appointed by the Department of Commercial Taxes, Jaipur, Rajasthan was negligent and lethargic in not looking into the matter and responded after 3 long years and it is because of the Section 18(2) under the Rajasthan VAT Act which provides Respondent No. 4 a remedy to cover up its sluggish acts. 3. Counsel for the petitioner contented that now the issues are covered by the Decision of Delhi High Court which is followed by the Punjab and Haryana High Court in M/s Gherulal Bal Chand vs. State of Haryana and Anr., CWP No.6573/2007, decided on 23.09.2011. 4. The Delhi High Court while considering the provisions of Section 9(2)(g) of the Delhi Value Added Tax, 2004 in case On Quest Merchandising India Pvt. Ltd. And Ors. vs. Government of NCT of Delhi and Ors., W.P. (C ) 4046/2013, decided on 26.10.2017 has considered the provisions. Wherein it has found that the Rule required to be laid down and while considering the matter observed as under: 24. On behalf of the Petitioners, the following submissions were made by Mr. N. Venkatraman, the learned Senior Counsel and Mr. Puneet Agrawal, Mr. Rajesh Jain and Mr. Raj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner prepares and issues to the defaulting selling dealer a recovery certificate and thereafter recovers the amount specified in the certificate by attaching the movable and immovable property of or even the arrest of the certificate-debtor; or appointing a receiver for the management of the movable and immovable properties of such certificate-debtor. (iv) The only requirement of law, as far as the purchasing dealer wanting to avail the benefit of ITC is concerned, is that he has to make sure that the selling dealer is a registered dealer and has issued the tax invoice in compliance with the requirement of the DVAT Act and the Rules made thereunder. Once the purchasing dealer demonstrates that he has complied with such requirement, he cannot be denied the ITC only because the selling dealer fails to discharge his obligation under the DVAT Act. From the point of view of the Petitioners in the present case, all of them as purchasing dealers have complied with the requirement of DVAT Act and all of them have ensured that the purchases made by them are in compliance with the requirements of the DVAT Act for claiming ITC. Reliance is placed on the decisions in Corporation Bank v. Saras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fact of non-deposit by the selling dealer of the VAT collected from the purchasing dealer, it cannot be assumed that the purchasing dealer has deliberately failed to pay tax. Therefore, Section 86 (10) cannot be applied straightaway. Reliance is placed on the decisions in Commissioner of Sales Tax, U.P. v. Sanjiv Fabrics : (2010) 9 SCC 630, Jatinder Mittal Engineers and Contractors v. Commissioner of Trade & Taxes : 2011 (46) VST 498 (Del) and Pentex Sales Corporation v. Commissioner of Sales Tax, Delhi : (2014) 67 VST 229 (Delhi). (ix) The penalty under Section 86 (10) is not automatic and has to be preceded by the proper notice being served on the Assessee and an effective opportunity of being heard being given. Reliance is placed on the decision in Commissioner of Income Tax v. Manjunatha Cotton and Ginning Factory : [2013] 359 ITR 565 (Kar.) and Amrit Foods v. Commissioner (2005) 13 SCC 419." Submissions on behalf of the Department 25. In reply, Mr. Satyakam, the learned Additional Standing Counsel for the Department, first referred to the decisions in Rajbala v. State of Haryana : (2016) 2 SCC 445 and Municipal Committee v State of Punjab (1969) 1 SCC 75 to urge that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distinguish such a diligent purchasing dealer from the one that has not acted bonafide. This failure to distinguish bona fide purchasing dealers from those that are not results in Section 9 (2) (g) applying equally to both the classes of purchasing dealers. This would certainly be hit by Article 14 of the Constitution as explained in several decisions which will be discussed hereinafter. 39. Applying the law explained in the above decisions, it can be safely concluded in the present case that there is a singular failure by the legislature to make a distinction between purchasing dealers who have bona fide transacted with the selling dealer by taking all precautions as required by the DVAT Act and those that have not. Therefore, there was need to restrict the denial of ITC only to the selling dealers who had failed to deposit the tax collected by them and not punish bona fide purchasing dealers. The latter cannot be expected to do the impossible. It is trite that a law that is not capable of honest compliance will fail in achieving its objective. If it seeks to visit disobedience with disproportionate consequences to a bona fide purchasing dealer, it will become vulnerable to inva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier, Section 9 (2) is an exception to the general rule granting inputtax credit to dealers who qualify for the benefit. The conditions for operation of the exception are well defined. The absence of any condition such as the one spelt out in clause (g) and its addition in 2010, rules out legislative intention of its being a mere clarification of the law which always existed." 46.6 In the present case, the conditions imposed for the grant of ITC are spelt out in Sections 9 (1) and (2) of the DVAT Act and have been adverted to earlier. The claim of the purchasing dealer in the present case is not that it should be granted that ITC de hors the conditions. Their positive case is that each of them, as a purchasing dealer, has complied the conditions as stipulated in Section 9 and therefore, cannot be denied ITC because only selling dealer had failed to fulfil the conditions thereunder. More importantly, the Court finds that there is no provision in the MVAT Act similar to Section 40A of the DVAT Act. Section 40A of the DVAT Act takes care of a situation where the selling dealer and the purchasing dealer act in collusion with a view to defrauding the Revenue. In fact, the operat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessary particulars for directions in this behalf for which liberty is granted, as prayed for. Pending application(s), if any, stand disposed of." 6. Counsel for respondent has strongly relied upon the Bombay High Court judgment and contended that the Rule 18 which reads as under: "18. Computation of input tax credit (1) The extent of input tax credit available to a registered dealer, for a tax period, shall be equal to the amount of tax paid on purchases in the State as evident from the Original VAT invoice, and where such invoice has been lost or destroyed, on the basis of duplicate copy thereof issued to him in accordance with sub- rule (4) of rule 38, However, claim of input tax credit of the additional tax deposited may be allowed on the basis of VAT invoice which has been issued subsequently in compliance of the decision of any competent court or authority, showing the tax at higher rate. The extent of input tax credit available to a registered dealer shall be equal to the amount of tax paid on purchases in the State as evident from the VAT invoice, subject to the other provisions of this rule and the following conditions:- (i) that such dealer has maintained a true a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the province of a legitimate tax enactment and the legislature is within its power in requiring a refund to be applied for within a reasonable period. The right to obtain a set off is a right conferred by statute and the legislature while recognizing an entitlement to a set off in certain circumstances is lawfully entitled to prescribe the conditions subject to which a set off can be obtained. If the legislature, as in the present case, prescribes that a set off should be granted only to the extent to which tax has been deposited in the treasury on the purchase of goods, it is within a reasonable exercise of its legislative power in so mandating. This does not offend Article 14. A plea of hardship cannot result in the invalidation of a statutory provision in a fiscal enactment which is otherwise lawful. At the same time, we have set out in detail the assurance which has been placed before the Court by the State Revenue in the present case of the steps that would be taken to pursue recoveries against selling dealers who have either not filed returns or, having filed returns have not deposited the tax collected from the purchasing dealer in whole or in part. For the reasons indicate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as raw material ", except those as may be notified by the State Government," in the manufacture of goods other than exempted goods, for sale within the State or in the course of inter-State trade or commerce; or (f) "being used as packing material of goods or as raw material in manufacture of goods for sale" in the course of export outside the territory of India; or (g) being used in the State as capital goods in manufacture of goods other than exempted goods,"; however, if the goods purchased are used partly for the purposes specified in this sub-section and partly as otherwise, input tax credit shall be allowed proportionate to the extent they are used for the purposes specified in this sub-section. (2) The input tax credit under sub-section (1) shall be allowed only after verification of the deposit of tax payable by the selling dealer in the manner as may be notified by the Commissioner.". (3) Notwithstanding anything contained in this Act, no input tax credit shall be allowed on the purchases- (i) from a registered dealer who is liable to pay tax under sub-section (2) of section 3 or who has opted to pay tax under section 5 of this Act; or (ii) of goods made in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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