Assessee cannot be asked to reverse ITC for non payment of tax by selling dealers

In a PATH BREAKING JUDGEMENT the Madras High Court has held that  Assessee cannot be asked to reverse input tax credit due to non-payment of taxes by the selling dealers.

Sri Lakshmi Textiles Vs. the Commissioner of Commercial Taxes and Others 


Facts:

Sri Lakshmi Textiles(“the Petitioner”) is a partnership firm engaged in the business of inner garments and textiles registered under Tamil Nadu Value Added Tax Act, 2006 (“TN Vat Act”). The Petitioner was regularly filing the VAT return and paying the VAT liability after adjusting the corresponding input tax credit. For the Assessment Year 2013-2014, the Petitioner had reported total turnover and taxable turnover of Rs. 2,02,88,151/- and Rs. 15,98,693/- respectively in his return.

The Department alleged that because some of the selling dealer of the Petitioner had not paid the tax, the Petitioner is required to reverse the corresponding input tax credit and further sought to levy penalty under Section 27(3) of the TN VAT Act on the Petitioner.

Held:

The Hon’ble High Court of Madras relied upon the decision in the case of Sri Vinayaga Agencies Vs. the Assistant Commissioner (Ct), Chennai and another [(2013) 60 VST 283 (Mad)] and held that when the fact of Petitioner paying the taxes to his supplier is not under dispute, the Petitioner cannot be compelled to reverse the input tax Credit due to non-payment of VAT liability by the selling dealer.


Full Judgement is as follows:

BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
DATED : 25.09.2015
CORAM
THE HONOURABLE MR.JUSTICE R.SUBBIAH
W.P.(MD)No.17266 of 2015
and
M.P.(MD).No.1 of 2015
Tvl.Sri Lakshmi Textiles,
rep.by its Partner,
S.Venkatraman,
Tirunelveli District                    ... Petitioner

Vs.

1.The Commissioner of Commercial Taxes,
O/o.the Principal and Special Commissioner
of Commercial Taxes,
Ezhilagam, Chepauk,
Chennai-600 005.

2.The Commercial Tax Officer,
Tenkasi Assessment Circle,
Commercial Tax Building,
No.56-B, Railway Feeder Road,
Thenkasi,
Tirunelveli District-627 811.          ... Respondents

        Writ Petition filed under Article 226 of the Constitution of India
praying for issuance of a Writ of Certiorari to call for the records
pertaining to the impugned proceedings of the second respondent in
TIN/33915681560/2013-14, dated 10.08.2015 and quash the same.  

!For Petitioner         : Mr.B.Rooban for
                        M/s.R.V.Manikandan Associates  

For Respondent          : Mr.R.Karthikeyan
                          Government Advocate   

:ORDER 

This Writ Petition has been filed praying for a Writ of Certiorari to call for the records pertaining to the impugned proceedings of the second respondent in TIN/33915681560/2013-14, dated 10.08.2015 and quash the same.

2. The case of the petitioner is that the petitioner firm is a partnership concern carrying on business in the name and style of 'Sri Lakshmi Textiles' dealing in inner garments and textiles. The said concern is registered under the second respondent which is regularly paying monthly returns under the Tamil Nadu Value Added Tax Act and the petitioner promptly adjusted the legitimate tax dues to the department from the Input Tax Credit available on the tax paid on purchases. During the assessment year 2013- 2014, the petitioner has reported the total and taxable turnover of Rs.2,02,88,151/- and Rs.15,98,693/- through returns and adjusted the corresponding tax dues to the respondent Department from the Input Tax Credit available for the petitioner. It is deemed that the second respondent has passed the deemed assessment order by accepting the returns under Section 22(2) of the Tamil Nadu Value Added Tax Act.

3. While the situations stood thus, the second respondent has issued a notice dated 28.07.2015 alleging that on verification of the department web-site, some of the other end dealers had not paid tax to the tune of Rs.10,317/- and proposed to reverse the said Input Tax Credit and also to levy penalty under Section 27(3) of the TNVAT Act. The entire purchases were duly accounted for in the books of accounts. No material defect or wrong availment of Input Tax Credit as alleged by the second respondent in the above-said notice. Hence, the petitioner filed reply dated 04.08.2015 with the second respondent explaining the real facts with regard to the alleged defect along with the copies of the purchase bills/tax invoices of the said dealers showing the collection of taxes from the petitioner and the copies of the monthly returns filed.

4. Despite the said fact, the second respondent has passed the impugned assessment order dated 10.08.2015 by confirming his proposal vide notice dated 28.07.2015. Though valid objections have been filed by way of explanation, the respondent has simply rejected the same by passing the impugned order. Further, the second respondent himself has admitted that the claim of Input Tax Credit is covered by valid tax invoices as required under Rule 10(2) of the Tamil Nadu Value Added Tax Rules and when it is so, he cannot compel the petitioner to produce annexure II of the other end dealer which can be easily verified by him through the department internet website.

5. To back his averment, the learned counsel for the petitioner relied on the following judgment of this Court, which are as follows:-
(i)Althaf Shoes (P) Ltd Vs Assistant Commissioner (CT) reported in 50 VST
179.
(ii)Sri Vinayaga Agencies Vs. The Assistant Commissioner (Ct), Chennai and another, reported in (2013) 60 VST 283 (Mad).
(iii)Infiniti Wholesale Ltd. Vs. The Assistant Commissioner (CT) in W.P.No.9265 of 2013 dated 06.11.2014.

6. In all the cases cited supra, an identical prayer sought for by the petitioner in this Writ Petition has been entertained and the same has also been allowed by this Court. If at all there is non-payment of tax collected by the other end dealer, the petitioner cannot be made liable for the same. Hence, the impugned order is liable to be set aside.

6. The learned Government Advocate submitted that though the petitioner firm has properly reported the sales turnover in annexure-I and bill copies, however, the petitioner firm has not produced the other end annexure-II as required by the Department. Further, as per Section 17 of the Tamil Nadu Value Added Tax, the burden of proof lies on the petitioner firm. That apart, the petitioner has not preferred an appeal before the Appellate Deputy Commissioner, Tirunelveli and therefore, the petitioner firm is not entitled to avail the tax. Therefore, this Writ Petition is liable to be dismissed.

7. I heard the submissions made on either side and perused the materials available on record.

8. A perusal of the records would show that at the time of purchasing the goods, admittedly, the petitioner has paid the tax to the seller, which is not under dispute. The reason assigned in the impugned order is that the petitioner firm is denied Input Tax Credit just because the dealer/seller has failed to report the same before the respondents. The reason adduced by the respondent is unacceptable for the reason that when admittedly the petitioner firm has paid the tax, he cannot be made liable for the failure on the part of the seller to report the same to the respondent. Therefore, the judgment relied upon by the petitioner cited supra is squarely applicable to the case on hand. In the case of Sri Vinayaga Agencies Vs. The Assistant Commissioner (Ct), Chennai and another, reported in (2013) 60 VST 283 (Mad), in paragraph No.9, it has been held as follows:- ?9.Sub-Section(16) of Section 19 states that the Input Tax Credit availed is provisional. It, however, does not empower the authority to revoke the input tax credit availed on a plea that the selling dealer has not paid the tax. It only relates to incorrect, incomplete or improper claim of Input Tax Credit by the dealer. It is not so in these cases. In the present case, the petitioner-dealer, admittedly, has paid the tax to the selling dealer and claimed Input Tax Credit and that was accepted at the time when the self- assessment was made. Even the pre-revision notices and the orders under challenge fairly state that the petitioner-dealer had paid tax to the dealer. It is, therefore, for the department to proceed against the selling dealer for recovery of tax in the manner known to law. The provision under which the present has been initiated, namely, invoking sub-section (16) of Section 19, does not appear to be correct on the admitted facts as above. All the revision orders revising the Input Tax Credit on the admitted case of tax having been paid to the selling dealer, therefore, are found to be totally incorrect, erroneous and contrary to the provisions of the TNVAT Act and Rules. As a result, all the orders are liable to be set aside.?

9. In view of the dictum laid down by this Court, following the orders of this Court, this Writ Petition is also liable to be allowed. Accordingly, the Writ Petition is allowed. No costs. Consequently, connected miscellaneous petition is closed.