Input tax credit and purchase tax must be tested on substantive records, actual transactions and correct period-wise statutory application.

Input tax credit could not be denied merely for absence of a formal stock register where production registers, stock ledgers, purchase invoices and export documents substantively verified purchases, manufacture and stock movement; the disallowance was therefore unjustified. The turnover gap between the return and balance sheet had a plausible foreign-exchange explanation and required fresh examination against invoices and bank realisation data, so the consequential interest computation also had to be redone. Purchase tax on purchases from unregistered dealers used in manufacture was leviable under the applicable unamended provision, but eligible business-use purchases could still qualify for input tax credit, requiring reworking of tax and interest on an item-wise basis.

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Issues: (i) whether disallowance of input tax credit for alleged non-maintenance or non-production of stock and production records was justified; (ii) whether the difference between the return turnover and the balance-sheet turnover could be treated as unrecorded local sales and whether interest arising from the assessment required reconsideration; (iii) whether purchase tax on purchases from unregistered dealers used in manufacture was leviable, and whether the assessee was entitled to corresponding input tax credit and recalculation of interest.

Issue (i): Whether disallowance of input tax credit for alleged non-maintenance or non-production of stock and production records was justified.

Analysis: The statutory scheme required maintenance of accounts, registers and records in a manner that would enable ascertainment of purchases, sales, manufactured goods and stock, but did not mandate a stock register in the rigid manner suggested by the assessing authority. The records verified on remand showed production registers, stock ledgers, purchase invoices and export-related documents, and no adverse discrepancy was detected. The absence of a stated measurement of leather size in buyer orders did not undermine the genuineness of the consumption and production records.

Conclusion: The disallowance of input tax credit was unjustified and the claim was entitled to be allowed.

Issue (ii): Whether the difference between the return turnover and the balance-sheet turnover could be treated as unrecorded local sales and whether interest arising from the assessment required reconsideration.

Analysis: The discrepancy was plausibly explained as arising from foreign exchange fluctuation between the invoice stage and receipt of export proceeds. The assessing authority had treated the difference as local unregistered sales without supporting material, and the matter required fresh examination on the basis of the underlying invoices and bank realisation data. Since the turnover component and the consequential tax computation required reconsideration, the related interest computation could not stand as made.

Conclusion: The turnover difference had to be re-examined and the consequential interest determination had to be redone.

Issue (iii): Whether purchase tax on purchases from unregistered dealers used in manufacture was leviable, and whether the assessee was entitled to corresponding input tax credit and recalculation of interest.

Analysis: For the material period, section 12 of the West Bengal Value Added Tax Act, 2003 governed purchase tax on purchases from any person, whether dealer or not, and the liability had to be examined under the unamended provision. Purchases from unregistered dealers used as raw materials or otherwise for business use were not excluded from the entitlement under the input tax credit framework, and the related credit provisions had to be read with the definition of input tax. However, the rate applied to different purchased items had not been separately ascertained, so the purchase tax component also required re-calculation on a correct item-wise basis.

Conclusion: Purchase tax was leviable on the relevant unregistered-dealer purchases, but the assessee was entitled to input tax credit in respect of eligible business-use purchases and the tax and interest computations had to be reworked.

Final Conclusion: The assessment order was set aside and the matter was sent back for fresh assessment in accordance with the stated directions, with the settled issues not to be reopened.

Ratio Decidendi: Where the statutory record-keeping requirements are satisfied by substantively adequate accounts and verifiable transaction records, input tax credit cannot be denied on a purely formal demand for a stock register; and purchase tax, input tax credit and interest must be determined with reference to the applicable statutory regime and the actual nature of the transactions for the relevant period.

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