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of <h1>Input Tax Credit under Section 19(16) is Provisional and Cannot Be Denied Due to Seller's Tax Default</h1> <h3>Sri Vinayaga Agencies Versus The Assistant Commissioner (CT)</h3> Sri Vinayaga Agencies Versus The Assistant Commissioner (CT) - [2013] 60 VST 283 (Mad) ISSUES: Whether a registered dealer can be held liable to reverse input tax credit on the ground that the selling dealer failed to pay tax to the department despite the purchasing dealer having paid tax to the selling dealer.Whether input tax credit availed by a registered dealer can be revoked under Section 19(16) of the Tamil Nadu Value Added Tax Act, 2006 on the basis of non-payment of tax by the selling dealer.Whether the purchasing dealer's compliance with Rule 10(2) of the Tamil Nadu Value Added Tax Rules in producing original tax invoices suffices to claim input tax credit under Section 19(1) of the TNVAT Act.The scope and application of the proviso to Section 19(1) and Section 19(16) of the TNVAT Act in relation to input tax credit claims and their revocation. RULINGS / HOLDINGS: The Court held that the petitioner-dealer is not liable to reverse the input tax credit merely because the selling dealer failed to pay tax to the department, since it is an admitted fact that the petitioner had paid the tax to the selling dealer, satisfying the proviso to Section 19(1).The Court held that 'the input tax credit availed by any registered dealer shall be only provisional' under Section 19(16), but this provision does not empower the authority to revoke input tax credit on the ground that the selling dealer did not pay tax; revocation is limited to cases where the claim is 'incorrect, incomplete or otherwise not in order.'The Court found that compliance with Rule 10(2) by producing original tax invoices containing prescribed details fulfills the requirement for claiming input tax credit under Section 19(1).The Court concluded that the impugned orders holding the petitioner liable to reverse input tax credit were 'totally incorrect, erroneous and contrary to the provisions of the TNVAT Act and Rules' and set aside all such orders. RATIONALE: The Court applied the statutory framework of the Tamil Nadu Value Added Tax Act, 2006, particularly Sections 19(1) and 19(16), and Rule 10(2) of the TNVAT Rules.Section 19(1) provides that input tax credit shall be allowed if the registered dealer establishes that tax due on purchases has been paid 'by him in the manner prescribed,' which the Court interpreted to mean payment to the selling dealer supported by proper invoices.Section 19(16) allows provisional input tax credit and empowers the assessing authority to revoke it only if the claim is 'incorrect, incomplete or otherwise not in order,' not merely because the selling dealer failed to remit tax to the government.The Court emphasized that the liability to recover tax from the selling dealer lies with the department and cannot be shifted to the purchasing dealer who has complied with statutory requirements.The Court rejected the department's reliance on the non-filing of Form-I returns and non-payment of tax by the selling dealer as grounds to deny input tax credit to the purchasing dealer who had paid tax and produced valid invoices.No dissent or doctrinal shift was noted; the judgment reaffirmed established principles governing input tax credit claims under the TNVAT Act.
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