2013 (4) TMI 615 - HC - VAT and Sales Tax

Court Protects Purchasing Dealers' Input Tax Credit Despite Retrospective Cancellations

The court held that the retrospective cancellation of registration certificates of selling dealers does not entitle the department to reverse input tax ... Input tax credit denied - registration certificates of the selling dealers have been cancelled with retrospective effect - TNVAT Act, 2006 - Held that:- Retrospective cancellation of the registration certificate of the selling dealer can have no effect on the person who acted upon the strength of the registration certificate when it was in force. The Supreme Court in State of Maharashtra Versus Suresh Trading Company [1996 (2) TMI 451 - SUPREME COURT OF INDIA] had rejected the department's argument that duty is cast on the person who is dealing with the registered dealer to find out whether the registration certificate is valid or cancelled, by stating that such a plea would be against the provisions of the statute. As in the present case, it is not in dispute that the registration certificates of the selling dealers have been cancelled with retrospective effect and, therefore, to reverse the input tax credit on the plea that registration certificates have been cancelled with retrospective effect cannot be countenanced. Whatever benefits that has accrued to the petitioners based on valid documents in the course of sale and purchase of goods, for which tax has been paid cannot be declined. The transaction that took place when the registration certificates of the selling dealer were in force cannot be denied to the petitioners/assessees on the above plea. This is contrary to the law laid down by the Supreme Court in the above stated case. Thus the notices, revised assessment orders and the provisional assessment order to deny the benefit of input tax credit to the petitioners -assessee on the ground that the registration certificates of the selling dealers have been cancelled with retrospective effect, are set aside. Issues Involved:1. Liability of registered dealers to repay input tax credit availed on lawful purchase of goods from another dealer.2. Impact of retrospective cancellation of registration certificates of selling dealers on the input tax credit availed by purchasing dealers.3. Validity of notices, revised assessment orders, and provisional assessment orders issued based on the retrospective cancellation of registration certificates.Detailed Analysis:Issue 1: Liability of Registered Dealers to Repay Input Tax CreditThis batch of writ petitions addresses the common issue of whether the petitioners, who are registered dealers, are liable to repay the input tax credit availed by them on lawful purchases from another dealer. Each petitioner is a registered dealer under the Tamil Nadu Value Added Tax Act, 2006 (TNVAT Act, 2006) and has availed input tax credit on the tax paid under the TNVAT Act by the registered selling dealer on the purchase of taxable goods specified in Schedule-I. The benefit is availed under Section 19 of the TNVAT Act, 2006.Issue 2: Impact of Retrospective Cancellation of Registration CertificatesThe core issue is whether the cancellation of the registration certificates of the selling dealers with retrospective effect entitles the department to reverse the input tax credit already availed by the petitioners/assessees. The department issued notices and passed revised assessment orders reversing the input tax credit based on the retrospective cancellation of the selling dealers' registration certificates. The petitioners argue that the reversal of input tax credit is erroneous as the input tax credit was availed on the basis of valid documents at the time of the transaction, and the retrospective cancellation should not affect their rights.Issue 3: Validity of Notices and Assessment OrdersThe petitioners challenged the notices, revised assessment orders, and provisional assessment orders on the grounds that the basis for reversing the input tax credit is the retrospective cancellation of the registration certificates of the selling dealers. The petitioners relied on the Supreme Court decision in State of Maharashtra v. Suresh Trading Company, which held that the retrospective cancellation of a registration certificate cannot affect the rights of a purchasing dealer who acted upon the strength of the registration certificate when it was in force.Analysis:Section 19(15) of the TNVAT Act, 2006 provides for the reversal of input tax credit consequent to the cancellation of the registration certificate of the selling dealer. The department contended that the registered dealer who availed input tax credit must repay the amount availed from the date the cancellation of the registration certificate takes effect. However, the petitioners argued that they purchased goods from registered dealers with valid registration certificates, paid the tax, and availed input tax credit based on valid documents. The subsequent retrospective cancellation of the selling dealers' registration certificates should not nullify the benefit they availed.The Supreme Court in State of Maharashtra v. Suresh Trading Company held that the retrospective cancellation of the registration certificate of the selling dealer has no effect on the purchasing dealer who acted upon the strength of the registration certificate when it was in force. The Court rejected the department's argument that the purchasing dealer must verify the validity of the selling dealer's registration certificate, stating that such a plea would nullify the provisions of the statute.In the present case, the registration certificates of the selling dealers were cancelled with retrospective effect, and the department sought to reverse the input tax credit on this basis. However, the transactions took place when the selling dealers had valid registration certificates, and the petitioners availed input tax credit based on valid documents. The retrospective cancellation cannot affect the rights of the petitioners who acted in good faith based on the registration certificates that were valid at the time of the transactions.Conclusion:The notices, revised assessment orders, and provisional assessment orders seeking to deny the benefit of input tax credit to the petitioners/assessees based on the retrospective cancellation of the selling dealers' registration certificates are set aside. The writ petitions are allowed, and the connected miscellaneous petitions are closed.