2018 (12) TMI 1895 - HC - VAT and Sales Tax

High Court rules in favor of cement dealer on Input Tax Credit denial, emphasizes importance of credit notes

The High Court of Madras, in a case involving a cement dealer for the assessment year 2014-2015, ruled against the Assessing Officer's denial of Input Tax ... Input Tax Credit - discounts given in the form of issuance of a credit note but Tax was paid only on the original purchase price - grievance of the Assessing Officer appears to be that the writ petitioner's purchase turnover being lower, he cannot claim ITC on the original purchase price - HELD THAT:- The stand of respondent / Assessing Officer cannot be accepted. It clearly runs counter to the statutory scheme set out in TNVAT Rules, 2006. Section 2(41) of the Act defines what is “turnover”. The Explanation (II) (ii) of Section 2 (41) states that any discount on the price allowed in respect of any sale shall not be included in the turnover. In the case on hand, it is beyond dispute that the tax already paid by the selling dealer has not at all been disturbed. Therefore, the very approach of the second respondent is contrary to the statute. Petition allowed - decided in favor of petitioner. Issues:Assessment based on deemed assessment basis, re-visit of assessment through pre-revision notice, issuance of credit note for discounts, denial of Input Tax Credit (ITC) on original purchase price, interpretation of TNVAT Rules, 2006.Analysis:The judgment by the High Court of Madras, delivered by Justice G.R.Swaminathan, pertains to a case involving a dealer in cements registered with the second respondent for the assessment year 2014-2015. The petitioner procures goods from India Cements, and the assessment was initially concluded on a deemed assessment basis. Subsequently, a pre-revision notice was issued on 02.05.2017, leading to an impugned order dated 30.05.2017 by the second respondent, which the petitioner challenged through a Writ Petition.Upon hearing both parties, the court addressed the issue of the selling dealer paying tax on the original purchase price and subsequently issuing a credit note to the petitioner for discounts. The Assessing Officer's contention was that due to the lower purchase turnover of the petitioner, claiming ITC on the original purchase price was not permissible. However, the court disagreed with this stance, highlighting the statutory provisions under TNVAT Rules, 2006. Specifically, the court referred to Section 2(41) of the Act defining 'turnover' and the Explanation (II) (ii) of Section 2 (41) excluding discounts on the price from turnover. The court also cited Rule 10(6)(b)ii(C), emphasizing the importance of issuing credit notes without disturbing the tax component on the original invoice to maintain input tax credit for the buyer and the tax paid by the seller.The court concluded that in the present case, the tax paid by the selling dealer remained undisturbed, indicating that the second respondent's approach was contrary to the statute. Consequently, the impugned order was set aside, and the Writ Petition was allowed without any costs incurred. This judgment provides a clear interpretation of the relevant legal provisions governing the issuance of credit notes for discounts and the entitlement to claim Input Tax Credit, ensuring adherence to the statutory scheme outlined in the TNVAT Rules, 2006.