Court Overturns Tax Order; Affirms Input Tax Credit Rights, Directs Revenue to Target Non-Compliant Vendors.

The HC set aside the impugned orders by the Assistant Commissioner (CT) that required the petitioner to pay the entire tax liability despite claiming input-tax credit. The Court ruled that the petitioner, who had paid tax to the selling dealer, was entitled to input tax credit under the TNVAT Act. It emphasized that the revenue should pursue action against vendors who failed to remit collected taxes, rather than denying the petitioner's claim. The Court rejected the proposal for the petitioner to pay 25% of the tax liability, as it would result in impermissible double taxation. The writ petitions were allowed without costs.

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Issues:
Challenge to impugned order for tax liability payment despite input-tax credit claimed.

Analysis:
The writ petitions challenged the order of the Assistant Commissioner (CT) directing the petitioner to pay the entire tax liability, despite having paid tax to the selling dealer and claiming input-tax credit. The petitioner relied on various judgments of the Madras High Court, including M/s. Althaf Shoes (P) Ltd. and Sri Vinayaga Agencies cases, which emphasized that the revenue should take action against vendors who did not remit tax collected, rather than denying the claim of the assessee. The Court found the impugned orders incorrect and contrary to TNVAT Act and Rules, setting them aside and allowing the writ petitions without costs.

Further Legal Analysis:
The petitioner's counsel highlighted that under Section 19(1) of the TNVAT Act, a purchaser can claim input tax credit for purchases from local registered dealers. The petitioner, a genuine purchaser, believed the vendors had paid the taxes collected to the sales tax department. The Assistant Commissioner was urged to take action against vendors who failed to pay taxes, as passing the impugned order without doing so was improper. The respondent, represented by the Government Advocate, suggested the petitioner pay 25% of the tax liability due to the substantial amount involved. However, the Court rejected this proposal, stating it would lead to double taxation, which is not permissible. The Court reiterated that the petitioner was entitled to claim input tax credit and that action should be taken against vendors who did not remit collected taxes, in line with previous judgments cited.

This comprehensive analysis of the judgment highlights the key issues, arguments presented by both parties, and the Court's reasoning in setting aside the impugned orders and allowing the writ petitions.

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