Input tax credit set-off cannot be fixed by preference where the VAT statute is silent on adjustment order.

Section 18 of the Tamil Nadu Value Added Tax Act, 2006 did not prescribe any statutory sequence for giving preference to input tax credit between local sales, inter-State sales and zero-rated sales. In that setting, the authority could not reject the assessee's adjustment method merely because it preferred a different order of set-off. However, the Madras HC did not finally decide whether the assessee's sequence was correct on the merits, because the assessment had not examined the issue fully. The assessments were therefore required to be redone by the assessing authority after notice and hearing.

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Issues: Whether, in the absence of a prescribed statutory procedure for preference of set-off of input tax credit relating to zero-rated sales under the Tamil Nadu Value Added Tax Act, 2006, the assessee's method of adjustment could be rejected and the assessment sustained, or whether the matter required reconsideration.

Analysis: Section 18 of the Tamil Nadu Value Added Tax Act, 2006 did not prescribe the manner in which input tax credit was to be given preference among local sales, inter-State sales, and zero-rated sales. The Court noted that, where the statute is silent on the method of adjustment, the authority cannot insist on a particular mode merely because it prefers that sequence, especially when the assessee's method is said to better preserve the benefit of input tax credit within the framework of the VAT regime. At the same time, the Court declined to record a final finding on the correctness of the assessee's preferred sequence because the impugned assessment had not dealt with that issue in full and the matter required examination by the assessing authority.

Conclusion: The challenge on the set-off issue was not finally decided on merits and the assessments were required to be redone by the assessing authority after notice and hearing.

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