High Court Upholds Input Tax Credit Rights for Buying Dealers

The High Court dismissed all writ appeals regarding the reversal of input tax credits, affirming that retrospective cancellation of selling dealers' Registration Certificates does not impact buying dealers who acted in good faith. Upholding principles of natural justice and judicial precedents, the court protected buying dealers' rights. In a separate judgment for W.A.No.753/2016, involving M/s. Vijayshree Metals, the court quashed the cancellation order, citing lack of opportunity to respond, and remanded the case for reconsideration.

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Issues Involved:
1. Correctness of the orders passed by the writ court in setting aside the assessment orders by the competent authorities.
2. Retrospective cancellation of Registration Certificates of selling dealers and its effect on input tax credit availed by buying dealers.
3. Compliance with principles of natural justice and relevant judicial precedents.

Issue-wise Detailed Analysis:

1. Correctness of the Orders Passed by the Writ Court:
The common issue in all the writ appeals filed by the Revenue pertains to the correctness of the orders passed by the writ court in setting aside the assessment orders passed by the competent authorities. The respondents in all the appeals, except one, are the buying dealers who had their input tax credits reversed due to the retrospective cancellation of the selling dealers' Registration Certificates by the Commercial Tax Department. The writ court had allowed the petitions based on the principles of natural justice and relevant judicial precedents, including the decision of the Hon'ble Apex Court in the case of *State of Maharashtra vs. Suresh Trading Co.* (1998) 109 STC 439 (SC).

2. Retrospective Cancellation of Registration Certificates and Input Tax Credit:
The core issue revolves around whether the retrospective cancellation of the selling dealers' Registration Certificates can justify the reversal of input tax credits availed by the buying dealers. The writ court, referencing the Supreme Court's decision in *Suresh Trading Co.*, held that the retrospective cancellation of the selling dealers' registration cannot affect the buying dealers who acted in good faith when the registration was valid. The court emphasized that the input tax credit availed by the buying dealers should not be denied merely because the selling dealers' registration was later cancelled retrospectively.

3. Compliance with Principles of Natural Justice and Judicial Precedents:
The respondents argued that the reversal of input tax credits was contrary to the principles of natural justice and various judicial decisions. The writ court agreed, noting that the buying dealers had complied with the requirements of Rule 10(2) of the Tamil Nadu Value Added Tax Rules and Section 19 of the Tamil Nadu Value Added Tax Act. The court cited the decision in *Suresh Trading Co.*, where it was held that the effect of a retrospective cancellation upon the selling dealer cannot impact those who acted upon the registration certificate when it was current. Additionally, the court referenced other decisions, such as *Jinsasan Distributors vs. Commercial Tax Officer* and *Deputy Commissioner of Sales Tax vs. Debi Prasad Shyam Sunder & Sons*, supporting the view that the buying dealers' input tax credits should not be reversed due to retrospective cancellations.

Separate Judgment for W.A.No.753/2016:
In W.A.No.753/2016, the issue was the cancellation of the Registration Certificate of M/s. Vijayshree Metals with retrospective effect. The writ court quashed the order of cancellation based on the decision in *Jinsasan Distributors vs. Commercial Tax Officer*. The appellate court noted that the appellant was not provided an opportunity to file a counter affidavit and remanded the matter back to the writ court for reconsideration, allowing the department to file a counter affidavit.

Conclusion:
The High Court dismissed all the writ appeals concerning the reversal of input tax credits, affirming that the retrospective cancellation of the selling dealers' Registration Certificates cannot affect the buying dealers who acted in good faith. The court upheld the principles of natural justice and relevant judicial precedents, ensuring that the buying dealers' rights were protected. For W.A.No.753/2016, the matter was remanded to the writ court for fresh consideration.

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