Input tax credit reversal requires clear statutory notice and hearing before assessment action can stand

Reversal of input tax credit in a CST assessment could not be sustained where the pre-revision notice did not clearly state the statutory basis for the proposed action and the dealer was not given a proper opportunity to object and be heard. Although section 9(2) of the CST Act permits use of State machinery for assessment and collection, the credit reversal had to be carried out under the Tamil Nadu VAT regime, with clear notice of the proposed reversal and the consequential tax treatment. The assessment was set aside and the matter remanded for fresh consideration after inviting objections, granting personal hearing, and verifying the records.

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Issues: Whether the assessment order could sustain reversal of input tax credit under the Central Sales Tax Act without clearly proposing the statutory basis in the pre-revision notice and without granting proper opportunity of objection and hearing, and whether the matter required remand for fresh assessment.

Analysis: The assessment related to a CST transaction, but input tax credit is a concept under the State VAT law and not under the Central Sales Tax Act. Section 9(2) of the Central Sales Tax Act enables the State authorities to apply the machinery of the State Act for assessment and collection, yet the reversal of input tax credit had to be made under the Tamil Nadu Value Added Tax Act. The pre-revision notice did not clearly disclose the provision under which reversal was proposed, and where the ultimate action affected the concessional rate of tax and resulted in reversal of credit, a proper show-cause notice and opportunity of personal hearing were required.

Conclusion: The assessment order could not be sustained and the matter had to be redone in accordance with law.

Final Conclusion: The writ petition succeeded, the assessment was set aside, and the matter was remanded for fresh consideration after inviting objections, granting personal hearing, and verifying the records.

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