Input tax credit limitation under Tamil Nadu VAT confined to inter-State sales; reassessment required after proper hearing.

The proviso to Section 19(2)(v) of the Tamil Nadu VAT Act was read as limiting input tax credit only for goods used in inter-State sales covered by Section 8(1) of the CST Act, and not for the other purposes listed in Section 19(2). On that construction, reversal of input tax credit could not be sustained on the broader basis adopted in the impugned assessments. The earlier decision on the same proviso was treated as binding in the absence of any stay. The assessments were therefore required to be redone after notice, hearing and proper consideration of the objections.

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Issues: Whether the restriction in the proviso to Section 19(2)(v) of the Tamil Nadu Value Added Tax Act, 2006 limits input tax credit only in relation to sales in the course of inter-State trade or commerce falling under Section 8(1) of the Central Sales Tax Act, 1956, and whether the impugned assessments required reconsideration in the light of the earlier decision on the same provision.

Analysis: The proviso to Section 19(2) was read as applying only to the specific purpose stated in clause (v). The limitation on input tax credit was therefore confined to goods used for inter-State sales covered by Section 8(1) of the Central Sales Tax Act, 1956, and did not affect the other purposes listed in Section 19(2). The objections to the revision notice were also not fully and effectively considered, making fresh assessment necessary. The earlier decision on the same proviso was treated as binding in the absence of any stay.

Conclusion: The reversal of input tax credit under Section 19(2)(v) could not be sustained on the broader footing adopted in the impugned orders, and the assessments were required to be redone after notice, hearing and consideration of the objections.

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