Monthly input tax credit computation must reflect actual reversals; annual averaging that distorts the taxable position is impermissible.

An appellate order that does not deal with the core contentions and gives no meaningful reasons is vulnerable for non-application of mind. In computing input tax credit disallowance, where the return cycle is monthly and credit is reversed month by month for non-taxable disposals, the assessment must follow the monthly transaction pattern. An annual averaging of taxable and non-taxable purchases is impermissible because it distorts the actual position and produces an artificial figure. The assessment was therefore required to be recomputed on a monthly basis.

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Issues: (i) Whether the Appellate Tribunal's order was vitiated for want of consideration of the contentions and thus suffered from non-application of mind; (ii) whether, in computing disallowance of input tax credit, the assessing authority was justified in adopting an annual ratio of taxable and non-taxable purchases instead of a monthly computation aligned with the return period and monthly reversal of credit.

Issue (i): Whether the Appellate Tribunal's order was vitiated for want of consideration of the contentions and thus suffered from non-application of mind.

Analysis: The Tribunal had not dealt with the core controversy raised in revision and had omitted any meaningful consideration of the assessee's submissions. The order therefore lacked reasons on the issue requiring adjudication and did not reflect proper application of mind.

Conclusion: The issue was answered against the Revenue and in favour of the assessee.

Issue (ii): Whether, in computing disallowance of input tax credit, the assessing authority was justified in adopting an annual ratio of taxable and non-taxable purchases instead of a monthly computation aligned with the return period and monthly reversal of credit.

Analysis: Input tax credit under the Act had to be examined with reference to the monthly return cycle, particularly when the assessee purchased and sold materials on a monthly basis and reversed the credit in the succeeding month for non-taxable disposals. A yearly averaging of taxable and non-taxable purchases would distort the actual position and produce an artificial figure. The general scheme of best judgment assessment did not justify ignoring the monthly pattern of purchases, sales, and reversals.

Conclusion: The assessing authority was not justified in computing the disallowance on an annual basis, and the matter had to be reworked on a monthly basis.

Final Conclusion: The revision was allowed in substance to the extent that the assessment computation was set aside for fresh determination on a monthly basis, with the assessee succeeding on the substantive question of law.

Ratio Decidendi: Where the return period is monthly and input tax credit is reversed month by month, best judgment assessment must be computed with reference to the monthly transactions and reversals, and not by an annual averaging that distorts the taxable position.

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