2019 (3) TMI 706 - HC - VAT and Sales Tax

Court rules in favor of Capital Traders, quashes ITC disallowance demand, no pre-deposit required

CAPITAL TRADERS Versus STATE OF GUJARAT

CAPITAL TRADERS Versus STATE OF GUJARAT - TMI Issues Involved:1. Disallowance of Input Tax Credit (ITC) based on negative cross-check reports.2. Requirement of pre-deposit for admitting appeals.3. Non-provision of assessment details to the petitioners.4. Applicability of Section 11(7A) of the GVAT Act.Issue-wise Detailed Analysis:1. Disallowance of Input Tax Credit (ITC) based on negative cross-check reports:The petitioners, Capital Traders, faced disallowance of ITC for the assessment year 2013-14 based on alleged negative cross-check reports. The disallowance was due to the vendors’ registration certificates being retrospectively canceled and dues in their cases. The petitioners argued that they were not provided with the negative cross-check reports or assessment orders, which formed the basis of the disallowance. They contended that the disallowance was based on extraneous material that should have been furnished to them.2. Requirement of pre-deposit for admitting appeals:The Tribunal admitted the appeal and stayed recovery on the condition that the petitioners deposit Rs. 2 crore within a month. The petitioners failed to comply, leading to the dismissal of their appeal and vacating of the interim relief. The petitioners argued that the demand for such a huge pre-deposit was unjustified, given their strong prima-facie case.3. Non-provision of assessment details to the petitioners:The petitioners were not furnished with the assessment orders of their vendors at the time of the assessment. They later obtained these details, which showed that two vendors, M/s. Ardor Global Private Limited and M/s. Infinium De-Chem Private Limited, had no outstanding dues for the year 2013-14. The third vendor, Ardor International Limited, had dues unrelated to the petitioners' transactions. The court noted that the petitioners did not have the opportunity to prove the genuineness of their transactions due to the lack of these details during the assessment.4. Applicability of Section 11(7A) of the GVAT Act:The Assessing Officer disallowed ITC based on Section 11(7A) of the GVAT Act, which states that tax credit on any purchase shall not exceed the tax actually paid. The court emphasized that to disallow tax credit, it must be established that the tax was not paid on the specific goods purchased by the dealer. The disallowance cannot be based on a percentage of purchases from a vendor whose registration is canceled without establishing that the tax on those goods was unpaid.Judgment:The court found that the petitioners had a strong prima-facie case and that the Tribunal and the first appellate authority were unjustified in demanding a huge pre-deposit for admitting the appeal. The court quashed the orders dated 10.10.2018 and 6.9.2018 by the Tribunal, as well as the order dated 27.6.2018 by the Joint Commissioner of State Tax Division-II, Ahmedabad. The matter was restored to the first appellate authority for a hearing on merits without insisting on any pre-deposit. The recovery of the demand raised under the assessment order was stayed until the appeal was finally decided. The petition was allowed with no order as to costs.