2019 (5) TMI 755 - HC - VAT and Sales Tax

High Court overturns tax credit forfeiture order under Telangana VAT Act, directs fresh review

The High Court set aside the order of forfeiture of excess tax credit under the Telangana Value Added Tax Act, 2005, finding that it exceeded the proposal ... Forfeiture of excess tax credit available to the petitioner - according to the petitioner, the excess tax payment was as a result of the excess deduction of tax at source by the main contractors and also on account of the excess input on purchases - years 2015-16 and 2016-17 - HELD THAT:- A careful perusal of the impugned order would show that the same suffers from the vice of non-application of mind. At the outset, the proposal in the show cause notice was for forfeiture of the excess tax credit of ₹ 1,36,2.058,183/-, but the credit ordered to be forfeited is for a sum of ₹ 1,44,03,978/-. An order under the Act cannot exceed the proposal made in the show-cause notice - Moreover, the 1st respondent does not appear to have applied his mind to the very applicability of G.O.Ms.No.11, to a Sub- Contractor. The fact that the petitioner was a Sub-Contractor and the fact that the contract was EPC Turnkey contract, was also not gone into by the respondents. Therefore, the impugned order is liable to be set aside and the matter remanded back. The matter remanded back to the 1st respondent for a fresh consideration - Petition allowed by way of remand. Issues:Challenge to forfeiture of excess tax credit under Telangana Value Added Tax Act, 2005.Analysis:The petitioner challenged the action of the 1st respondent in ordering the forfeiture of an amount of Rs. 1,44,03,978, being the excess tax credit available to them through an assessment order dated 25.08.2018 under the Telangana Value Added Tax Act, 2005. The petitioner claimed to have a net excess carry forward input tax credit after assessment orders for the years 2015-16 and 2016-17. The 1st respondent issued a show-cause notice proposing to forfeit the excess tax credit by invoking the power under Rule 18(3)(b) of the Telangana VAT Rules, 2005, stating that the excess amount belonged to the Government. The petitioner objected, stating they were only a Sub-Contractor and did not receive money from the Government including tax. However, the 1st respondent confirmed the proposed forfeiture through an order dated 25.08.2018, which exceeded the amount mentioned in the show-cause notice. The High Court noted that the impugned order suffered from non-application of mind as it exceeded the proposal in the show-cause notice and did not consider the applicability of G.O.Ms.No.11 to a Sub-Contractor. The Court held the impugned order liable to be set aside and remanded the matter back for fresh consideration by the 1st respondent.The High Court observed that the impugned order lacked proper application of mind and failed to consider crucial aspects such as the petitioner's status as a Sub-Contractor and the nature of the contract as an EPC Turnkey contract. The Court emphasized that an order under the Act cannot exceed the proposal made in the show-cause notice. Therefore, the Court set aside the impugned order and remanded the matter back to the 1st respondent for a fresh consideration. The Court directed the 1st respondent to fix a fresh date for a personal hearing where the petitioner could present additional documents and make submissions on all relevant points. The 1st respondent was instructed to pass orders afresh in accordance with the law. The Court also ordered that any pending miscellaneous petitions would stand closed and made no order as to costs.