Purchase tax set-off and input tax credit could not be denied for permissible job-work movements outside the State.

Purchase tax liability under the Tamil Nadu VAT Act was treated as duly discharged where the assessee adjusted it through available monthly credit and remitted the balance, so the assessing authority could not reject the set-off merely because of the return methodology. Input tax credit was also protected because worn-out jewellery and bullion sent outside the State for job-work and later brought back for sale could not attract reversal merely due to the out-of-State manufacturing location. As the additions on those issues failed, the consequential penalty could not survive and was unsustainable.

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Issues: (i) Whether purchase tax under Section 12 of the Tamil Nadu Value Added Tax Act, 2006 was validly discharged by set-off against available monthly credit; (ii) Whether reversal of input tax credit was warranted on the ground that worn-out jewellery and bullion were sent outside the State for manufacture and received back for sale; (iii) Whether the penalty levied under Section 27(3)(a) of the Tamil Nadu Value Added Tax Act, 2006 could be sustained.

Issue (i): Whether purchase tax under Section 12 of the Tamil Nadu Value Added Tax Act, 2006 was validly discharged by set-off against available monthly credit.

Analysis: The return methodology showed that the tax liability on purchases was met by adjusting the purchase tax against credit available in the immediately preceding month and the balance tax liability was remitted. The accounting method had already received approval in prior proceedings by the Commissioner of Commercial Taxes. The assessing authority failed to appreciate that the tax had in fact been paid, and the dispute was only about the manner of set-off in the monthly returns.

Conclusion: The issue was decided in favour of the assessee.

Issue (ii): Whether reversal of input tax credit was warranted on the ground that worn-out jewellery and bullion were sent outside the State for manufacture and received back for sale.

Analysis: The claim was governed by the principle that input tax credit is not to be denied merely because tax suffered goods are sent outside the State temporarily for job-work and are later received back for sale within the State. The Court followed the binding Division Bench ruling which had held that Section 19(2)(ii) cannot be applied to deny credit in such circumstances and that the mere location of manufacturing outside the State is not a valid basis to reverse credit.

Conclusion: The issue was decided in favour of the assessee.

Issue (iii): Whether the penalty levied under Section 27(3)(a) of the Tamil Nadu Value Added Tax Act, 2006 could be sustained.

Analysis: The penalty arose only as a consequence of the additions and reversals made on the first two issues. Once the underlying tax demand and credit reversal were rejected, the basis for the penalty could not survive.

Conclusion: The penalty could not be sustained and fell with the other additions.

Final Conclusion: The impugned assessments and connected proceedings were unsustainable in law, and the batch of writ petitions stood allowed with the consequential reliefs flowing from that determination.

Ratio Decidendi: Input tax credit cannot be denied, and purchase-tax adjustment cannot be rejected, where tax liability is actually discharged through permissible set-off and tax suffered goods are only temporarily sent outside the State for job-work before being brought back and sold.

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