Input tax credit on capital goods cannot be denied solely because the supplier charged tax at a higher rate.

Input tax credit on capital goods under the Tamil Nadu VAT Act is intended to prevent cascading of tax and may be claimed on the basis of the invoice and the tax shown as paid by the registered seller. The purchaser cannot be denied credit merely because the supplier collected and remitted tax at a higher rate than the rate applicable to the goods, where the invoice evidences payment and there is no finding of a deliberate device to pass on excess credit. Any excess tax collection, if not otherwise payable, remains a matter between the department and the selling dealer, and the transaction is treated as revenue neutral for the purchaser.

---

---

Issues: Whether the assessee was bound to reverse input tax credit availed on capital goods merely because the seller charged tax at a higher rate than the rate applicable to those goods under the Act.

Analysis: Input tax credit on capital goods under Section 19(3) of the Tamil Nadu Value Added Tax Act, 2006 is designed to reduce the cascading effect of tax and is to be availed in the manner prescribed. The prescribed rules permit credit on the strength of the invoice and the fact that tax was reflected as paid by the registered seller. The Court held that the purchaser could not be denied credit merely because the seller collected and remitted tax at 12.5% instead of 4%, where the tax paid was reflected in the invoice and there was no finding of a deliberate device by the seller to liquidate excess credit. Any excess collection, if otherwise not payable, was a matter between the department and the selling dealer, and the transaction was treated as revenue neutral as far as the purchaser was concerned.

Conclusion: The assessee was not required to reverse the input tax credit and the disallowance was unsustainable.

Final Conclusion: The impugned assessment direction was set aside and the writ petition succeeded with consequential relief to the assessee.

Ratio Decidendi: A purchaser entitled to input tax credit on capital goods cannot be denied credit solely because the supplier charged and passed on tax at a higher rate, where the invoice evidences tax payment and no deliberate evasion by the supplier is established.

---