2020 (7) TMI 671 - HC - VAT and Sales Tax

Supreme Court: ITC provision applies prospectively, quashes assessment and penalty. Fresh assessment directed.

The Supreme Court ruled in favor of the petitioner in a tax dispute case. The court held that the provision impacting Input Tax Credit (ITC) calculation ... Reversal of Input Tax Credit - levy of penalty - discounts received by the petitioner from the supplying dealers - packing materials purchased by the petitioner from local registered dealers - TNVAT Act. Reversal of ITC on discounts received by the petitioner from the supplying dealers - HELD THAT:- Since Section 19(20) which has been invoked to deny the benefit of ITC, has itself been inserted only with effect from 19.08.2010. Though a Division Bench of this Court had initially held that the provision would operate retrospectively and impact prior assessment periods as well, the Supreme Court in the case of JJAYAM & CO. VERSUS ASSISTANT COMMISSIONER & ANR. [2016 (9) TMI 408 - SUPREME COURT] reversed the aforesaid conclusion of this Court confirming the position that Section 19(20) would operate only from the date of its insertion, prospectively, i.e., from 19th August, 2010. Thus the provision could not have been invoked in the present case, for the period, viz. 2008-09 - The invocation of Section 19(20) in the present case is thus not in order and to this extent, the assessment is quashed. Penalty levied under Section 27(4) to this extent is also quashed. Reversal of ITC in regard to packing materials - HELD THAT:- The petitioner has specifically challenged this reversal relying on the provisions of Section 19(2)(ii) of the Act, which permits the grant of input tax on packing materials, containers and label and other materials used for packing goods. This ground has not been referred to or adjudicated upon by the Appellate Authority and hence, the order of the first respondent is quashed and the matter remitted to the files of the Assessing Officer to be redone de novo after taking into account the submissions of the assessee, in accordance with law. Petition disposed off. Issues:1. Reversal of Input Tax Credit (ITC) on discounts received by the petitioner.2. Reversal of ITC on packing materials purchased by the petitioner.Analysis:Issue 1: Reversal of ITC on discounts received by the petitionerThe petitioner, a dealer in nuts and spices, received a show cause notice proposing the reversal of Input Tax Credit (ITC) claimed and levy of penalty for the period 2008-09. The notice proposed the reversal of ITC on discounts received by the petitioner from its vendors and ITC on packing materials purchased for export commodities. The Appellate Authority rejected the petitioner's appeal, leading to the filing of a writ petition. The main contention revolved around the application of Section 19(20) of the Act, inserted in 2010, impacting the ITC calculation. However, the Supreme Court clarified that Section 19(20) operates prospectively from its insertion date, not retrospectively. Consequently, the court quashed the assessment and penalty, as the provision could not be invoked for the period in question.Issue 2: Reversal of ITC on packing materialsThe petitioner challenged the reversal of ITC on packing materials based on Section 19(2)(ii) of the Act, which allows ITC on packing materials used for goods. The Appellate Authority did not address this challenge, prompting the court to set aside the authority's decision and remit the matter to the Assessing Officer for a fresh assessment considering the petitioner's submissions. The court directed the assessment to be redone in accordance with the law. Consequently, the court disposed of the writ petition without costs, closing all connected Miscellaneous Petitions.