Court directs fresh assessment on Input Tax Credit restrictions, orders fact-finding on ITC reversal, grants personal hearing.

The court set aside the impugned orders restricting Input Tax Credit (ITC) for prior sufferance of taxes, directing a fresh assessment. The Assessing Officer was instructed to conduct a fact-finding exercise on ITC reversal for wastage and issue show cause notices for ineligible ITC claims on goods. The petitioner was granted a personal hearing within twelve weeks, ensuring procedural fairness. The Writ Petition was disposed of without costs.

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Issues:
Restriction of Input Tax Credit (ITC) claimed in Form W for the months of December 2013 to May 2014 for separate orders for every month based on (a) Prior sufferance of Taxes, (b) ITC on reversal on wastage, and (c) Ineligible claim of ITC on goods.

Analysis:

1. Prior Sufferance of Taxes:
The Assessing Officer restricted the ITC amount based on the premise that some sellers from whom the petitioner purchased goods had not paid taxes to the Government. However, a precedent case highlighted that ITC cannot be disallowed solely because the seller did not pay taxes if the purchaser can prove that the tax was collected and proper invoices were issued. Therefore, the restriction on ITC due to prior sufferance of taxes was deemed unsustainable and required reconsideration.

2. ITC on Reversal on Wastage:
The judgment referred to a case where the Assessing Officer adopted uniform percentages for invisible and visible loss in the reversal of ITC claim on wastage. The court emphasized that a fact-finding exercise was necessary to ascertain the actual loss of goods purchased, and uniform percentages should not be arbitrarily applied. The Assessing Officer was directed to conduct an inspection of the petitioner's business premises to understand the manufacturing process accurately. The court set aside the orders that reversed ITC based on uniform percentages and allowed the Assessing Officer to issue appropriate show cause notices for a fair assessment.

3. Ineligible Claim of ITC on Goods:
The judgment also addressed the rejection of ITC claims on goods that were not exported. The petitioner argued that these goods were used in manufacturing other goods that were exported, making them eligible for ITC under the State Act. However, the petitioner was not given an opportunity to present objections on this issue. Following the precedent case, the court suggested calling for objections from the petitioners to ensure a fair evaluation of the ITC claims on goods.

Conclusion:
The impugned orders were set aside, and the issue of restricting the ITC amount for prior sufferance of taxes was remanded to the Assessing Officer for fresh consideration. The Assessing Officer was directed to provide a personal hearing to the petitioner and complete the proceedings within twelve weeks. Additionally, the Assessing Officer was permitted to issue show cause notices regarding the reversal of ITC on wastage and the ineligible claim of ITC on goods, following the guidelines established in the judgment. The Writ Petition was disposed of with no costs incurred.

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