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of <h1>Taxation ruling: Non-star hotels' Input Tax Credit under TNVAT Act, Section 7(1)(b) not (a). Reassessment ordered.</h1> <h3>M/s. Inspired Foods Versus The Commercial Tax Officer, Office of the Commercial Tax Officer, Chennai</h3> M/s. Inspired Foods Versus The Commercial Tax Officer, Office of the Commercial Tax Officer, Chennai - TMI Issues:Interpretation of Sections 7(1)(a) and 7(1)(b) of the TNVAT Act regarding the tax liability of non-star category Hotels claiming Input Tax Credit (ITC).Analysis:The primary issue in this case revolved around the correct application of Sections 7(1)(a) and 7(1)(b) of the TNVAT Act to non-star category Hotels claiming Input Tax Credit (ITC) for local sales of food and drinks. The Department contended that since the petitioners had claimed ITC, they should be brought under the purview of Section 7(1)(a), applicable to Star Hotels. On the other hand, the petitioner argued that being a non-Star Hotel, they should only be liable to pay tax under Section 7(1)(b) of the TNVAT Act.Upon a careful examination of the provisions of the TNVAT Act, the Court observed that Section 7(1)(a) specifically pertains to Star Hotels, while Section 7(1)(b) is intended for Hotels not falling under the Star category. The distinction between the two sections is evident from a plain reading of the law. Therefore, the basis on which the petitioners were brought under Section 7(1)(a) was found to be contrary to the statutory provision.Furthermore, the Court emphasized that even if the petitioners had erroneously claimed ITC, the appropriate recourse for the Department would be to reverse the ITC as per Section 27(2) of the TNVAT Act. Bringing the petitioners under Section 7(1)(a) was deemed improper, and the levy of tax under Section 7(1)(b) along with any penalties imposed could not be upheld. The Court directed the respondent to reconsider the matter, granting the petitioner a fair opportunity for a personal hearing to rectify the issue promptly.Conclusively, the Court set aside the impugned orders passed by the respondent and remanded the matters for fresh consideration in light of the observations made in the judgment. All the Writ Petitions were allowed, and the connected Miscellaneous Petition was closed without any costs being imposed.
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