Input tax credit and mismatch reversal must follow fair procedure when job-work processing occurs outside the State.

Input tax credit under the Tamil Nadu VAT Act cannot be denied merely because goods purchased within the State are sent outside the State for job work and the processed goods are later brought back and sold within Tamil Nadu; the text states that this approach was held unsustainable in light of an earlier Division Bench ruling. It also states that mismatch-based reversal of credit requires fresh consideration, with the dealer given an opportunity to produce original invoices and explain the discrepancy before any adverse action is taken. The assessment was therefore set aside for reconsideration and fresh adjudication after due hearing.

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Issues: (i) Whether reversal or denial of input tax credit was sustainable under Section 19(2)(ii) and Section 19(4) of the Tamil Nadu Value Added Tax Act, 2006 when inputs purchased within the State were sent outside the State for job work and the processed goods were brought back and sold within the State; (ii) Whether the assessment based on mismatch required fresh consideration with opportunity to the dealer under Section 19(10)(a) of the Tamil Nadu Value Added Tax Act, 2006.

Issue (i): Whether reversal or denial of input tax credit was sustainable under Section 19(2)(ii) and Section 19(4) of the Tamil Nadu Value Added Tax Act, 2006 when inputs purchased within the State were sent outside the State for job work and the processed goods were brought back and sold within the State.

Analysis: The issue was held to be covered by the earlier Division Bench ruling, which declared Section 19(2)(ii) invalid to the extent it denied input tax credit merely because the manufacturing or conversion activity took place outside the State, where the tax-suffered goods were received back and sold within Tamil Nadu. The same reasoning was applied to Section 19(4) to the extent it retained input tax credit and made the relief ineffective.

Conclusion: The denial or reversal of input tax credit on this ground was not sustainable and the issue was decided in favour of the assessee.

Issue (ii): Whether the assessment based on mismatch required fresh consideration with opportunity to the dealer under Section 19(10)(a) of the Tamil Nadu Value Added Tax Act, 2006.

Analysis: The assessment on mismatch was treated as requiring reconsideration in the light of the earlier orders directing that, where original tax invoices are produced, the dealer should be given an opportunity and the matter should be re-examined through a proper enquiry before reversing input tax credit. The impugned assessment was therefore set aside and the matter was directed to be adjudicated afresh after following the prescribed procedure and affording opportunity to the writ petitioner.

Conclusion: The mismatch-based assessment was liable to be set aside for fresh adjudication after due opportunity, and this issue was decided in favour of the assessee.

Final Conclusion: The writ petition succeeded, the assessment order was set aside, and the tax liability was left to be reconsidered afresh in accordance with the governing legal principles after giving the assessee an opportunity of hearing.

Ratio Decidendi: Input tax credit cannot be denied merely because the processing of tax-suffered goods occurs outside the State when the goods are received back and sold within the State, and a mismatch-based reversal of credit requires a fair procedure and fresh adjudication after opportunity to explain.

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