Input tax credit for manufacturing inputs cannot be denied by proviso where tax-paid eligible inputs were used in processing.

A dealer using tax-paid eligible inputs in manufacturing or processing was held entitled to full input tax credit under the Tamil Nadu Value Added Tax Act, 2006, and the proviso to Section 19(2)(v) read with Rule 10(9)(a) could not be invoked to deny that credit on identical facts. Applying the earlier binding decision, the Madras High Court held that the pre-revision notice proposing reversal of input tax credit was unsustainable. The writ petition succeeded and the impugned notice was quashed.

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Issues: Whether the pre-revision notice proposing reversal of input tax credit under the Tamil Nadu Value Added Tax Act, 2006 was sustainable in view of the earlier decision on identical facts.

Analysis: The dispute turned on the applicability of the proviso to Section 19(2)(v) of the Tamil Nadu Value Added Tax Act, 2006 and Rule 10(9)(a) of the Tamil Nadu Value Added Tax Rules, 2007 to a dealer who had used tax-paid inputs in manufacturing and claimed credit. The Court followed the earlier decision holding that where tax had been paid on eligible inputs and such inputs were used in manufacturing or processing, the dealer was entitled to full input tax credit and the proviso could not be invoked to deny that benefit.

Conclusion: The challenge to the proposed reversal of input tax credit succeeded and the pre-revision notice was quashed.

Final Conclusion: The writ petition was allowed on the footing that the impugned notice could not be sustained against the assessee in light of the earlier binding decision on the same legal issue.

Ratio Decidendi: A dealer using tax-paid eligible inputs in manufacturing or processing is entitled to full input tax credit, and the proviso restricting such credit cannot be applied to deny that entitlement on identical facts.

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