Input tax credit reversal under exemption notifications and rectification for apparent mistake were both held unsustainable.

Section 19(5)(a) of the Tamil Nadu VAT Act could not be used to reverse input tax credit where the furnace oil exemption operated through notifications directed at specified taxable events and purchasing dealers, and the notifications did not expressly require reversal by the selling dealer. The Court also held that Section 84 rectification is confined to mistakes apparent on the record and cannot be used to reopen a contested legal interpretation; the reassessment/rectification proceedings were therefore unsustainable. The impugned orders reversing input tax credit were quashed.

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Issues: (i) Whether reversal of input tax credit under Section 19(5)(a) of the Tamil Nadu Value Added Tax Act, 2006 was permissible in respect of furnace oil transactions exempted under Section 30 of the Act through notifications granting exemption to specified goods, specified classes of persons, or specified taxable events; (ii) Whether the reassessment/rectification proceedings under Section 84 of the Act could be sustained for reversing input tax credit on the premise of an apparent mistake.

Issue (i): Whether reversal of input tax credit under Section 19(5)(a) of the Tamil Nadu Value Added Tax Act, 2006 was permissible in respect of furnace oil transactions exempted under Section 30 of the Act through notifications granting exemption to specified goods, specified classes of persons, or specified taxable events?

Analysis: Section 30 empowers the Government to grant exemption in three distinct ways: in respect of specified goods, specified classes of persons, or specified classes of goods sold by specified classes of dealers. The judgment distinguished between an exemption attached to goods generally and an exemption attached to a taxable event or specified class of transaction. Relying on the distinction recognised in earlier decisions, it was held that where the exemption operates on a specified event involving a specified class of assessee and goods, the transaction is not to be treated as an exempted sale of goods in the generic sense. The notifications in question did not expressly provide for denial or reversal of input tax credit in the hands of the selling dealer, while the conditions imposed were directed primarily at the purchasing dealers. On a plain reading of the notifications and the statutory scheme, the Court found that Section 19(5)(a) could not be invoked to reverse input tax credit in the circumstances.

Conclusion: The reversal of input tax credit was not justified and this issue was answered in favour of the assessee.

Issue (ii): Whether the reassessment/rectification proceedings under Section 84 of the Tamil Nadu Value Added Tax Act, 2006 could be sustained for reversing input tax credit on the premise of an apparent mistake?

Analysis: Section 84 is confined to rectification of mistakes apparent on the record and cannot be used for matters requiring debate, interpretation, or a choice between competing views. The impugned proceedings were initiated years after the exemption notifications and were based on a contested legal interpretation of their scope. Since the question whether input tax credit could be reversed involved substantive reasoning and not an obvious error, the matter did not fall within the ambit of rectification under Section 84.

Conclusion: The proceedings under Section 84 were unsustainable and this issue was answered in favour of the assessee.

Final Conclusion: The impugned orders reversing input tax credit were quashed, and the writ petitions succeeded with consequential directions for the pending appeal to be decided consistently with this ruling.

Ratio Decidendi: An exemption notification framed under a power to exempt specified goods, specified persons, or specified taxable events does not automatically attract reversal of input tax credit unless the statute or notification expressly so provides, and a disputed legal interpretation cannot be reopened by rectification as a mistake apparent on the record.

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