2023 (4) TMI 912 - HC - VAT and Sales Tax

Court Dismisses Writs; Allows Statutory Appeals in 30 Days; Emphasizes Documentation for ITC Claims in Remitted Cases.

Tvl. Sahyadri Industries Ltd. Versus The State of Tamil Nadu, Represented by, The Joint Commissioner (CT), Erode

The HC dismissed the writ petitions and appeals, allowing petitioners/appellants to file statutory appeals within thirty days. The appellate authority ... Input Tax Credit (denied retrospectively) - denial on account of cancellation of the VAT registration of the dealers (who have effected sale of the goods to these petitioners/appellants) - denial in absence of transport documents and other documents to prove movement of goods to these petitioners/appellants from the dealers who effected sale of goods to these petitioners/appellants - amendment to Section 19(1) of TN VAT Act, 2006 vide Tamil Nadu Act, 13 of 2015 with effect from 29.01.2016 is prospective or retrospective? - levy of penalty. HELD THAT:- Under the scheme of the TN VAT Act, 2006, the credit that is availed on the strength of the original invoice containing the details specified in Rule 10(2) of the TN VAT Rules, 2007 is provisional. Such input tax credit can be denied to a dealer, if the dealer fails to discharge the burden of proof as under Section 17(2) of the Act. As long as credit was availed validly where there is not only a transaction of “sale” as defined in the Act but also incidence of tax being borne, input tax credit was to be allowed to be utilized as a set-off against the tax liability declared in the self assessment in the monthly/annual return under the Scheme of the Act. If tax is not paid by the seller, machinery is prescribed to recover the tax from such dealer. A close reading of the provisions indicates that for a dealer to validly avail Input Tax Credit, the dealer should be in possession of the original invoice containing the details prescribed under Rule 10(2) of the TN VAT Rules, 2007. However, credit availed was always provisional under Section 19(16) of the TN VAT Act, 2006 and could be denied under any of the circumstances specified and situations contemplated in Section 19(13), 19(15) and 19(16) of the TN VAT Act, 2006 and recovered under the machinery provided under Section 27(2) of TN VAT Act, 2006. However, before denying input tax credit under Section 19(13) of the TN VAT Act, 2006, the assessing authority has to make an enquiry as it thinks fit and give a reasonable opportunity of being heard to a dealer who has availed such input tax credit being denying the benefit of such input tax credit to such registered dealer. Enquiry has to be in consonance with the machinery under Section 27(2) of TN VAT Act, 2006. If on enquiry the dealer fails to discharge the proof, it has to be construed that there was jurisdictional fact to deny credit under Section 27(2) of the TN VAT Act, 2006. If there is a cancellation of registration, the assessing officer can call upon the dealer to repay to the input tax credit availed and utilized if indeed there was no evidence of sale. It may result in denial in the credit. However, it cannot be helped, where registration itself was obtained by such dealer to facilitate input tax credit being availed on such bogus invoice without a corresponding transaction of sale. It was incumbent on the part of a registered dealer like petitioner/appellants availing input tax credit to prove that indeed a transaction of “sale” had taken place. They should not only preserve but also produce collateral evidence in the form of transport documents, such lorry receipts or consignment note, etc. when called upon failing which it cannot be said they have discharged the burden of proof required to be discharged under Section 17(2) of the TN VAT Act, 2006. Section 19(15) in the TN VAT Act, 2006 was an innovation which was not contemplated in under Section 70 of the Karnataka Value Added Tax Act, 2003.Under Section 70 of the Karnataka Value Added Tax Act, 2003, the consequence was on the dealer issuing such false invoice to cheat revenue by imposing penalty. If there was indeed a sale but the registered dealer who had sold goods but had failed to pay the tax from his end, notwithstanding cancellation of registration of such dealer, a dealer who has availed input tax credit on the strength of the original invoice and has documents to establish the transaction of sale, credit cannot be denied. The remedy that is available to the authorities under the Act is only to recover the tax not paid under Section 27(1) of the TN VAT Act, 2006 from such dealer. Therefore a dealer claiming ITC has to prove the actual transaction of sale by furnishing the name and address of the selling dealer, details of the vehicle which was/were used for delivery of the goods, tax invoices and payment particulars etc. The above information would be in addition to tax invoices, particulars of payment etc., as held by the Hon’ble Supreme Court in M/s.Ecom Gill Coffee Trading Private Limited. [2023 (3) TMI 533 - SUPREME COURT] Main issue decided in largely favor of Revenue. Issues Involved:1. Retrospective Denial of Input Tax Credit (ITC)2. Absence of Transport Documents for ITC3. Prospective or Retrospective Amendment to Section 19(1) of TN VAT Act, 2006Summary:1. Retrospective Denial of Input Tax Credit (ITC)The primary issue was whether ITC availed under Section 19 of the Tamil Nadu Value Added Tax Act, 2006 (TN VAT Act, 2006) could be denied retrospectively due to the cancellation of the VAT registration of the dealers who sold goods to the petitioners/appellants. The court held that 'input tax credit availed by any registered dealer shall be only provisional' under Section 19(16) of the TN VAT Act, 2006. The assessing authority is empowered to revoke the same if it appears to be incorrect, incomplete, or otherwise not in order. The court emphasized that the burden of proof for claiming ITC lies with the dealer under Section 17(2) of the Act. If the registration of the selling dealer is canceled retrospectively, ITC can be denied if the dealer fails to prove the genuineness of the transaction.2. Absence of Transport Documents for ITCThe court addressed whether ITC could be denied in the absence of transport documents and other evidence proving the movement of goods. It was held that mere possession of tax invoices and proof of payment is not sufficient to claim ITC. The dealer must also provide evidence of the actual physical movement of goods. The court stated, 'Mere production of the invoices or the payment made by cheques is not enough and cannot be said to be discharging the burden of proof.' The court referred to the Supreme Court's decision in The State of Karnataka vs. M/s.Ecom Gill Coffee Trading Private Limited, emphasizing that the dealer must prove the actual transaction by furnishing details like the name and address of the selling dealer, vehicle details, tax invoices, and payment particulars.3. Prospective or Retrospective Amendment to Section 19(1) of TN VAT Act, 2006The court examined whether the amendment to Section 19(1) of the TN VAT Act, 2006, introduced by Tamil Nadu Act, 13 of 2015 with effect from 29.01.2016, is prospective or retrospective. The amendment required the dealer claiming ITC to establish that the tax due on the purchase of goods has actually been paid by the selling dealer and that the goods have been delivered. The court held that the amendment is clarificatory and applies retrospectively. It stated, 'What was implicit in proviso to Section 19(1) of the TN VAT Act, 2006 at the time of inception was made explicit in the year 2016.' The court emphasized that the amendment was intended to curb tax evasion and ensure that ITC is claimed only on genuine transactions involving the actual movement of goods.Conclusion:The court dismissed the writ petitions and appeals, giving liberty to the petitioners/appellants to file statutory appeals before the appellate authority within thirty days. The appellate authority was directed to dispose of the appeals in light of the observations made in the judgment. The court also remitted certain cases back to the original authority for fresh orders on merits, emphasizing the need for dealers to substantiate their ITC claims with proper documentation and evidence of the actual movement of goods.