Capital goods input tax credit is not reversed under general input restrictions where separate statutory rules govern the credit scheme.

Input tax credit on capital goods under the Tamil Nadu VAT framework is separately governed by Section 19(3)(a) and Rule 10(4), while the restrictions in Section 19(4) and Section 19(5)(c) apply to goods used as inputs. On a harmonious reading of the Act and Rules, those restrictions do not extend to capital goods merely because the dealer makes inter-State sales or stock transfers. The scheme for capital goods has its own prescribed credit mechanism, and there is no one-to-one correlation between that credit and the nature of final sales to justify reversal under the invoked provisions. Accordingly, notices proposing such reversal were unsustainable.

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Issues: Whether the restrictions under Section 19(4) and Section 19(5)(c) of the Tamil Nadu Value Added Tax Act, 2006 could be invoked to reverse input tax credit availed on capital goods used in manufacture, and whether the impugned notices proposing such reversal were sustainable.

Analysis: The credit scheme under Section 19 distinguishes between ordinary inputs and capital goods. While Section 19(2) broadly permits input tax credit for purchases used in manufacture, Section 19(3)(a) creates a special dispensation for capital goods, allowing credit in the manner prescribed under Rule 10(4) of the Tamil Nadu Value Added Tax Rules, 2007. The restrictions in Section 19(4) and Section 19(5)(c) operate on goods used as inputs and do not, on a harmonious reading of the Act and Rules, extend to capital goods merely because the dealer makes inter-State sales or stock transfers. The scheme for capital goods is independently regulated by Rule 10(4)(b) and Rule 10(4)(e), and there is no one-to-one correlation between such credit and the nature of final sales so as to justify reversal under the invoked provisions.

Conclusion: The restrictions under Section 19(4) and Section 19(5)(c) do not apply to input tax credit on capital goods in the manner sought by the department, and the impugned notices were unsustainable.

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