2025 (12) TMI 215 - HC - VAT / Sales Tax

Strict Section 19(11) TN VAT time limit bars delayed input tax credit, buyer can't blame late invoices

M/s. Rishabh Enterprises, rep. by its Partner Mr. Rakesh Daga Versus M/s. Bharat Heavy Electricals Limited

HC held that under Section 19(11) TN VAT Act, the term 'shall' is mandatory, strictly limiting the period within which input tax credit can be claimed. ... Claim of VAT credit - belated supply of invoice - respondent having failed to claim input credit based on the original invoices, can blame the plaintiff for the delay in seeking copies of invoices or not - HELD THAT:- This Court in a bunch of writ petitions challenging the assessment order/show cause notices denying the credit taken in the revised returns involving Section 19(11) of TN VAT Act, held that Section 19(11) actually relaxes the rigor of Rule 7 under which the registered dealer is required to furnish correct and complete details of Input Tax Credit on or before 20th of succeeding month. In addition to filing of revised return under Rule 7(9), Section 19(11) enables the dealer to make the Input Tax Credit before the end of the financial year or before ninety days whichever is later. Section 19(11) not only effectuates the provision of the Act, but is also more in the nature of the beneficial to registered dealer. Therefore, the benefit of credit under the Act is in the nature of a concession given which could be availed only in the manner and in the circumstances mentioned in Section 19. Therefore, the Legislature has given one more benefit which also is in the nature of a concession in respect of registered dealer who failed to claim tax credit in any month and they have been given time to make the claim till the end of the financial year or before 90 days from the date of purchase, whichever is later. Therefore, the word 'shall' used in Section 19(11) of the VAT Act is held to be mandatory and not directory. Therefore, from the above observations, it is made clear that the word 'shall' in Section 19(11) of TN VAT Act is held to be mandatory and not directory. In the bunch of writ petitions filed before this Court in the case of Usa Agencies vs. Commercial Tax Officer [2013 (8) TMI 532 - MADRAS HIGH COURT], it is held that the word 'shall' used in Section 19(11) of the TN VAT Act, is held to be mandatory and not directory. In the judgment relied on the side of the respondent in the case of M/s.TVS Motor Company Limited vs. The State of Tamil Nadu and others [2018 (10) TMI 887 - SUPREME COURT] it is held that Section 19(5)(c) is constitutionally valid; that this provision was aimed at achieving a specific and justified purpose to protect the revenue against clandestine transaction resulting in invasion of tax and could not be treated as discriminatory; that sale by a dealer who is registered in the State of Tamil Nadu which is effected outside the state of Tamil Nadu will qualify for ITC only when the said sale is made to a registered dealer; that insofar sales to unregistered dealers, that too, situated outside the state of Tamil Nadu, the State would not have any mechanism to find out the genuineness of the sales; that in essence, the State is put in the condition that ITC would admissible when form 'C' is given, which can be given only in those cases where sale is to a registered dealer and that prescribing such a condition in order to ensure that there is no evasion, has a rationale purpose and objective (Tamil Nadu Value Added Tax Rules, 2007 - Rule 19(9) (a)). Therefore, the belated supply of invoice resulted in the defendant ineligible from claiming VAT credit as per Section 19(11) of TN VAT Act. Hence the Courts below were right in decreeing the suit in part, which warrants any interference by this Court. Therefore, there are no question of law much less a substantial question of law in order to enable to entertain this appeal. The judgment and decree upheld - The Second Appeal is dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether, in a commercial supply contract governed by the Tamil Nadu Value Added Tax Act, 2006, the purchaser who failed to claim input tax credit within the statutory time-limit can be held liable to pay the VAT component to the supplier when the supplier submitted invoices belatedly. 1.2 Whether the deductions made by the purchaser towards disallowed VAT credit and liquidated damages for delayed supply were justified under the terms of the contract and Section 19(11) of the Tamil Nadu Value Added Tax Act, 2006. 1.3 Whether any substantial question of law arose in the second appeal warranting interference with the concurrent findings of the courts below. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2 - Liability for VAT component and validity of deductions under Section 19(11) TNVAT and contract terms (a) Legal framework (as discussed) 2.1 The Court proceeded on the basis that both parties are governed by the Tamil Nadu Value Added Tax Act, 2006, and that the invoices in question are 'VATable' under Section 19(3) of the Act. 2.2 Section 19(11) of the Act, as extracted and discussed, provides that if any registered dealer fails to claim input tax credit in respect of any transaction of taxable purchase in any month, such claim shall be made before the end of the financial year or before ninety days from the date of purchase, whichever is later. 2.3 The Court relied on prior decisions upholding the validity and mandatory nature of Section 19(11), notably the judgment in Usa Agencies v. Commercial Tax Officer, and other writ petitions, holding that: * Section 19(11) relaxes the rigour of Rule 7, which requires correct and complete details of input tax credit in monthly returns. * The benefit of input tax credit is a concession, available only in the manner and within the timeframe stipulated in Section 19. * The expression 'shall' in Section 19(11) is mandatory and not directory. * Prescribing a time frame for availing input tax credit is within the legislative competence of the State and cannot be termed unreasonable or discriminatory. 2.4 The Court also noted contractual terms in the purchase orders permitting deduction of liquidated damages at 0.5% of the price for each week of delay (up to a specified maximum) for failure to supply within the stipulated delivery schedule. (b) Interpretation and reasoning 2.5 The Court recorded that the plaintiff had supplied goods on credit, raised invoices, and the defendant had made substantial payments, but withheld certain amounts on the grounds of (i) disallowed VAT input credit due to late submission of invoices, and (ii) liquidated damages for delayed supply under the purchase orders. 2.6 It was undisputed that: * The plaintiff's invoices were VATable; * Several invoices (particularly those relating to February and March) were submitted by the plaintiff after more than four months from the date of invoice; and * The defendant applied Section 19(11) by treating '90 days' or 'end of financial year' as the cut-off date for availing input tax credit, depending on the invoice. 2.7 The Court noted the plaintiff's contention that original tax invoices had already accompanied the goods to the consignee's address, and that under Section 19(10)(b) and Rule 6 of the TNVAT Rules, input tax credit could be claimed on the basis of original, duplicate, or carbon copies. However, the Court focused on the statutory time-limit under Section 19(11), not on the form of copies. 2.8 The Court found that, due to the belated submission of invoices by the plaintiff (as admitted in evidence), the defendant was unable to claim input tax credit within the period mandated by Section 19(11). Consequently, the defendant was rendered ineligible to claim VAT credit for those invoices. 2.9 Relying on the binding precedents on Section 19(11), the Court reiterated that: * The input tax credit scheme is a statutory concession; * It can be availed only strictly in the manner and timeframe provided by Section 19; * The word 'shall' in Section 19(11) is mandatory, making the time-limit strict; and * The provision is constitutionally valid and cannot be relaxed by judicial interpretation in favour of either party. 2.10 On the contract aspect, the Court found from the purchase orders that the delivery dates for certain items (serial nos. 6 to 10) were clearly stipulated (e.g., 04.02.2014 and 15.04.2014) and that the plaintiff had supplied items after the stipulated delivery dates. Under the purchase order terms, such delay attracted liquidated damages at 0.5% of the price for each week of delay. 2.11 The Court accepted the defendant's case that: * VAT credit disallowance was made only for seven invoices where the time-limit under Section 19(11) could not be met due to late submission; * No VAT deduction was made for invoices within the statutory period (including one invoice for which the 'end of financial year' criterion allowed credit even though the invoice was otherwise late); and * Liquidated damages were deducted only against invoices where the supplies were delayed beyond the contractual delivery schedule. 2.12 The plaintiff's assertion of 'shortage of payment' was held not proved, as the plaintiff did not establish that the deductions for disallowed VAT credit and liquidated damages were contrary to statute or contract. 2.13 On the substantial question of law-whether the purchaser, having failed to claim input credit based on original invoices, could blame the supplier for delay in furnishing copies-the Court effectively answered by holding that: * The determinative factor under Section 19(11) is compliance with the statutory time-limit; * The plaintiff's belated invoice submission caused the statutory ineligibility of the defendant to claim input tax credit; and * Given the mandatory nature of Section 19(11), the defendant was entitled to disallow the VAT portion and was not obligated to pay that component to the plaintiff. (c) Conclusions 2.14 The Court concluded that due to the belated supply of invoices, the defendant became ineligible to claim VAT input credit under the mandatory time-limit of Section 19(11) of the TNVAT Act. 2.15 The deductions made by the defendant towards disallowed VAT credit and liquidated damages for delayed delivery were held to be in accordance with the statutory framework and the contractual terms. 2.16 The plaintiff was not entitled to recover the disallowed VAT component or the amounts deducted as liquidated damages; hence the partial decree granted by the courts below was justified. Issue 3 - Existence of substantial question of law in second appeal (a) Interpretation and reasoning 2.17 The Court noted that both the trial court and the first appellate court had concurrently found that: * Invoices were submitted belatedly; * The defendant could not lawfully claim input tax credit within the period prescribed by Section 19(11); and * Deductions towards disallowed VAT and liquidated damages were contractually and statutorily justified. 2.18 Given the existing binding precedents on the validity and mandatory character of Section 19(11), and the purely factual nature of delay in submission of invoices and supplies, the Court held that no substantial question of law survived for consideration in the second appeal. (b) Conclusions 2.19 No substantial question of law was found to arise; the second appeal was dismissed, and the concurrent judgments and decrees of the courts below were upheld in toto.