Input tax credit reversal over alleged bill-trader purchases, with missing transport and delivery records; disallowance upheld u/s17.

Reversal of input tax credit (ITC) under the Tamil Nadu VAT Act, 2006 turned on whether the dealer discharged the statutory burden to prove the underlying purchases and movement of goods. Applying s.17 (including s.17(2)), and consistent with SC authority that invoices or payment evidence alone is insufficient, the HC held the dealer had to produce material particulars such as invoices, delivery challans, and transport documents to establish a genuine transaction, especially where the pre-assessment notice alleged dealing with a bill trader. As no such records evidencing movement of goods were produced, the disallowance and reversal of ITC was sustained, and the writ court's refusal to entertain the writ and relegation to the statutory appeal remedy was upheld; the appeal was dismissed.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether the assessment order reversing Input Tax Credit (ITC) violated principles of natural justice by proceeding on a premise not put to the dealer in the pre-assessment notice.

(ii) Whether, on the material considered by the assessing authority, the dealer discharged the statutory burden under Section 17 of the Tamil Nadu Value Added Tax Act, 2006 to substantiate the genuineness of the purchase transaction (including movement of goods) so as to sustain the ITC claim, where the notice alleged dealing with a "bill trader".

(iii) Whether the writ court was justified in refusing to entertain the challenge on merits and in relegating the dealer to the statutory appellate remedy, in the facts of the case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Natural justice-whether the assessment travelled beyond the pre-assessment notice

Legal framework: The Court examined the content of the pre-assessment notice and whether the assessee was put on notice of the grounds on which ITC reversal was proposed.

Interpretation and reasoning: The Court found that the pre-assessment notice did not merely refer to cancellation of the selling dealer's registration; it also proposed reversal of ITC on the premise that the selling dealer was a "bill trader" and that the dealer had not discharged the burden under Section 17. Once such an allegation is made, it directly questions the credibility and genuineness of the transaction, requiring the dealer to place all available evidence to establish it. The Court held there was no requirement for the assessing authority to spell out or suggest the specific measures or documents the dealer should produce.

Conclusion: The assessment did not proceed on a new, undisclosed premise; the notice sufficiently raised the relevant allegations. No breach of natural justice was made out.

Issue (ii): Burden under Section 17 TNVAT-proof required to sustain ITC where transaction credibility is questioned

Legal framework: Section 17 was treated as casting a specific burden on the dealer to prove transactions/turnover; this is explicit in relation to ITC claims under Section 17(2).

Interpretation and reasoning: The Court held that, given the notice's allegation of a "bill trader" transaction, it was incumbent on the dealer to prove the legitimacy of the purchase by producing material particulars to demonstrate the actual transaction and movement of goods. The dealer confined its explanation to the aspect of cancellation of the selling dealer's registration and did not address other facets relating to genuineness and proof of movement of goods. The Court noted that no supporting records were produced before the assessing authority to establish actual movement of goods or otherwise substantiate the transaction. In these circumstances, the assessing authority's conclusion that the transaction was not proved and that ITC must be reversed was found justified.

Conclusion: The dealer failed to discharge the Section 17 burden to prove genuineness of the transaction; reversal of ITC was upheld.

Issue (iii): Relegation to statutory appeal-interference with writ court's approach

Legal framework: The Court applied the principle that availing the statutory appellate remedy is the rule, and writ interference is exceptional.

Interpretation and reasoning: Having found no violation of natural justice and no material establishing the transaction or movement of goods, the Court held that the writ court correctly treated the matter as not warranting an exception to the rule of exhausting statutory remedies. The writ court's decision to relegate the dealer to appeal was therefore sustained.

Conclusion: The direction relegating the dealer to the statutory appellate remedy was upheld; the writ appeal was dismissed.

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