Purchase tax demand rejected where defective return software distorted input tax credit entries and the transaction remained revenue neutral.

Purchase tax demand was held unsustainable where the dealer had paid sales tax on output turnover and the statutory input tax credit mechanism was affected by a defective online return system. The court accepted that the software fault caused the purchase tax entry to appear on both the tax payable and credit sides, creating a practical impediment to correct compliance and leaving the transaction revenue neutral. The Tribunal's formal objection that the entry was shown in the input tax credit column was rejected because it overlooked the departmental defect and the appellate finding based on the statutory scheme. The common order was set aside and the revisions were allowed.

---

---

Issues: (i) Whether the demand of purchase tax was sustainable when the dealer had paid sales tax on the output turnover and the purchase tax position was affected by the input tax credit mechanism; (ii) whether the Tribunal was justified in restoring the assessment on the ground that the dealer had shown the purchase tax entry in the return in the column meant for input tax credit.

Issue (i): Whether the demand of purchase tax was sustainable when the dealer had paid sales tax on the output turnover and the purchase tax position was affected by the input tax credit mechanism.

Analysis: Section 12 required purchase tax to be paid on the relevant purchases, and the corresponding tax could be adjusted by way of input tax credit against the output tax liability. The material on record showed that, during the relevant period, the online return system had a defect that automatically reflected the purchase tax on both the tax payable side and the input tax credit side, thereby preventing a proper payment workflow and also affecting the subsequent credit mechanism. The Court accepted that the dealer had paid tax on the entire sales turnover and that the situation remained revenue neutral, with no gain to the dealer and no loss to the revenue.

Conclusion: The demand of purchase tax was not sustainable on the facts found, and the issue was answered in favour of the assessee.

Issue (ii): Whether the Tribunal was justified in restoring the assessment on the ground that the dealer had shown the purchase tax entry in the return in the column meant for input tax credit.

Analysis: The Tribunal had proceeded on a strict application of the form and held that the dealer was bound to pay purchase tax and could not place the entry under the input tax credit column. The Court held that this approach ignored the practical difficulty created by the defective software used by the department during the relevant period. The appellate authority had properly considered the statutory scheme, the departmental defect, and the revenue-neutral character of the transaction, and the Tribunal ought not to have interfered with that finding.

Conclusion: The Tribunal was not justified in restoring the assessment, and the issue was answered in favour of the assessee.

Final Conclusion: The common order of the Tribunal was set aside and the revisions were allowed, as the levy of purchase tax could not be sustained in the peculiar circumstances arising from the defective return system and the revenue-neutral position.

Ratio Decidendi: Where the statutory tax liability and the corresponding credit mechanism are frustrated by a departmental software defect, and the transaction is otherwise revenue neutral, a strictly formal insistence on the return entry cannot justify sustaining the levy.

---