Input tax credit reversal set aside where the notice ignored the dealer's claim and any fresh notice was time-barred.

The reversal of input tax credit and penalty under the Tamil Nadu Value Added Tax Act could not be sustained where the show cause notice proceeded on an incorrect premise and failed to examine the dealer's specific claim that the credit was adjusted only against VAT on the sale of old windmills, not against exempt electricity sales. Because the assessment and appellate orders did not address that distinction, the defect in the notice was treated as fundamental. Any fresh correction would have required a new notice, which was held to be time-barred under Section 27. Interference was therefore warranted in favour of the assessee.

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Issues: Whether the reversal of input tax credit and consequential penalty under Section 27 of the Tamil Nadu Value Added Tax Act, 2006, arising from the sale of old windmills and the purchase of windmill spares, called for interference.

Analysis: The assessment was founded on a show cause notice that proceeded on the premise that the windmills and spares were used for generation of electricity, an exempt commodity, while the dealer consistently claimed that the input tax credit was adjusted only against VAT payable on the sale of old windmills. The subsequent assessment and appellate orders did not address this specific claim and did not examine whether the credit was sought to be applied to the exempt sale of electricity or to the taxable sale of old windmills. The defect in the notice was treated as fundamental, because any fresh correction would require a fresh show cause notice, and such notice would be barred by limitation under Section 27.

Conclusion: The reversal of input tax credit and the penalty could not be sustained, and interference was warranted in favour of the assessee.

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