TaxTMI Updates e-Newsletter
Apr 11,2013

Effect of appellate setting aside of additions on imposition of penalty - penalty for concealment of income or furnishing inaccurate particulars under section 271(1)(c) - reassessment following appellate decision

Effect of appellate setting aside of additions on imposition of penalty - penalty for concealment of income or furnishing inaccurate particulars under section 271(1)(c) - Whether the Tribunal was justified in cancelling the penalty imposed under Section 271(1)(c) after the addition of rental income was set aside on appeal. - HELD THAT: - The assessing officer originally treated the rental receipts as sham and made an addition, and thereafter initiated penalty proceedings under Section 271(1)(c). The addition was set aside by the Tribunal on appeal and the matter was remanded for reassessment. On reassessment the assessing officer accepted the rental income as in accordance with law. The Tribunal found that, once the addition that formed the basis of the penalty was set aside by the appellate authority, there remained no sustaining foundation for the penalty as imposed by the assessing officer. The High Court agreed with the Tribunal's conclusion that cancellation of the penalty was justified in the facts and circumstances of the case, and that no error was shown in the Tribunal's order setting aside the penalty which had been premised on the disallowed addition.

Tribunal was justified in law in cancelling the penalty under Section 271(1)(c); the reference is answered in favour of the respondent and against the revenue.

Final Conclusion: The High Court concurs with the Tribunal that cancellation of the penalty under Section 271(1)(c) was justified once the addition of rental income was set aside on appeal; the reference is answered for the respondent and the opinion is returned to the Tribunal.

Disallowance under Section 14A - provision for doubtful debts treated as bad debt/write off - deduction under Section 36(1)(vii) read with Section 36(2) - burden on Revenue to prove contrivance of sale/receipt of consideration (K.P. Varghese principle) - computation of book profits under Section 115JB

Disallowance under Section 14A - Godrej and Boyce principle - Restoration of the Section 14A disallowance issue to the file of the Assessing Officer for fresh decision in the light of the Bombay High Court's decision in Godrej and Boyce. - HELD THAT: - The Tribunal set aside the earlier deletion and remitted the matter to the Assessing Officer to decide afresh in accordance with the Bombay High Court's decision in Godrej and Boyce. The High Court found no reason to entertain the Revenue's challenge to that remand and did not disturb the Tribunal's order restoring the issue for fresh adjudication. [Paras 2]

Matter remitted to the Assessing Officer for fresh decision in accordance with Godrej and Boyce; Revenue's challenge to the remand not entertained.

Provision for doubtful debts treated as bad debt/write off - deduction under Section 36(1)(vii) read with Section 36(2) - Vijaya Bank principle on writing off by provision - Allowability of deduction of provision for doubtful debt as a bad debt under Sections 36(1)(vii) and 36(2) where provision was debited to profit & loss and corresponding reduction made in assets. - HELD THAT: - The Tribunal recorded findings of fact that the assessee had debited the provision for doubtful debts to the profit and loss account and had correspondingly reduced the asset by reducing unsecured loans; on those facts it concluded that the provision amounted to writing off the debt. Relying on the Apex Court's decision in Vijaya Bank, the Tribunal treated the entries as constituting a write off and held that lending constituted a business activity (interest offered as business income), hence the debt qualified for deduction under Sections 36(1)(vii) read with 36(2). The High Court declined to entertain the Revenue's challenge to that factual finding and conclusion of law. [Paras 3]

Deletion of addition upheld; provision treated as written off and allowable as bad debt deduction.

Burden on Revenue to prove contrivance of sale/receipt of consideration (K.P. Varghese principle) - deletion of long term capital loss - Validity of the Tribunal's deletion of the addition disallowing the long term capital loss arising on sale of unquoted group shares alleged to be contrived. - HELD THAT: - The Tribunal applied the principle in K.P. Varghese that mere allegation of contrivance is insufficient; the Revenue must prove that the assessee received more consideration than declared. The Tribunal found that the Revenue had not discharged its burden to establish that the loss was contrived and also noted that, if the Revenue questioned the intrinsic valuation, it could rework the valuation. The High Court found no reason to interfere with the Tribunal's conclusion that the Revenue failed to prove its allegation and accordingly refused to entertain the Revenue's challenge. [Paras 6]

Deletion of the addition relating to long term capital loss upheld; Revenue failed to prove contrivance.

Final Conclusion: The Revenue appeal is dismissed. The Tribunal's remand to the Assessing Officer for reconsideration of the Section 14A disallowance in the light of Godrej and Boyce is left undisturbed; the Tribunal's deletions in respect of the provision treated as a bad debt and the long term capital loss are upheld.

Higher rate of depreciation for motor lorries used in business of running them on hire - user in the business test - finding of fact - precedent binding on subsequent assessments

Higher rate of depreciation for motor lorries used in business of running them on hire - user in the business test - finding of fact - Allowability of higher depreciation rate on Armoured/Security vans claimed by the assessee - HELD THAT: - The Tribunal upheld the CIT(A)'s allowance of the higher rate of depreciation on security vans used by the assessee. The decision rests on factual findings that the assessee's main business is transportation of cash and valuables for third parties and that the security vans are used in that business. Applying the 'user in the business' test, the Tribunal distinguished authorities where higher rate was disallowed because transportation was not the assessee's main business. The Tribunal also followed earlier orders in the assessee's own case for preceding assessment years and noted that the jurisdictional High Court upheld the Tribunal's factual conclusion and that the Supreme Court dismissed the Revenue's special leave petition. In view of these authoritative precedents and the uncontested factual finding that the vans are used in the business of transporting valuables, the issue is no longer res integra and the higher rate claim was sustained. [Paras 6, 7, 9, 10, 11]

The CIT(A)'s direction to allow depreciation on the security vans at the higher rate is upheld and the excess disallowance made by the AO is set aside.

Final Conclusion: The Revenue's appeal is dismissed; the assessment order is modified by upholding the CIT(A)'s allowance of higher depreciation on the security vans for AY 2007-08 in accordance with prior Tribunal and court decisions.

Exemption under Section 54F for investment in one residential house converted from adjacent units - conversion of adjacent units into one residential house - choice to avail exemption where multiple houses purchased

Exemption under Section 54F for investment in one residential house converted from adjacent units - conversion of adjacent units into one residential house - Whether exemption under Section 54/54F is allowable where two adjacent flats purchased as separate units are subsequently converted and used as a single residential house - HELD THAT: - The Tribunal followed the Special Bench decision in Sushila M. Jhaveri, holding that exemption under Sections 54 and 54F is available only in respect of one residential house but that where more than one adjacent unit are purchased and converted into one house for the purpose of residence (by means such as common passage and a single functional kitchen), the aggregate constitutes investment in one residential house and the assessee is entitled to the exemption. The assessor and the first appellate authority had restricted the exemption to one flat on facts they recorded (separate entry doors, separate agreements, separate meters), but the on site inspection report established that the two flats had been joined and were functioning as a single residential unit with a common passage and only one functional kitchen. Applying the Special Bench ratio to these facts, the Tribunal concluded the flats were converted into one residential house and therefore the assessee was entitled to claim exemption under Section 54/54F for the investment in that single combined residential unit. [Paras 7, 8]

Grounds of appeal 1 to 5 allowed; the appeal is allowed and exemption under Section 54/54F granted on the basis that the two adjacent flats constitute one residential house after conversion.

Final Conclusion: The Tribunal allowed the appeal, holding that two adjacent flats which were converted and used as a single residential house (common passage and one functional kitchen) qualify as one residential house for the purpose of exemption under Sections 54/54F; therefore the assessee is entitled to the exemption.

Waiver of pre-deposit - penalty under Customs Act, 1962 - maintainability of appeal and exclusion of time - principle of natural justice (opportunity to cross-examine)

Waiver of pre-deposit - penalty under Customs Act, 1962 - Validity of the Tribunal's order partially waiving pre-deposit of the penalty imposed by the Commissioner of Customs and the effect of an earlier deposit made by the appellant. - HELD THAT: - The Tribunal had halved the penalty imposed on the appellant and directed deposit of the reduced amount within a stipulated period. The appellant contended that an earlier sum deposited during investigation should be excluded from the pre-deposit ordered by the Tribunal. The High Court noted that the earlier deposit was expressly mentioned in the appellant's application before the Tribunal and found no basis to infer that the Tribunal failed to consider that fact. On the material before the Court, the appellant was not entitled to any relief beyond what the Tribunal had granted. The Court declined to re-open the merits of the adjudication which involved findings that the appellant had availed benefit under the advanced licensing scheme without actual exportation and goods were diverted to the domestic market.

Tribunal's order partially waiving the pre-deposit is upheld and no further concession is granted in respect of the earlier deposit.

Maintainability of appeal and exclusion of time - principle of natural justice (opportunity to cross-examine) - Whether the present appeal was within time and whether a violation of natural justice required consideration at the interlocutory stage. - HELD THAT: - There was a dispute over maintainability of the appeal against an order on waiver of pre-deposit. The Court excluded the period during which the appellant prosecuted a withdrawn writ petition from computation of limitation and treated the appeal as within time. Although the appellant alleged violation of natural justice by not being permitted to cross-examine departmental witnesses, the Court declined to examine that contention at the interlocutory stage as it pertains to the merits of the controversy.

Appeal treated as within period of limitation; alleged breach of natural justice not decided at this stage.

Final Conclusion: The appeal is dismissed; the Tribunal's order allowing partial waiver of pre-deposit stands, the appeal is held to be within time after exclusion of the period spent in prosecuting the writ petition, and no substantial question of law requiring interference is found.

Rectification of company name - undesirable name - discretion of the Central Government under section 22 - presumption under section 20 that a name "may be deemed to be undesirable" - use of a trade mark in a company name and available remedies of infringement and passing off

Discretion of the Central Government under section 22 - presumption under section 20 that a name "may be deemed to be undesirable" - Whether the Central Government is bound to direct change of a subsequently registered company's name merely because it is identical with, or too nearly resembles, the name of a previously registered company. - HELD THAT: - The Court held that neither section 20 nor section 22 mandates an automatic direction to change the name of a subsequently registered company merely because the name is identical with or closely resembles an earlier registered company name. Section 20 uses the word "may" indicating a presumption that a name of that character may be undesirable, not an absolute bar on registration; whether the name is undesirable depends on facts and circumstances. Section 22(1)(b) likewise confers discretion by stating that a company "shall, if the Central Government so directs ... change its name", the phrase "if the Central Government so directs" demonstrating that a direction to change is not obligatory in every case of resemblance. The statutory scheme contemplates that the Central Government must be satisfied on the facts that rectification is appropriate; the provisions complement one another and allow for cases where subsequent events or other considerations may justify continued registration under the name. [Paras 14, 17, 18]

The Central Government is not bound to direct change of name in every case of identity or close resemblance; section 22 confers a discretion to direct rectification only after satisfaction that the name is undesirable.

Rectification of company name - use of a trade mark in a company name and available remedies of infringement and passing off - Validity of the impugned order passed by the Regional Director directing the petitioner to change its name and the appropriate remedy. - HELD THAT: - The impugned order proceeded on the premise that identity or close resemblance of names alone required rectification and did not apply the statutory discretion under section 22 or consider relevant factual aspects (including the incorrect statement in the incorporation application, which the order treated as a separate matter). Because the Regional Director treated rectification as automatic upon finding similarity, the order failed to apply the discretionary inquiry mandated by the statute. The Court therefore concluded that the order was vitiated by this error of approach. The matter must be reconsidered by the appropriate authority with opportunity to the parties to be heard so that the Central Government's discretion under section 22 can be exercised after evaluating all relevant facts. [Paras 20, 21, 22, 23]

Impugned order quashed; matter remitted for fresh consideration and hearing by the Registrar/Regional Director who shall pass a fresh order in accordance with law.

Final Conclusion: The writ petition is allowed insofar as the impugned order is quashed; the Regional Director/Registrar of Companies shall, after affording parties an opportunity of being heard, pass a fresh order under section 22 in accordance with the statutory discretion; no order as to costs.

Service tax liability of landlord - payment by tenant of landlord's tax liability - deposit in bank pursuant to court order with lien in favour of revenue - direction to bank to pay deposited amount to revenue

Service tax liability of landlord - payment by tenant of landlord's tax liability - deposit in bank pursuant to court order with lien in favour of revenue - direction to bank to pay deposited amount to revenue - Petition for direction to the bank to pay the amount deposited by the petitioner for discharge of the landlord's service tax liability to the revenue was allowed. - HELD THAT: - The petitioner had deposited with the bank an amount equivalent to the service tax payable by the landlord pursuant to an earlier order, noting a lien in favour of the revenue. Thereafter the demand for service tax has been sustained against the landlord and the petitioner seeks to have the deposited funds applied to that liability. The Court found that the remitted amount was intended to discharge the landlord's service tax liability and, in the circumstances, there was no reason to refuse the petitioner's prayer. The writ petition was disposed of by directing the bank to ascertain the exact amount deposited by the petitioner and to pay that amount, together with accruals, to the revenue as expeditiously as possible and, in any event, within four weeks from the date of the order. [Paras 4]

Bank directed to ascertain deposited amount and pay the same with accruals to the revenue within four weeks.

Final Conclusion: Writ petition allowed; the bank is directed to identify the amount deposited by the petitioner for the landlord's service tax liability and remit that amount with accruals to the revenue within four weeks.

Information Technology Software Service - classification of services as Management, Maintenance or Repair Service - abatement under Notification No.12/03-ST - extended period of limitation for suppression with intent to evade

Information Technology Software Service - classification of services as Management, Maintenance or Repair Service - Whether the services rendered by the appellant fall within the definition of Information Technology Software Service and are not taxable as Management, Maintenance or Repair Service for the period prior to 16/5/2008 - remitted for adjudication after prima facie conclusion in favour of the appellant. - HELD THAT: - The Tribunal examined the specimen Software and Services Agreement produced by the appellant and found that the contractual terms indicate adaptation, upgradation, enhancement and implementation of IT software, activities covered by the definition of Information Technology Software Service under Section 65(105)(zzzze) of the Finance Act, 1994. That service became taxable only from 16/5/2008 and the appellant has paid service tax under that head from that date. The Tribunal noted coordinate-bench decisions (SAP India Pvt. Ltd. and EBZ Online Pvt. Ltd.) which rejected classification of such activities as maintenance/repair and observed that the appellant has prima facie support from those decisions. The Tribunal did not decide the substantive controversy on merits; rather, having found a prima facie case favouring the appellant, it left the ultimate adjudication to the adjudicating authority.

Prima facie favour found for the appellant; substantive classification left for adjudication and not finally decided.

Abatement under Notification No.12/03-ST - Whether the appellant was entitled to abatement under Notification No.12/03-ST in respect of the portion of value on which VAT was paid - remitted for fresh consideration after prima facie observation favouring the appellant. - HELD THAT: - The appellant claimed abatement to the extent of 75% of invoice value on the ground of payment of VAT/CST and reliance on Notification No.12/03-ST. The adjudicating authority rejected the claim on the ground that there was no actual sale of goods and that transfers were only deemed sales. The Tribunal observed that the reasons for rejecting the abatement appear prima facie questionable and indicated that the claim warrants further consideration by the adjudicating authority. No final ruling on admissibility of the abatement was recorded by the Tribunal.

Prima facie objection to the rejection of abatement; issue remitted for fresh consideration by the adjudicating authority.

Extended period of limitation for suppression with intent to evade - Whether the extended period of limitation was legitimately invoked by the department on the ground of suppression with intent to evade - remitted for adjudication. - HELD THAT: - The show-cause notice invoked the extended period alleging suppression of taxable value by the appellant with intent to evade service tax. The appellant contested the invocation of the extended period, and the Tribunal noted that there was no legally sustainable ground shown at this stage to justify invocation. The Tribunal did not pronounce a final conclusion on limitation; instead it found prima facie grounds to question the extended-period invocation and left the matter to be examined in the adjudication on merits.

Prima facie doubt cast on the invocation of the extended period; matter returned for adjudication by the original authority.

Final Conclusion: Finding a prima facie case in favour of the appellant on classification and abatement issues and calling into question the invocation of the extended period, the Tribunal granted waiver of the pre-deposit and stayed recovery of the adjudged dues (including the demand) pending final adjudication on the merits by the appropriate authority.

Review Petition - Delay and condonation of delay - Dismissal on merits

Delay and condonation of delay - Delay in filing the review petition and absence of satisfactory explanation for condonation of delay. - HELD THAT: - The Court recorded a delay of 181 days in filing the review petition and found that no satisfactory explanation for the delay was furnished. On that basis the Court dismissed the review petition for delay, treating the unexplained delay as a ground for refusal to entertain the review petition.

Review petition dismissed for delay due to unexplained 181 days' delay.

Review Petition - Dismissal on merits - Merits of the review petition. - HELD THAT: - Independent of the delay, the Court considered the substance of the review petition and found no merit in it. The petition was therefore dismissed on merits as well as on the procedural ground of delay.

Review petition dismissed on merits.

Final Conclusion: The review petition was dismissed both for unexplained delay (181 days) and on merits; the review is rejected.

Stay of recovery - vacation of stay on expiry of statutory period - discretion of the Tribunal to grant or continue stay - proviso as exception to main enactment - coercive action for recovery during subsisting stay

Stay of recovery - coercive action for recovery - discretion of the Tribunal to grant or continue stay - Department cannot initiate coercive recovery merely because six months have elapsed since a Tribunal stay order if the stay order itself remains in force and there is no evidence of dilatory conduct by the appellant. - HELD THAT: - The Tribunal recorded that an unconditional stay dated 11.05.2012 expressly stayed recovery. The Revenue's reliance on the second proviso to Section 35C(2A) as automatically vacating stay after 180 days could not justify coercive action where the Tribunal's order remains operative and there is no proof that delay is attributable to the appellant. The reasoning in the judgment (as explained with reference to Poly Fill Sacks ) treats the proviso as an exception to the main rule and recognises that the statutory time-frames operate "where it is possible to do so." Administrative difficulties and institutional constraints may prevent disposal within the specified period; this does not ipso facto obliterate the Tribunal's discretionary power to grant or continue stays. Applying that reasoning, the Tribunal directed that the Department should not take coercive steps while the stay order stands and before the appeal is disposed of, absent evidence of dilatory tactics by the appellant.

Application for early hearing dismissed; Department restrained from taking coercive recovery action while the Tribunal's stay order remains in force.

Vacation of stay on expiry of statutory period - proviso as exception to main enactment - discretion of the Tribunal to grant or continue stay - Assessee is not obliged, as a matter of law, to file an application for extension of a Tribunal stay simply because 180 days have elapsed; for orders made before insertion of the second proviso the contention that extension must be sought is misconceived. - HELD THAT: - The Tribunal adopted the analysis in Poly Fill Sacks that the second proviso to Section 35C(2A) must be read as an exception to the main provision and that the phrase "where it is possible to do so" renders the statutory time-limits directory in many circumstances. Consequently, where there is no change in circumstances and delay in disposal is not attributable to the appellant, it is unnecessary and undesirable to require repetitive extension applications, particularly given the Tribunal's administrative burdens. The judgment further records that where the Tribunal exercises its discretion post-insertion of the proviso it should, as a matter of practice, indicate the period for which a stay shall operate; and that Revenue remains free to approach the Tribunal if it can show dilatory tactics by the assessee.

No obligation on the assessee to seek extension merely because 180 days have passed; Tribunal should ordinarily specify stay duration where appropriate and Revenue may move the Tribunal if dilatory conduct is suspected.

Final Conclusion: The Tribunal declined early hearing but held that the departmental attempt to enforce recovery despite an operative Tribunal stay dated 11.05.2012 was impermissible in the absence of proof of dilatory tactics; the assessee need not seek extension of stay merely on expiry of 180 days, and the Tribunal should ordinarily specify the period of stay when exercising its discretion.

Modvat/Cenvat credit on capital goods - Notifications being in pari materia - application of Modvat procedure rules to goods sent for job work - entertainment of appeal on a substantial question of law under Section 35G - concurrent findings of fact and scope of appellate interference

Notifications being in pari materia - application of Modvat procedure rules to goods sent for job work - Whether Notification No.214/86 and Notification No.217/86 are pari materia and whether the ratio in Bajaj Tempo applies to deny Modvat credit in the present facts - HELD THAT: - The Court accepted the concurrent conclusion of the Commissioner (Appeals) and the CESTAT that the two notifications are enabling notifications issued to avoid clerical work and to supplement implementation of the Modvat procedure rules; they are to be treated as pari materia. The Tribunal's decision in Bajaj Tempo, which treated similar notifications and rules as pari materia for the purpose of allowing credit, was held to be squarely applicable. The Revenue's contention that Bajaj Tempo was inapplicable because the units here were not merged was considered and rejected on the basis of the findings recorded by the Commissioner (Appeals) and affirmed by the CESTAT. [Paras 10, 11]

Notification No.214/86 and Notification No.217/86 are pari materia; Bajaj Tempo is applicable and does not permit denial of Modvat credit on that ground.

Modvat/Cenvat credit on capital goods - Modvat credit availability on takeover/transfer of unit - Whether Modvat credit on the capital goods in question was legally available to ACGL upon takeover of the unit - HELD THAT: - The Commissioner (Appeals) recorded a factual finding that the appellant's unit had been taken over by ACGL which were manufacturing dutiable final products, and, applying the relevant rule, held that Modvat credit on the capital goods was legally available to them. The CESTAT confirmed this finding. The High Court observed that this concurrent finding of fact was not challenged by the Revenue in the remand and therefore could not be reopened in the present Section 35G appeal. [Paras 9, 11]

Modvat credit on the capital goods is legally available to ACGL consequent to the confirmed finding of takeover and manufacture of dutiable final products.

Concurrent findings of fact and scope of appellate interference - entertainment of appeal on a substantial question of law under Section 35G - Whether Revenue could challenge the concurrent findings of fact recorded by the Commissioner (Appeals) and affirmed by the CESTAT in this Section 35G appeal - HELD THAT: - The Court reiterated that an appeal under Section 35G is entertainable only on the substantial questions of law framed at admission. The Revenue had not challenged the Commissioner (Appeals)'s factual findings when the matter was remanded and had no right to assail the concurrent findings of fact now recorded by the Commissioner (Appeals) and the CESTAT. The submissions urging reappraisal of facts and remand for factual consideration were therefore held to be without substance and not permissible in this proceeding. [Paras 8, 11]

Revenue cannot challenge concurrent findings of fact in this appeal; the appeal is confined to the substantial questions of law framed on admission.

Application of Modvat procedure rules to goods sent for job work - Whether the contention that sub-rules 4 to 7 of Rule 57T applied (instead of Rule 57T(2)) because of dates of receipt of goods required remand or fresh consideration - HELD THAT: - The Court noted the Revenue's submission about temporal applicability of sub-rules 4-7 of Rule 57T and alleged non-compliance with earlier account-keeping requirements, but observed that these contentions were not the substantial questions of law pressed on admission and that the factual findings relevant to these contentions had been considered and decided against the Revenue by the lower authorities. The Court found the submissions on this point to be without substance and declined to remit the matter for factual reappraisal. [Paras 8, 9]

No remand or fresh consideration was ordered on the Rule 57T sub-rules issue; the contention was rejected as not sustaining interference.

Final Conclusion: The concurrent findings of the Commissioner (Appeals) and the CESTAT upholding availability of Modvat credit to ACGL and treating the notifications as pari materia are affirmed; there is no ground to interfere and the appeal is dismissed.

Input tax credit - establishment of payment for claiming input tax credit under Section 19(1) - provisional nature and scope of revocation of input tax credit under Section 19(16) - self-assessment under Section 22(2) and compliance with Rule 10(2)

Input tax credit - self-assessment under Section 22(2) and compliance with Rule 10(2) - Whether the petitioner was entitled to claim and retain input tax credit for the assessment years where the petitioner had paid the selling dealer and produced requisite invoices at the time of self-assessment. - HELD THAT: - The Court found on the admitted facts that the petitioner had paid the tax to the selling dealer and had followed the self-assessment procedure under Section 22(2) by producing invoices satisfying Rule 10(2). The proviso to Section 19(1) requires the registered dealer to establish that tax due on such purchase has been paid in the manner prescribed; compliance with Rule 10(2) and the accepted self-assessment satisfied that requirement. The orders under revision treated the failure of the selling dealer to remit tax as ground to disallow the purchaser's input tax credit despite admission that the purchaser had paid the seller and produced required documents. The Court held that, on these admitted facts, the purchaser's claim was correctly made and could not be treated as wrongly availed merely because the seller failed to remit the tax; the liability to recover unpaid tax lay against the selling dealer. [Paras 6, 7, 8]

Petitioner entitled to retain the input tax credit for the stated assessment years where payment to the selling dealer and compliance with Rule 10(2) were established.

Provisional nature and scope of revocation of input tax credit under Section 19(16) - Whether Section 19(16) authorised revocation of the purchaser's input tax credit on the sole ground that the selling dealer had not remitted the collected tax. - HELD THAT: - The Court interpreted Section 19(16) as making input tax credit provisional and empowering the assessing authority to revoke credits that are incorrect, incomplete or otherwise not in order. However, where the purchaser's claim is neither incorrect nor incomplete and the purchaser had paid the seller and complied with the procedural requirements, Section 19(16) does not permit revocation of the purchaser's credit merely because the selling dealer failed to remit tax. The correct course is for the department to proceed against the selling dealer to recover tax; revocation under Section 19(16) is not warranted on the admitted facts. [Paras 9]

Section 19(16) cannot be invoked to revoke the purchaser's input tax credit on the sole basis that the selling dealer did not remit tax where the purchaser's claim was otherwise in order.

Final Conclusion: The revision orders disallowing input tax credit and proposing penalties were set aside and the writ petitions allowed for assessment years 2008-09, 2009-10 and 2010-11; the department may pursue recovery from the selling dealer by appropriate proceedings but cannot mulct the purchaser who established payment and complied with Rule 10(2).