Madras High Court: Dealer Not Liable For Non-Payment of Tax by Seller as Per S. 19(1) and S. 19(16) of TNVAT Act
The Madras High Court allowed the writ petition filed by the dealer by holding that the authority was not empowered to revoke the input tax credit availed on a plea that the seller had not paid the tax.
The matter titled Sri Vinayaga Agencies v. the Assistant Commissioner & Anr was placed before the Single Judge Court of Justice R. Sudhakar in the High Court of Madras.
The factual background of the matter was that the Petitioner – Assessee was a lubricant dealer purchasing lubricants from the Seller – M/s Classic Enterprises, who fell under another jurisdiction. It was found that the Seller had not filed the monthly returns in Form-I and also not paid the tax to the department for the relevant period relating to the Assessment Years 2008-09, 2009-10 and 2010-11. On the basis of this, the Respondent – Assistant Commissioner issued pre-revision notices against the Petitioner in respect of each assessment year contending that the Petitioner's input tax credit would be reversed on failure of the Seller to pay tax. The Petitioner – Assessee through this petition had challenged the order of the Respondent – Assistant Commissioner, which held that the Petitioner was not entitled to avail the input tax credit on the plea that the Seller did not file Form-I returns and did not pay the tax.
The Petitioner submitted that they had filed their detailed objections to the pre-revision notices stating that at the time of self-assessment u/S. 22(2) of the Tamil Nadu Value Added Tax Act, 2006 (TNVAT Act), all the records relevant for claiming the input tax credit had been filed as annexure to the documents and they had been accepted by the Department. The Petitioner further pointed out that pre-revision notices admitted the fact that the Petitioner had paid tax. It was contended by the Petitioner that they had complied with the requirement for claiming input tax credit at the time of self-assessment in terms of Section 19(1) of the TNVAT Act. However, the Respondent submitted that input tax credit availed by the Petitioner was provisional and the authority was empowered to revoke the same if it was found to be incorrect, incomplete or otherwise not in order by relying on Section 19(16) of the TNVAT Act, which covered the contingency as was found in the present case and hence the orders of the authority were justified.
In order to deal with the matter, the Court went through the provisions of Section 19(1) and 19(16) of the TNVAT Act and also Rule 10(2) of the Tamil Nadu Value Added Tax Rules. The Court noted that the Petitioner had followed the relevant rule of Rule 10(2) of the Tamil Nadu Value Added Tax Rules at the time of filing the self-assessment return.
Regarding Section 19(1) of the TNVAT Act, the Court observed that this section clearly stated that input tax credit could be claimed by the registered dealer, provided if the registered dealer establishes that the tax due on such purchase had been paid by him in the manner prescribed. Since the pre-revision notices admitted that the Petitioner had paid the tax, the Court concluded that the Petitioner's case squarely fell under the proviso to Section 19(1) of the TNVAT Act.
The judge further did not accept the contentions of the Respondents by observing that Section 19(16) of the TNVAT Act did not empower the authority to revoke the input tax credit availed on a plea that the Seller had not paid the tax and that it only related to incorrect, incomplete or improper claim of input tax credit by the dealer.
The Court held that that there was a gross error on the part of the authority in holding that the Petitioner was liable for the non-payment of tax by the Seller and therefore, the orders were set aside.