2019 (5) TMI 1529 - HC - VAT and Sales Tax

Compliance with the pre-deposit - whether the first appellate authority and the Tribunal were justified in directing the petitioners to make predeposit in terms of the orders passed by them? - HELD THAT - In the assessment order, the Assessing Officer has, after examining the transaction tree, observed that in case of certain dealers the sales appear to be of Cancelled Tin/Abinitio Cancelled Tin. He has observed that in case of certain dealers who have sold goods to this dealer, there is absence of Tin movement of goods and as they are involved in only billing activities, their registrations have been cancelled abinitio. Input tax credit cannot be taken in respect of purchases made from such dealers. Keeping in view the provisions of section 11(7A) of the GVAT Act, the Assessing Officer has held that as tax had not been paid earlier, the dealer is not entitled to input tax credit on such purchases. The Assessing Officer has worked out the percentage of purchases made by the petitioners from the three parties and has proportionately disallowed the input tax credit on such purchases. Having regard to the fact that at the time when the assessment order was made, the petitioners did not have the copies of the assessment orders made in the case of the vendors, the petitioners did not have any opportunity to prove the genuineness of such transactions. Subsection (7A) of section 11 of the GVAT Act envisages disallowance of tax credit in excess of the amount of tax paid in respect of the same goods. Therefore, to disallow tax credit on any purchase, it has to be established that it is in respect of the very goods purchased by a dealer that the tax has not been paid. Input tax credit cannot be disallowed by working out the percentage of purchases made from a dealer whose registration is cancelled, without first establishing that in respect of the goods purchased by the dealer, the vendor had not paid tax. The court is of the view that the petitioners have made out a strong primafacie case in their favour - the Tribunal and the first appellate authority were not justified in directing payment of huge amount of predeposit for the purpose of admitting the appeal and staying recovery. Petition allowed.

Summary

Issues Involved:
1. Disallowance of Input Tax Credit (ITC) based on negative cross-check reports and retrospective cancellation of vendors' registration certificates.
2. Justification of predeposit requirement by the first appellate authority and the Tribunal for admitting the appeal and staying recovery.

Issue-wise Detailed Analysis:

1. Disallowance of Input Tax Credit (ITC):

The petitioners, Dhruvi Traders, challenged the disallowance of ITC for the assessment year 2013-14 based on negative cross-check reports. The Assessing Officer disallowed ITC because the vendors from whom the petitioners purchased goods had their registration certificates retrospectively canceled, and there were dues against these vendors. The petitioners argued that they were not provided with the negative cross-check reports or assessment orders, which formed the basis of the disallowance. They contended that the disallowance was based on extraneous material that should have been furnished to them. Additionally, the petitioners obtained information from their vendors indicating that the tax in respect of sales to the petitioners had been duly deposited, and no outstanding dues were related to the sales made to the petitioners.

The court observed that the Assessing Officer relied on section 11(7A) of the GVAT Act, which disallows tax credit if the tax on the same goods has not been paid. The court emphasized that to disallow tax credit, it must be established that the tax was not paid in respect of the specific goods purchased by the dealer. The court found that the petitioners did not have the opportunity to prove the genuineness of the transactions at the time of the assessment order because they did not have the assessment orders of the vendors.

2. Justification of Predeposit Requirement:

The petitioners challenged the orders of the first appellate authority and the Tribunal, which directed them to make a predeposit of 20% of the tax demand for admitting the appeal and staying recovery. The petitioners argued that they had a strong prima facie case and that the demand for a huge predeposit was unjustified.

The court referred to the decision in Shree Bhairav Metal Corporation v. State of Gujarat, where it was held that the matter should be remanded to the adjudicating authority to consider the claim for ITC after giving the petitioner an opportunity to prove the genuineness of the transactions. The court found that the petitioners had come across material indicating that no dues were outstanding for the assessment year 2013-14 for two of the vendors, and for the other two vendors, the outstanding dues were not related to the sales made to the petitioners.

Given the petitioners' strong prima facie case, the court held that the Tribunal and the first appellate authority were not justified in directing the payment of a huge predeposit for admitting the appeal and staying recovery.

Conclusion:

The court allowed the petition, quashing the impugned orders directing the payment of predeposit. The matter was restored to the file of the first appellate authority, which was directed to hear the appeal on merits without insisting on any predeposit. The recovery of the demand raised under the assessment order was stayed until the first appellate authority finally decided the appeal. The court made the rule absolute with no order as to costs.