Issue of Interest and Penalty to arise only after Adjustment of Output Tax Liability

[Rakesh Singh]

2015 (7) TMI 1037 - GUJARAT HIGH COURT

State of Gujarat Versus Kairavi Steel

Assesse is entitled to adjustment of ITC towards its output tax liability of the current year. If dues remain after the adjustment of the ITC towards output tax liability, then only the issue of liability towards interest and penalty arise. This case is similar to issue dealt in the case of State of Gujarat V. Cosmos International Ltd. [2015 (4) TMI 779 - GUJARAT HIGH COURT].

ISSUES:

1. The Commissioner of Commercial Tax has challenged the judgement and order dated 15.10.2014 passed by the Gujarat Value Added Tax Tribunal, Ahmedabad in Second Appeal No. 685 of 2014, by which it has been held that the assesse cannot be held to pay the interest and penalty on the tax levied since the assesse has already paid excess Input Tax Credit.

2. The assesse is duly registered under the Gujarat Value Added Tax Act, 2003. The business of the assesse is of trading of iron and steel product and scrap thereof. The respondent was regularly maintaining the books of account of business and was making the payment of tax under the VAT and used to file returns in accordance with the act. The respondent submitted its returns for the assessment year of 2008-09 and produced relevant documents along with the returns. The Assessing Officer by passing assessment order made the total demand of 38,13,740/- including tax demand of ₹ 7,96,791/-, interest of ₹ 6,45,538/- and penalty of ₹ 23,71,441/- disallowing the demand raised by the assessee by way of Input Tax Credit on the purchases made from M/s. Nova Shipping Pvt. Ltd. The said decision was challenged by the assesse by way of filing first appeal under Section 73 of the Act before the Deputy Commissioner of Commercial Tax, Ahmedabad. By way of the order dated 02.05.2014, the Deputy Commissioner of Commercial Tax, Ahmedabad the dismissed the appeal filed by the assesse. The order passed by the Assessing Officer as well as the order passed by the Deputy Commissioner of Commercial Tax, Ahemdabad confirming the order the Assessing Officer were challenged by the assessee by way of filing Second Appeal No.685 of 2014 before the Gujarat Value Added Tax Tribunal, Ahmedabad. By judgement and order dated 15.10.2014, the Gujarat Value Added Tax Tribunal, Ahmedabad partly allowed the appeal and held the since the assessee has already paid excess Input Tax levied interest as well as penalty was contrary to the provisions of law as well as the decision of the Tribunal in case of Cosmos International Ltd. V. State of Gujarat.Hence this appeal.

Held :.

1. While considering the aforesaid issue, the relevant provisions of VAT Act and the Rules, 2006 are required to be referred to and considered which are as under:

11. Tax Credit

(1) (a) A registered dealer who has purchased the taxable goods (hereinafter referred to as the purchasing dealer) shall be entitled to claim tax credit equal to the amount of,

(i) tax collected from the purchasing dealer by a registered dealer from whom he has purchased such goods or the tax payable by the purchasing dealer to a registered dealer who has sold such goods to him during the tax period.

(ii) ...

(iii) ...

(b) ...

(2) ...

to

(4) ...

(5) Notwithstanding anything contained in this Act, Tax credit shall not be allowed for purchases

(a) ...

to

(d) ...

(dd) made prior to the date of registration.

12. Tax Credit for stock on (31st March, 2006)

12(1)

to

12(6) The provisions of section 11 shall apply mutates mutandis to the tax credit to be availed of under this section.

12(7) If the Commissioner is satisfied that a dealer

(a) has claimed tax credit for such stock for which he is not entitled for claiming tax credit as per the provisions of section 11 and subsections (3) and (4) of section 12, or

(b) has claimed excess tax credit than what he is entitled to under section 11 or under this section the Commissioner may, after giving the dealer an opportunity of being heard direct him to pay a penalty equal to twice the amount of tax credit so claimed.

13. Net amount of Value Added Tax

The net amount of Value Added Tax for a tax period payable shall be determined after the adjustment of tax credit in the manner as may be prescribed.

GUJARAT VALUE ADDED TAX RULES, 2006

15. Calculation of Tax Credit u/s.11

15(1) ...

15(2) ...

15(3) A registered dealer shall calculate tax credit as per Form201 and such calculation shall be made separately for each tax period.

18. Calculation of Tax

(1) The net amount of tax payable under section 13 by a registered dealer, other than the dealer who has been granted permission to pay lump sum tax under Section 14, 14A read with clause (bb) of sub-rule (8) of rule 28, 14B, 14C or 14D shall be determined in Form-201.

(2) If the amount calculated as per subrule (1) has a negative value -

(a) the same shall be adjusted against tax liability, if any, under the Central Sales Tax Act (hereinafter called central sales tax liability) for the said tax paid and the remaining amount of central sales tax shall be payable : or

(b) if there is no Central Sales Tax liability or if the central sales tax liability for the said tax period is less than the said negative amount, then no tax under the Act as well as under the Central Act will be payable and the net amount, after adjusting the Central Sales tax liability, shall be carried forward to the next tax period of the same year or, as the case may be, the subsequent year."

2.. The Division Bench has observed in the relevant portion, which reads under:

"Section 11 of the VAT Act provides for an Input Tax Credit admissible and Rule 18 of the Rules, 2006 provides for calculation of the Input Tax Credit. It cannot be disputed that for the purpose of claiming Input Tax Credit, an assessee/dealer is required to submit its claim in the required format i.e. in Form No.108 and on that the assessment order is required to be passed and on assessment the Input Tax Credit admissible to an assessee/dealer is determined. Once on assessment it is found that dealer is entitled to a particular Input Tax Credit, in that case, Rule 18 of the Rules, 2006 which provides for calculation of tax would come into play. On conjoint reading of section 11 of the VAT Act read with Rule 18 of the Rules, 2006, a dealer is entitled to adjust its output tax liability against its admissible Input Tax Credit in the current year under consideration. Thereafter and after adjusting the Input Tax Credit against its output tax liability of the current year under consideration, if still there is any Input Tax Credit available to a dealer/assessee, a dealer is entitled to adjust such balance Input Tax Credit against its central sales tax liability of the current year under consideration. If thereafter still there is any Input Tax Credit in the credit of the assessee/dealer, such balance Input Tax Credit is required to be carried forward to the next subsequent year and that is the scheme of the VAT Act and the Rules, 2006 more particularly with respect to the Input Tax Credit. Therefore, merely because while submitting the form and raising the claim of Input Tax Credit, the assessee had claimed more / excess Input Tax Credit than admissible, is no ground to deny the assessee/dealer to adjust the admissible Input Tax Credit (which is held to be admissible only after assessment) against its output tax liability under the VAT Act in the current year under consideration. To deny such Input Tax Credit in the current year under consideration would be against the provisions of the VAT Act and the Rules, 2006 more particularly section 11 of the VAT Act read with Rule 18 of the Rules, 2006. It is not in dispute that whatever is claimed by the assessee as Input Tax Credit by submitting the Form No.108 is always subject to the assessment/reassessment and the actual amount of Input Tax Credit is determined only on assessment by the Assessing Officer. Only after assessment / reassessment, as the case may be, a final amount of Input Tax Credit is assessed and determined. Once on assessment or reassessment, as the case may be, a final amount of Input Tax Credit is assessed and determined, an assesse/dealer is entitled to such Input Tax Credit and on such Input Tax Credit the assessee is entitled to adjust such Input Tax Credit against its output tax liability under the VAT Act of the current year under consideration. Only in a case where the admissible available Input Tax Credit is less than the output tax liability of the current year under consideration, after permitting to adjust such Input Tax Credit against its output tax liability of the VAT Act of the current year under consideration, the assesse/dealer is liable to pay the interest on such balance due amount of output tax liability and on such amount the assesse/dealer is liable to pay the interest as provided under the VAT Act and the Rules, 2006. Under the circumstances, while declaring / holding that the appellant is entitled to adjustment of admissible Input Tax Credit towards its output tax liability of the current year under consideration, the learned Tribunal has rightly observed and held that the assesse is liable to pay interest only on the dues rising on assessment after adjusting the admissible Input Tax Credit towards its output tax liability.

3. We are in the respectful agreement with the observations made by the Division Bench of this Court. The present case is having similar question of law involved, which is already been decided by the Division Bench of this Court. Hence, the appeal is merit less and accordingly the same is dismissed.