2023 (4) TMI 912 - MADRAS HIGH COURT

Input Tax Credit (denied retrospectively) - denial on account of cancellation of the VAT registration of the dealers (who have effected sale of the goods to these petitioners/appellants) - denial in absence of transport documents and other documents to prove movement of goods to these petitioners/appellants from the dealers who effected sale of goods to these petitioners/appellants - amendment to Section 19(1) of TN VAT Act, 2006 vide Tamil Nadu Act, 13 of 2015 with effect from 29.01.2016 is prospective or retrospective? - levy of penalty.

HELD THAT:- Under the scheme of the TN VAT Act, 2006, the credit that is availed on the strength of the original invoice containing the details specified in Rule 10(2) of the TN VAT Rules, 2007 is provisional. Such input tax credit can be denied to a dealer, if the dealer fails to discharge the burden of proof as under Section 17(2) of the Act.

As long as credit was availed validly where there is not only a transaction of “sale” as defined in the Act but also incidence of tax being borne, input tax credit was to be allowed to be utilized as a set-off against the tax liability declared in the self assessment in the monthly/annual return under the Scheme of the Act. If tax is not paid by the seller, machinery is prescribed to recover the tax from such dealer.

A close reading of the provisions indicates that for a dealer to validly avail Input Tax Credit, the dealer should be in possession of the original invoice containing the details prescribed under Rule 10(2) of the TN VAT Rules, 2007. However, credit availed was always provisional under Section 19(16) of the TN VAT Act, 2006 and could be denied under any of the circumstances specified and situations contemplated in Section 19(13), 19(15) and 19(16) of the TN VAT Act, 2006 and recovered under the machinery provided under Section 27(2) of TN VAT Act, 2006.

However, before denying input tax credit under Section 19(13) of the TN VAT Act, 2006, the assessing authority has to make an enquiry as it thinks fit and give a reasonable opportunity of being heard to a dealer who has availed such input tax credit being denying the benefit of such input tax credit to such registered dealer. Enquiry has to be in consonance with the machinery under Section 27(2) of TN VAT Act, 2006. If on enquiry the dealer fails to discharge the proof, it has to be construed that there was jurisdictional fact to deny credit under Section 27(2) of the TN VAT Act, 2006.

If there is a cancellation of registration, the assessing officer can call upon the dealer to repay to the input tax credit availed and utilized if indeed there was no evidence of sale. It may result in denial in the credit. However, it cannot be helped, where registration itself was obtained by such dealer to facilitate input tax credit being availed on such bogus invoice without a corresponding transaction of sale.

It was incumbent on the part of a registered dealer like petitioner/appellants availing input tax credit to prove that indeed a transaction of “sale” had taken place. They should not only preserve but also produce collateral evidence in the form of transport documents, such lorry receipts or consignment note, etc. when called upon failing which it cannot be said they have discharged the burden of proof required to be discharged under Section 17(2) of the TN VAT Act, 2006.

Section 19(15) in the TN VAT Act, 2006 was an innovation which was not contemplated in under Section 70 of the Karnataka Value Added Tax Act, 2003.Under Section 70 of the Karnataka Value Added Tax Act, 2003, the consequence was on the dealer issuing such false invoice to cheat revenue by imposing penalty.

If there was indeed a sale but the registered dealer who had sold goods but had failed to pay the tax from his end, notwithstanding cancellation of registration of such dealer, a dealer who has availed input tax credit on the strength of the original invoice and has documents to establish the transaction of sale, credit cannot be denied. The remedy that is available to the authorities under the Act is only to recover the tax not paid under Section 27(1) of the TN VAT Act, 2006 from such dealer.

Therefore a dealer claiming ITC has to prove the actual transaction of sale by furnishing the name and address of the selling dealer, details of the vehicle which was/were used for delivery of the goods, tax invoices and payment particulars etc. The above information would be in addition to tax invoices, particulars of payment etc., as held by the Hon’ble Supreme Court in M/s.Ecom Gill Coffee Trading Private Limited. [2023 (3) TMI 533 - SUPREME COURT]

Main issue decided in largely favor of Revenue.