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2016 (5) TMI 1274 - GUJARAT HIGH COURT

2016 (5) TMI 1274 - GUJARAT HIGH COURT - TMI - Input tax credit - proposal to revise the audit assessment order and disallow input tax credit on the ground that the registration certificate of M/s. Om Incorporation, who was one of the vendors of the petitioner, had been cancelled with retrospective effect. - Held that:- input tax credit cannot be denied to a party in the absence of the Department having established that the transactions in question are not genuine or that they are bogus etc. .....

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ness of such transactions or to produce any documentary evidence in support of such transactions. - In the facts of the present case, when the authorities below have not called upon the petitioner to establish the genuineness of the transactions, in the opinion of this court, the Tribunal was not justified in brushing aside the documentary evidence produced by the petitioner by stating that the same had been subsequently created - Credit cannot be denied - Decided in favor of assessee. - SPE .....

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nal (hereinafter referred to as the Tribunal ) whereby the Tribunal has confirmed the additional liability raised by the revisional authority as well as the interest thereon. 2. The petitioner, a proprietary concern, is engaged in the business of trading in edible oil and oilseeds and is registered under the Gujarat Value Added Tax Act, 2003 (hereinafter referred to as the GVAT Act ) as well as under the Central Sales Tax Act, 1956. It is the case of the petitioner that if it purchase .....

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of the petitioner was allowed after due verification of the tax invoices produced by the petitioner, which fact is even recorded in the assessment order passed under section 34(2) of the GVAT Act. As per the audit assessment order, there were nominal dues of ₹ 72/- against the petitioner. 2.2 On 8th November, 2012, the petitioner received a notice in Form 503 from the Deputy Commissioner of Commercial Tax, Circle 25, Gandhidham, proposing to revise the audit assessment order an .....

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ct, 2005 (hereinafter referred to as the RTI Act ) requesting for a copy of the order cancelling the registration of M/s. Om Incorporation as well as a copy of the assessment order passed in the case of M/s. Om Incorporation for the year 2006-07. Pursuant to such application, the petitioner was provided with copies of the order sought for by it. It is the case of the petitioner that from the order cancelling registration of M/s. Om Incorporation, it is clear that the registration had .....

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eing the Deputy Commissioner of Commercial Tax, Audit Division-7, Rajkot, issued a revision notice in Form 503 on the same ground, that is, on the ground that the registration certificate of M/s. Om Incorporation had been cancelled with retrospective effect. In response thereto, the petitioner gave a written reply dated 9th February, 2013, enclosing therewith a copy of the registration cancellation order of M/s. Om Incorporation. It was contended by the petitioner that the registration certifica .....

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rmation Officer by a letter dated 5th June, 2013 furnished a copy of Form No.201A filed by M/s. Om Incorporation to the petitioner, wherein it had clearly disclosed sales made to the petitioner. 2.5 It is the case of the petitioner that it was under a bonafide impression that the only controversy was whether the petitioner was entitled to input tax credit despite the fact that the registration certificate of the vendor namely, M/s. Om Incorporation had been cancelled with effect from .....

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om M/s. Om Incorporation prior to 1st January, 2007, but in the same year 2006-07, were not disputed and remained admissible even after passing of the revision order. Also, M/s. Om Incorporation had disclosed sales to the petitioner in the returns filed for the period from 1st January, 2007 to 31st March, 2007 and had accordingly been assessed to tax on such sales by the Jurisdictional Assessing Officer. Therefore, the reply given by the petitioner to the revision notice was under the bonafide b .....

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wing the tax credit for purchases made from M/s. Om Incorporation during the period 1st January, 2007 to 31st March, 2007 by alleging that there was no sales made by M/s. Om Incorporation to the petitioner and that the registration of the vendor had been cancelled with effect from 1st January, 2007. Being aggrieved, the petitioner challenged the revision order dated 26th June, 2013 by filing a revision application under section 75 of the GVAT Act before the Tribunal. The petitioner al .....

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ling transactions. Consequently, the Tribunal also confirmed the demand of interest but deleted the penalty imposed upon the petitioner. 3. Mr. Uchit Sheth, learned advocate for the petitioner, invited the attention of the court to the provisions of section 75 of the GVAT Act to submit that under sub-section (1) thereof, the Commissioner is empowered to call for and examine the record of any order passed by any officer appointed under section 16 to assist him and to pass such order th .....

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he assessment order was passed on 14th February, 2011, the Commercial Tax Officer, Unit 5, Rajkot informed the Assessing Officer that the registration certificate of M/s. Om Incorporation had been cancelled and hence, the input tax credit on purchases made by the said dealer was required to be disallowed. It was based on such internal letter that the Jurisdictional Assessing Officer requested for revision of the assessment order and thereafter the Deputy Commissioner issued notice for revision. .....

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case of P. Narayanasamy v. State of Tamil Nadu, (1997) 104 STC 421, wherein the court had held that while exercising jurisdiction under section 34 of the Tamil Nadu General Sales Tax Act, 1959, the Joint Commissioner can revise the order passed by the authorities below only on the basis of the material available on record and cannot rely upon the extraneous materials which were not on record before the order was passed by the lower authorities. 3.1 Next, it was submitted that the con .....

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rporation for the entire year 2006-07, but the revision was proposed only in respect of the purchases made from 1st January, 2007. Therefore, the fact that the petitioner had made purchases from M/s. Om Incorporation was not in dispute and the input tax credit was proposed to be disallowed only on the ground that registration certificate of M/s. Om Incorporation had been cancelled. It was contended that the conclusion that the transactions of the petitioner with M/s. Om Incorporation were not ge .....

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nce upon the decision of this court in the case of State of Gujarat v. Virumal Santumal, [2014] 72 VST 403 (Guj), wherein the court was dealing with a case where revisional proceedings were taken under section 67 of the Gujarat Sales Tax Act, 1969. The court noted that, admittedly in the notice under Form 49 mention was made by the Commissioner only for taxing patasa and no other items. The court held that the final order passed by the Commissioner therefore, could not have travelled beyond such .....

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poration and M/s. Om Incorporation had disclosed sales made to the petitioner in the returns filed by it under the Value Added Tax Act and it had also been assessed to tax under the GVAT Act. It was submitted that these documents have been officially obtained by the petitioner by filing application under the RTI Act and hence, the conclusion arrived at by the Tribunal that the transactions were not genuine was perverse, contrary to facts, bad and illegal. 3.3 Next, it was contended th .....

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f information of the cancellation of its registration. In support of such submission, the learned advocate placed reliance upon the decision of the Supreme Court in the case of State of Maharashtra v. Suresh Trading Company, (1998) 109 STC 439 (SC), for the proposition that a purchasing dealer is entitled to rely upon the registration certificate of the selling dealer and that he cannot be penalised because of the cancellation of the registration certificate of the selling dealer. 3.4 .....

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07 to 31st March, 2007 to the tune of ₹ 77,06,032/- and had claimed input tax credit on these purchases to the tune of ₹ 1,52,057/-. However, the registration certificate of M/s. Om Incorporation was cancelled with effect from 1st January, 2007. It was submitted that in terms of the provisions of the GVAT Act, more particularly, section 11(1)(a)(i), input tax credit can be allowed only if purchases are made from a registered dealer. It was submitted that in view of the fact that the .....

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as a defaulter right from 1st January, 2007 and that notices sent to M/s. Om Incorporation in Form 503 as well as Form 104 by Registered A.D. Post could not be served and those notices were returned with the postal remarks not known . It was pointed out that in the facts and circumstances of this case, since the transactions are not genuine and the petitioner has merely received bills without actual delivery of goods, its claim for input tax credit is not allowable. It was, accordingly, submitte .....

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eighment slips and incoming gate passes are concerned, no such documents were ever asked for in the revision notice or during the course of the revision proceedings. It was submitted that since the genuineness of the transactions were not doubted, the conclusion that there was no actual movement of goods is much beyond the scope of the revision notice. It was submitted that in view of the findings recorded in the revision order, the petitioner had produced evidence in support of the purchases be .....

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sued a notice in Form 503 on 8th November, 2012 proposing to revise the audit assessment order by disallowing input tax credit on the ground of cancellation of registration certificate of M/s. Om Incorporation who was one of the vendors of the petitioner. It appears that no action was taken pursuant to the said notice. Thereafter, the Deputy Commissioner of Commercial Tax, Audit Division 5, Rajkot (hereinafter referred to as the revisional authority ), issued revision notice in Form 503 on 7th J .....

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ers of revision, such question is required to be dealt with at the outset. 8. Section 75 of the GVAT Act which makes provision for Revision empowers the Commissioner of his own motion to call for the record of any order passed by any officer appointed under section 16 to assist him (hereinafter referred to as the subordinate officer ) and pass such order thereon as he thinks just and proper. On a plain reading of the language employed in the section, it is clear that what the Commissi .....

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April, 2006 to 31st March, 2007. The record of the case reveals that the registration certificate of M/s. Om Incorporation has been cancelled on 1st July, 2010 with effect from 1st January, 2007. In the present case, it is an admitted position that when the original assessment order came to be made, the order cancelling the registration certificate of M/s. Om Incorporation did not form part of the record of the Assessing Officer. Evidently therefore, the proceedings under section 75 .....

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cted beyond his jurisdiction in initiating revisional proceedings on certain materials which were not part of the record of the Assistant Commissioner of Sales Tax. In State of Kerala v. K.M. Cheria Abdulla and Co. (supra), the Supreme Court held thus:- 5. This leads us to the question whether the revisional jurisdiction conferred under Section 12 of the Act enables the authority concerned to make a fresh enquiry after issuing notice to the dealer concerned and determine the question .....

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n 12(2) of the Act, the revisional authority may suo motu call for and examine the record of any order passed or proceeding recorded under the provisions of the Act by an officer subordinate to him, for the purpose of satisfying himself as to the legality or propriety of such order, or as to the regularity of such proceeding, and may pass such order with respect thereto as he thinks fit . When the legislature confers a right of appeal in one case and a discretionary remedy of revision in another .....

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the entire proceedings are before the Appellate Authority and it has power to review the evidence subject to the statutory limitations prescribed. But in the case of a revision, whatever powers the revisional authority may or may not have, it has not the power to review the evidence unless the statute expressly confers on it that power. That limitation is implicit in the concept of revision. Section 12(2) is no doubt wider in scope than Section 115 of the Code of Civil Procedure. Even so the rev .....

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authority may pass such order as he thinks fit must necessarily be confined to the scope of the jurisdiction. The revisional authority, therefore, cannot travel beyond the order passed or proceedings recorded by the inferior authority and make fresh enquiry and pass orders on merits on the basis of the said enquiry. If it is not construed in this manner, the distinction between appeal and revision would be effaced. Thus, it has been held in the above decision that the revisional aut .....

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e order passed by the officer appointed under section 16 of the Act. 9. Examining the case on merits, it may be germane to refer to certain statutory provisions. Section 11 of the Act makes provision for Tax credit . Sub-section (5) thereof provides that notwithstanding anything contained in the Act, tax credit shall not be allowed for purchases enumerated thereunder. Clause (mmmm) thereunder which is relevant for the present purpose reads thus:- (mmmm) made from a dealer a .....

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contained in section 92, if the Commissioner is of the opinion that it is necessary or expedient in the public interest to publish or disclose the names of any dealers or other persons and any other particulars relating to any proceedings under the Act in respect of such dealers and persons, he may publish or disclose or cause to be published or disclosed such names and particulars in such manner as may be prescribed. The reason behind enacting section 11(5)(mmmm) is clear. Under sub-section (1 .....

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m another dealer who was granted registration under the Gujarat Value Added Tax Act, he would not be aware of the cancellation of his registration unless the same is duly published by the Commissioner under sub-section (11) of section 27 or section 97 of the Act. In the absence of any such publication, a dealer may not be aware of such cancellation and may bonafide purchase goods from such dealer. Therefore, with a view to ensure that a registered dealer who purchases goods from anoth .....

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ection 27(11) or section 97 of the Act. In the opinion of this court, in view of the provisions of section 11(5)(mmmm) of the GVAT Act, even if the cancellation of registration of such selling dealer is retrospective in effect or is cancelled ab initio, insofar as the purchasing dealer is concerned, input credit cannot be denied to him till the date of the publication of the name of the dealer under section 27(11) or section 97 of the Act. That is not to say that in every case, the purchasing de .....

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5)(mmmm) of the Act. 11. In the case of Madhav Steel Corporation v. State of Gujarat, (2014) 72 VST 318 (Guj), on which strong reliance is generally placed on behalf of the authorities under the GVAT Act, the court was dealing with a case wherein two parties viz., M/s Shree Bhavani Ispat, Bhavnagar and M/s Mangal Enterprise, from whom the appellant therein had purchased goods failed to establish the genuineness of their purchases and also failed to establish the genuineness of the sal .....

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documentary evidence with regard to physical movement of the goods from the two parties namely, M/s. Shree Bhavani Ispat and M/s. Mangal Enterprise to the respective appellants/dealers, the sale transactions are not found genuine, and are found to be bogus, and are also found to be billing activities only, the Tribunal was justified in denying input tax credit claimed by the appellants/dealers. Thus, the above decision cannot ipso facto be applied to all cases where registration of t .....

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re not only based on material which is extraneous to the record of the Assessing Officer, but the revisional authority without calling upon the petitioner to prove the genuineness of the purchases has recorded that documents like sale bills of M/s. Om Incorporation, L.R., weighbridge chits, entry gate pass etc. have not been produced and hence there does not appear to be any transfer of goods. The revisional authority has also observed that since the registration of M/s. Om Incorporation has bee .....

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not been doubted for the period prior to 1st January, 2007, the same cannot be doubted for the subsequent period, without anything more, except that the registration of the selling dealer has been cancelled with effect from such date. The record of the case reveals that initially, the registration of M/s. Om Incorporation came to be cancelled by an order dated 1st July, 2010 with effect from 1st January, 2007. Subsequently, the registration of M/s. Om Incorporation was cancelled ab initio by an .....

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rchases, etc. 14. The Tribunal in the impugned order has recorded the following findings:- 12. We have considered the rival submissions and the facts of the case. We have also gone through the orders passed by the authorities below and the documents produced before this Tribunal. The written submissions made by the applicant, documents along with necessary details and various authorities or decisions were also taken into consideration. Certain departmental correspondences e .....

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goods. The very fact that the said dealer has discontinued its business prior to the transactions with the applicant and its where-abouts were not known itself indicates that after entering into such bogus transactions, the said party is virtually absconding. As per the report placed on record, more than ₹ 17 crores were outstanding against the said party. It is very unfortunate and serious lapse on the part of the departmental authorities that at the relevant time, the registration certif .....

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case of M/s. Arvind Export Solvent Oil Ind. Vs. State of Gujarat and ultimately come to the conclusion that the transaction entered in the Om Incorporation are not genuine and the applicant has merely obtained bills from M/s. Om Incorporation. This Tribunal has also observed that the applicant has used its name as the department could not trace out the said party and on spot visit, it was found that said dealer has closed its business for the last three years. 14. In the above view of .....

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on the purchases made from M/s Om Incorporation during the period from 01/01/07 to 31/03/07. Since interest being consequential, the applicant is also liable to pay interest charged by the learned revisional authority. 15. Though the applicant is liable to pay the tax and interest as determined by the learned revisional authority on disallowance of input tax credit, the applicant is not liable to pay penalty as per settled legal position discussed above while considering the submissio .....

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clusion that the transactions entered into with M/s. Om Incorporation were not genuine. In that case, the Tribunal observed that the applicant in that case had used its name as the Department could not trace out the said party on spot visit. The findings recorded by the Tribunal regarding M/s. Om Incorporation being nothing but a fraud whose main activity right from the inception was to issue only bills without delivery of goods etc. is also based upon material produced by the respond .....

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is contrary to the settled legal norms. Each matter has to be decided on its own facts and the Tribunal while deciding the case of one party cannot place reliance upon the facts which have come to its knowledge only in another proceeding and apply them to a third party who has no connection with those proceedings. 15. As discussed hereinabove, input tax credit cannot be denied to a party in the absence of the Department having established that the transactions in question are not genu .....

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pon to establish the genuineness of such transactions or to produce any documentary evidence in support of such transactions. The revisional authority, without calling upon the petitioner to produce any such documents, had recorded a finding that the petitioner had not produced any documents in the nature of sale bills, L.R., weigh bridge chits, entry gate pass etc. to establish transfer of goods to it from M/s. Om Incorporation. The Tribunal has gone a step further and has placed reliance upon .....

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he respondent directly before the Tribunal. 16. Another aspect of the matter is that before the Tribunal, all aspects with regard to the scope of the revisional proceedings etc. had been canvassed by the learned advocate for the petitioner. It was categorically stated by the petitioner that there was no dispute at all with regard to genuineness of purchase transactions and the petitioner had also produced documents in support thereof. However, such documents have been brushed aside by .....

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propositions canvassed on behalf of the petitioner, it emerges that the transactions are not genuine and that the petitioner has acted in collusion with the said party for evasion of tax. One of the contentions raised by the petitioner before the Tribunal was on the question of invocation of jurisdiction under section 75 of the Act, which went to the root of the matter. The Tribunal, however, without disputing the legal propositions canvassed on behalf of the petitioner and recording any finding .....

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