MVAT – Disallowance of Input Tax Credit if tax is not paid by selling dealer

TRADE CIRCULAR

Date: 21/06/2012

No.VAT/MMB-2012/52/Adm-8

Trade Circular No. 8T of 2012

Sub: -Judgment of the Hon’ble Bombay High Court in case of M/s, Mahalaxmi Cotton Ginning Pressing and Oil Industries, Kolhapur

Gentleman/ Sir/Madam,

The claims of Input Tax Credit [ITC] under the Maharashtra Value Added Tax Act, 2002 are allowed as per the provisions of section 48(2) and section 48(5) of the MVAT Act. The section says that the Input Tax Credit [ITC] cannot be granted unless the tax on the earlier stages has been received in to the Government Treasury. For the financial year 2008-2009 onward, the verification of Input Tax Credit [ITC] claim is being carried out electronically. The ITC claim in annexure J2 of Form 704 is allowed to the extent of amount matched with the supplier’s sales figure of annexure Jl. The ITC claim to the extent of unmatched data is being disallowed. The action of the department to disallow the ITC claim on the basis of electronic matching of data as well as Constitutional validity of section 48(2) and section 48(5) of Maharashtra Value Added Tax Act, 2002 was challenged in number of Writ Petitions before Bombay High Court.

The Hon’ Bombay High Court upheld the action of Sales Tax Department of rejecting the ITC claim on the grounds of non-payment of tax by the seller as shown by the system in the Writ Petition No. 33 of 2012 decided on 11^th May 2012 in the case of M/s Mahalaxmi Ginning and Oil Industries. The Court also upheld the Constitutional validity of the section 48(5) of the MVAT Act. The Court discussed and distinguished the decision of Punjab and Haryana High Court in case of M/s Gheru Lal Bal Chand.

In view of this, the position of department regarding allowing/disallowing of Input Tax Credit Claim is:-

1. No Input Tax Credit claim shall be allowed unless the corresponding tax is paid by the selling dealer into the Government treasury.
2. In the case of mismatch in the sales and purchases in electronic matching of annexure Jl and J2 of form 704, then to the extent of unmatched amount of tax, the ITC of the claimant dealer shall be denied.
3. ITC claim shall not be allowed if the purchases are effected from hawala dealer and even though such hawala dealer has paid the taxes partially or fully as these are not genuine transactions.

This being the position regarding Input Tax Credit, the department will, however, simultaneously undertake following actions:-

1. The Sales Tax Department will identify the Defaulters namely, registered selling dealers who have not paid the full amount of tax due in the Government Treasury either by not filling their returns at all or by filing returns but riot paying the full tax due [i.e. “short filing”) or where returns are filed but sales to the concerned dealers are not shown (i.e. “undisclosed sales”).

2. Wherever possible, departmental authorities shall take all actions against the defaulting dealers. At the end of each year a reconciliation of such tax recovered from the selling dealer will be carried out and the credit of tax which had been denied earlier will now be given to the purchasing dealer.

3. The department will display a list of all non-filers of returns / short filers, late filers period wise, from year 08-09 on the website of the department. This list will be updated at the end of each month.

4. For period from 2008-09 to 2010-11, after submission of Audit report in Form 704, if dealer has revised his return for any of the contingencies, he will be allowed to submit revised annexures Jl and J2 with the approval of the concerned officer.

5. For the periods from 2008-09 up to 2010-11, the department will compile a list of all cases where Input Tax Credit has been disallowed for the reasons of mismatch.

In these periods the dissallowance of Input Tax Credit claims is mainly on following accounts –

a) Selling dealer is non-filer of returns.

b) Selling dealer has not filed 704 though liable to do so.

c) Selling dealer is not liable to file 704.

a) In case of non-filer / short filer, all possible actions are to be taken against such defaulting dealer as per the provisions of law as applicable.

b) In case of the dealer who has not filed 704, action to levy penalty and prosecution shall be initiated. Such cases will be taken up for scrutiny by e-704 division in Mumbai and respective offices in other places. The dealer will be asked to file audit report along with annexures Jl and J2. The information corresponding to Jl and J2 obtained during desk audit shall be Unloaded on the system by the dealer with the approval of concerned officer.

c) Where the dealer has filed all the returns and paid all the taxes as per returns and is not liable to file 704 , the Input Tax Credit claims against such selling dealer will be allowed on the basis of results of Mahavikas utility developed for this purpose, subject to such cross checks or sample checks as department may deem fit.

6. On receipt of the Form 704 and annexures Jl and J2 from all the dealers for the years 2011-12 onwards, a process will be run on the “MAHAVIKAS” system for match/mismatch data of turnover and tax for all the dealers. The result of match/mismatch along with details of unmatched shall be communicated to every dealer on his email. Subsequently, if such defaults are made good, the system shall be updated and the process will be re-run at the end of the year and the earlier denied credit will be allowed to the purchasing dealer as refund or carry forward such available refund.

This circular cannot be made use of for legal interpretation of provisions of law as it is clarificatory in nature. If any member of the trade has any doubt, he may refer the matter to this office for further clarification.

You are requested to bring the contents of this circular to the notice of the members of your association.

Yours faithfully

(SANJAY BHATIA)

Commissioner of Sales Tax,

Maharashtra State, Mumbai.