Case Law Details
Farwood Industries Limited Vs Assistant Commissioner (Madras High Court)
Introduction: Farwood Industries Limited has filed writ petitions challenging an order dated 16.02.2021 by the Assistant Commissioner for the assessment years 2015-16 and 2016-17. The petitioner, a registered dealer under the Tamil Nadu Value Added Tax (TNVAT) Act, is involved in manufacturing and selling cupboards, wardrobes, furniture, doors, and windows. During these assessment years, the petitioner claimed input tax credit (ITC) for the purchase of raw materials, both interstate and intrastate. VAT audit revealed various defects, including purchase suppression and mismatch.
Detailed Analysis:
1. Background: The petitioner engaged in the purchase of raw materials and claimed ITC during the assessment years 2015-16 and 2016-17. A VAT audit conducted on 24.04.2017 identified defects such as purchase suppression, incorrect ITC availing, mismatch of ITC, and sales suppression.
2. Notice and Objection: The respondent issued a notice on 23.10.2019, calling upon the petitioner to submit objections. The petitioner responded on several occasions, providing details requested by the respondent. However, the impugned order, dated 16.02.2021, does not reflect a consideration of the petitioner’s responses.
3. ITC Disallowance: The majority of defects relate to ITC disallowance due to mismatch, purchase suppression, and ITC claimed on purchases from registration-canceled dealers. The Court’s decision in the case of JKM Graphics Solutions Limited vs. Commercial Tax Officer had previously highlighted the need for the revenue to devise mechanisms to address mismatch issues and disputes related to ITC claims. Following this, the Commissioner of Commercial Tax issued Circular No.5 of 2021 outlining a mechanism to resolve disputes regarding wrongful ITC claims.
4. Court’s Directive: Given the above circumstances, the Court set aside the impugned orders and directed the matters to be remanded to the respondent for a denovo assessment. The respondent is instructed to complete the assessment within 12 weeks from the receipt of this order and to provide a reasonable opportunity to the petitioner as required by law.
Conclusion: The Madras High Court, in the case of Farwood Industries Limited vs. Assistant Commissioner, has directed denovo adjudication for the disallowance of Input Tax Credit (ITC) under the TNVAT Act due to mismatch and purchase suppression. This decision aligns with previous rulings and a circular issued by the Commissioner of Commercial Tax, emphasizing the need for proper mechanisms in handling ITC disputes. The Court’s directive ensures a fair and comprehensive reassessment process in accordance with the law.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
These writ petitions have been filed challenging the order of the respondent dated 16.02.2021 for the assessment years 2015-16 and 2016-17.
2. The petitioner is a registered dealer under Tamil Nadu Value Added Tax, 2006 (hereinafter referred to as “TNVAT Act”) and engaged in the manufacturer and sales of cupboard, wardrobe, furniture, doors and windows. During the assessment years 2015-16 and 2016-17 the petitioner purchased raw materials by way of interstate and intrastate sales for use as raw material in the manufacture of above items and claimed input tax credit on the purchases of the same. VAT audit was conducted at the petitioner’s place of business on 24.04.2017. During the course of VAT Audit, number of defects were noticed interalia including:
“Defect No.1: Purchase suppression on verification of sales details of other end dealer’s Annexure II
Defect No:2: Wrong availment of ITC for the purchase made from Registration cancelled dealers
Defect No.3: Mismatch of ITC
Defect No.4: Reversal of ITC on stock Transfer
Defect No.5: Sales suppression on verification of checkpost movement (consigner movement)
Defect No.6: Purchase suppression on verification of checkpost movement (consignee movement)
2.1.On the basis of the above inspection, a notice was issued on 23.10.2019 calling upon the petitioner to submit its objection. The petitioner responded to the above notice on 13.01.2020, 05.02.2020 and 27.02.2020 wherein, details of invoice number, date of invoice, value of invoice which has been treated as sales suppression (check-post movement) was sought for and the same were not furnished by the respondent. The impugned order has been made merely recording the fact that the petitioner had filed their reply on the following dates viz., 30.12.2019, 13.01.2020 and 05.02.2020. The assessment order does not reveal that the above request was even considered by the assessing officer. The following portion of the impugned order is relevant and thus extracted hereunder:
“A notice was issued to the dealers on 23.10.2019, which was served on 05.12.2019, inviting to file their objections, if any to the above proposal. The dealers have filed their reply / objections to the proposal through their letter dated 30.12.2019, 13.01.2020 and 05.02.2020 and assured to filed further reply / objections within another fifteen days and requested time in their letter dted 28.02.2020. But they have neither appeared in person subsequently nor filed any further objections.”
2.2. It may also be relevant to note that majority of the defects relates to the input tax credit disallowed in view of the mismatch, purchase suppression and availment of Input Tax Credit on purchases from registration cancelled dealers. This Court in the case of JKM Graphics Solutions limited vs. Commercial Tax Officer, Vepery Assessment Circle reported in 99 VST 343 had observed that the revenue must device a mechanism to deal with the issue of mismatch and the other disputes involving input tax credit. Pursuant to the above order of this Court, the Commissioner of Commercial Tax had issued Circular No.5 of 2021 wherein detailed mechanism was devised to resolve disputes involving wrongful claim of input tax credit. Subsequent thereto, this Court has consistently held that the impugned orders of assessment involving issues relating to ITC covered by the said circular regarding input tax credit ought to be redone on the basis of the mechanism devised in the said circular.
3. The learned counsel for the respondent would also fairly submit that in view of the decision of this Court in JKM Graphics Solutions limited vs. Commercial Tax Officer, Vepery Assessment Circle and the consequential circular there is need to redo the assessment.
4. In these circumstances, the impugned orders are set aside and the matters are remanded back to the respondent to redo the assessment. It is open to the respondent to complete the assessment de-novo within a period of 12 weeks from the date of receipt of a copy of this order after affording reasonable opportunity to the petitioner in accordance with law. In view of the above Writ Petitions are disposed of. No costs. Consequently, connected miscellaneous petitions are closed.
