Assessee cannot be asked to reverse input tax credit due to non-payment of taxes by selling dealer

CA Bimal Jain

Facts:

Sri Lakshmi Textiles(“the Petitioner”) is a partnership firm engaged in the business of inner garments and textiles registered under Tamil Nadu Value Added Tax Act, 2006 (“TN Vat Act”). The Petitioner was regularly filing the VAT return and paying the VAT liability after adjusting the corresponding input tax credit. For the Assessment Year 2013-2014, the Petitioner had reported total turnover and taxable turnover of Rs. 2,02,88,151/- and Rs. 15,98,693/- respectively in his return.

The Department alleged that because some of the selling dealer of the Petitioner had not paid the tax, the Petitioner is required to reverse the corresponding input tax credit and further sought to levy penalty under Section 27(3) of the TN VAT Act on the Petitioner.

Held:

The Hon’ble High Court of Madras relied upon the decision in the case of Sri Vinayaga Agencies Vs. the Assistant Commissioner (Ct), Chennai and another [(2013) 60 VST 283 (Mad)] and held that when the fact of Petitioner paying the taxes to his supplier is not under dispute, the Petitioner cannot be compelled to reverse the input tax Credit due to non-payment of VAT liability by the selling dealer.

(Author can be reached at Email: bimaljain@hotmail.com)

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