Circular no. 5/2021 should be followed while dealing with mis-match in VAT return: Madras HC

Tvl. Lakshmi Agency Vs State Tax Officer (Madras High Court)

Madras High Court held that while dealing with the assessment made on the basis of computer generated mis-match report i.e. mis-match in VAT return should be dealt with as per procedure narrated in circular no. 5/2021 dated 24.02.2021.

Facts-

The petitioner has challenged an order of assessment dated 20.07.2021 passed under the provisions of the Tamil Nadu Value Added Tax Act, 2006, relatable to the period 2011-12.

The issue of mismatch has long plagued assessees and the Commercial Taxes Department and as early as in 2018, pursuant to several decisions of this Court, the Special Commissioner/Commissioner of Commercial Taxes had directed the Assessing Authorities to keep assessments relating to mismatch of particulars in abeyance till a proper and appropriate scheme be formulated for addressing this issue.

Notably, on 24.02.2021, a Circular has been issued bearing No.5/2021, wherein, the Principal Secretary/Commissioner, Commercial Taxes has dealt with this issue in extenso.

Conclusion-

Held that in case of mismatch in VAT return let the procedure narrated in circular no. 5/2021 dated 24.02.2021 be followed. Accordingly, in the present matter, show cause notice, as indicated in the Circular will be issued to the petitioner within a period of four (4) weeks from today with all necessary enclosures. The assessments will be completed thereafter within a period of 180 days, in accordance with law, after hearing the petitioner.

FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT

The petitioner has challenged an order of assessment dated 20.07.2021 passed under the provisions of the Tamil Nadu Value Added Tax Act, 2006, relatable to the period 2011-12.

2 .When the matter had come up for admission on 10.10.2022, the following order was passed:

…….

2. After some hearing, learned counsel for the petitioner seeks one week adjournment to file an affidavit from the petitioner, who volunteers to make a remittance of a portion of the disputed tax, i.e., 15%.

……

3. Today, an affidavit dated 11.10.2022 has been filed by the petitioner reiterating her request to consider setting aside of the assessment order and volunteering payment of 15% of the disputed tax within the time to be fixed by this Court.

4. Learned Government Advocate would have no objection to the request made.

5. Hence, a period of four (4) weeks from today is granted to the petitioner to pay the 15% of the disputed tax as volunteered. Upon payment thereof, the impugned order of assessment shall stand set aside.

6. The issue of mismatch has long plagued assessees and the Commercial Taxes Department and as early as in 2018, pursuant to several decisions of this Court, the Special Commissioner/Commissioner of Commercial Taxes had directed the Assessing Authorities to keep assessments relating to mismatch of particulars in abeyance till a proper and appropriate scheme be formulated for addressing this issue.

7. On 24.02.2021, a Circular has been issued bearing No.5/2021, wherein, the Principal Secretary/Commissioner, Commercial Taxes has dealt with this issue in extenso. The entirety of the Circular is extracted hereunder:

“Circular No.5/2021

LW10/12521/2016

Office of the Principal Secretary/
Commissioner of Commercial Taxes,
Chepauk, Chennai – 600 005.
dated: 24.02.2021

Circular

The Hon’ble High Court of Madras in a batch of cases involving in denial of input tax credit or arising of tax liability due to purchase and sales suppression on the basis of the computer generated mismatch report from the Annexure and II of the returns of the purchaser vis-a-vis seller, has directed that the Commissioner of Commercial Taxes to evolve / devise a mechanism / procedure to exclusively deal with such cases (herein after called as mis-match) in a holistic manner and thus resolve / enable resolution of all such issues under TNVAT Act in its order 1 cited.

A review was filed against the orders of the Hon’ble High Court to devise the procedure to reconcile the mismatch. The Hon’ble High Court has dismissed the review application in its order 2 cited with a direction to take earnest steps to resolve the mismatch issue and also directed to verify the details available in the departmental website to reconcile the mismatch and when it is not possible reconcile, then the dealer may be put to notice and in such circumstances conciliatory approach shall be taken.

3. Hence the following procedure is evolved for all the pending and future litigations pertaining to mis-match issues.

3.1 Broad category of mis-match cases

The mismatch between the purchasing and selling dealer in Annexure I and Annexure II of Form 1 return, prescribed under TNVAT Act, filed by them may fall in the following categories:

* ITC claimed by the purchaser does not match with the output tax due paid/payable by the seller; or

* Mismatch of purchase/ sales transactions resulting in purchase and/or sales suppression; or

* Mismatch of transactions because of a dealer whose registration To anolem certificate has been cancelled,

* On verification of check post data, certain transactions are not reported, to

3.2 The possible reasons for the mis-match report

The computer generated mismatch report can be classified as simple error as detailed in si no 1 to 5 below which could be rectified on verification and omission and evasion as detailed in sl no 6 to 8 below which require revision of assessment.

Clerical as wrong reporting / Non reporting of TIN, invoice number, date, category of transaction, etc…

1. The seller/purchaser reports the transaction in the manually filed original/revised return.

2. Purchaser reporting the transaction related to a Financial Year / Month in the subsequent Financial Year / Month

3. Difference noticed in data as per Annexures I and II between the actual reporting by the dealer in the TNVAT returns and data migrated in the TNCTD Portal

4. Seller/purchaser is unable to file returns due to cancellation of registration and the revision petition preferred by them is pending

5. The seller/purchaser fails to report the transactions and evades the payment of tax.

6. The transactions are fictitious and the input tax credit is passed on illegitimately by the bogus seller or by the buyer himself by manipulating the records, including misuse of TIN of registered dealer. 8. Circular transactions.

3.3 Procedure to be followed in the cases of Mis-match

3.3.1 The assessing authority who has raised the dispute of mismatch (herein after called as Original Assessing Authority) shall list out all such pending mismatch cases in respect of his/her assessment circle and report to the DC/JC as well as in the next statistics to be furnished after this circular comes into effect, for which suitable table is being prescribed and thereafter the report the progress every month.

3.3.2 The Original Assessing Authority shall undertake verification mismatch transaction report in the department intranet website (tnvat.gov.in) with reference to the data available at both the ends i.e., buyer and seller. On verification of the data, if the Original Assessing Authority could reconcile the mismatch and finds that the mismatch is due to clerical or inadvertent error the Assessing Authority shall pass appropriate orders dropping further action.

3.3.3 If the Original Assessing Authority is unable to resolve either the whole or part of the mismatch, then the Original Assessing Authority shall issue notice to the dealer concerned indicating the discrepancy with an opportunity to show cause to reconcile the same. After the receipt of reply and after due enquiry, the Original Assessing Authority finds that the sing has effected the transaction shall make a request to Other End Assessing Authority through email (zimbra mail) marking copy to concerned DC and JC and seek for the requisite details of verification. If on enquiry Original Assessing Authority is of the view buyer has made bogus claim / wrong claim, by being involved in bill trading by producing bogus invoice, etc., the buyer shall be assessed to tax/reversal of ITC, as the case may be, then the Original Assessing Authority shall pass appropriate orders in accordance with provisions of the TNVAT Act, 2006.

3.3.4 The Other End Assessing Authority shall verify the details provided to him / her with reference to the manually filed original / revised returns or by issuing show cause notice and calling for the details from the dealer. After the receipt of reply and after due enquiry, the Other End Assessing Authority finds that the seller has reported the transaction and paid the tax due shall report the same to original Assessing authority and both of them shall drop further proceedings and on the other hand that if the whole or part of the transactions are not reported by the seller, then shall initiate assessment proceedings against the seller and shall pass appropriate orders in accordance with provisions of the TNVAT Act, 2006. The result of such action shall be reported to the Original Assessing Authority.

3.3.5 The Assessing Authority should issue show cause notice along with all the connected to the assessment seeking objections. On receipt of objections, the Assessing Authority shall fix a date and time of personal hearing (either physical or virtual hearing). The assessing officer shall grant adequate opportunity to the dealer to put forth their objections by duly following the principles of natural justice. During the course of enquiry, either on a request made by the assessee or suomotu, the Assessing Authority can summon the other end dealer and on request, a cross examination may be provided to the assessee if such dealer is available. However, if the dealer is non-existent the Assessing Officer may proceed to make an assessment on the basis of material on record in accordance with law. The entire process involving issue of show cause notice till final order may be completed within a period of 180 days.

3.3.6 The Territorial Deputy Commissioners shall oversee the work and ensure that the verification reports are promptly be sent and the cases are finalized without any undue delay.

4. In the cases where the seller has not filed returns, best of judgment assessment could be initiated under section 22(4) of the TNVAT Act 2006. Further in the cases for the assessment year upto 2013-14, where revision was already Initiated under section 27 of the TNVAT Act and covered within the purview of section 27(6), 27(7) and 27(8) further actions could be pursued. Only in such cases for the assessment year upto 2013-14 where notice is to be issued for first time may get time barred by limitation. In those cases revision need not be resorted to and such cases may be reported to Joint Commissioner concerned to ensure whether limitation apply to such cases and decide accordingly.

5. In the cases where the claim of ITC is bogus made without any transfer of goods and such claim of ITC is circularly connected among several dealer, such cases may be referred to Commissioner of Commercial taxes to appoint a particular Assessing Authority to examine the transactions and pass orders so as to avoid multiplicity of proceedings and conflicting orders in respect of same transactions.

6. On implementation if any difficulty is experienced or any technical glitches or any other issue that may arise, may be brought to notice of the Commissioner of Commercial Taxes so as to take appropriate suitable action.

Sd/-M.A.Siddique
Principal Secretary/
Commissioner of Commercial Taxes”

8. After referring to the verification to be undertaken by the Assessing Authorities in regard to the materials in his possession, at paragraph 3.3.5, the Assessing Authority is required to issue notice along with all details connected to the assessment and seek objections from the assessee concerned. Thereafter, a personal hearing shall be afforded, either physically or virtually, granting adequate opportunity to the dealer to put forth its objections.

9. The Circular also envisages a request of the assessee for cross examination of the third party dealer and .provides for such an opportunity of cross examination to be granted suo motu, if the Assessing Authority believes that it would be so appropriate. The assessment will thereafter be concluded within a period of 180 days from date of issue of show cause notice.

10. Let this procedure be followed in the present matter as well. Show cause notice, as indicated in the Circular will be issued to the petitioner within a period of four (4) weeks from today with all necessary enclosures. The assessments will be completed thereafter within a period of 180 days, in accordance with law, after hearing the petitioner.

11. It is made clear that if the amount volunteered as per affidavit dated 11.10.2022 is not so remitted within the time stipulated as above, then it shall be as though the impugned order has not been interfered with, and the same shall stand confirmed.

12. This Writ Petition is disposed as above. No costs. Connected Miscellaneous Petition is closed.