R.K Rengaraj, Advocate
Introduction: In the recent times, the Commercial Taxes Department has started issuing Notices and passing orders to disallow the Input Tax Credit based on mismatch of purchase entries found on comparison of Annexure I of buying dealers with Annexure II of selling dealers and without following the High Court directions, the Assessing Officers insist on the buying dealers to collect copies of Annexure II to the monthly returns filed from the respective suppliers and prove the correctness of their claim. The heavy liability created on account of no fault of buying dealers has become big issue now. Whether the department is right in asking the purchasing dealer to reverse the Input tax credit? In the recent judgment in the case of Ms Sri Andal Company, Salem Vs The Assistant Commissioner (CT), Shevapet, Salem the Hon’ble Madras High Court in W.P No.3473 to 3479 of 2015 & M.P No.1 of 2015 set aside the order of the Assessing Officer and directed A.O the authority concerned for passing appropriate orders afresh on merits and in accordance with law after affording an opportunity of being heard to the petitioner.
Whether reversal is correct for the mismatches found in the Purchasing Dealer’s Monthly returns?
Legal provisions: Section 19 deals with the Input Tax credit. According to Section 19 (1) There shall be input tax credit of the amount of tax paid or payable under this Act, by the registered dealer to the seller on his purchases of taxable goods specified in the First Schedule : Provided that the registered dealer, who claims input tax credit, shall establish that the tax due on such purchases has been paid by him in the manner prescribed.
Section 19 (1) is very clear and it states that input-tax credit can be claimed by a registered dealer, if he establishes that the tax due on such purchase has been paid by him in the manner prescribed and that was accepted at the time when the self-assessment was made. If that be the case, the issue now before squarely fell under the proviso to Section 19 (1) of the Act. Further, it is another matter that the selling dealer had not paid the collected tax from the purchasing dealer. In such case, the liability has to be fastened on the selling dealer and not on purchasing dealer, as the purchasing dealers must be having the original tax invoices with proof of payment of tax on purchases made. In other words, it cannot be mulcted on the purchasing dealer, who had shown proof of payment of tax on every purchases made.
Section 19 (16). Section 19 (16) deals with power to A.O to revoke the ITC availed if it is found incorrect.
Section 19 (16). The input tax credit availed by any registered dealer shall be only provisional and the assessing authority is empowered to revoke the same if it appears to the assessing authority to be incorrect, incomplete or otherwise not in order.
Rule 10(2) of the Tamil Nadu Value Added Tax Rules and the said rule reads as follows:-
“10(2). Every registered dealer who claims input tax credit under sub-section (1) of Section 19 shall, produce the original tax invoice, in support of his claim of the input tax credit, containing the following details, namely:-
(a) A consecutive serial number;
(b) The date on which the invoice is issued;
(c) The name, address and the Taxpayer Identification Number of the seller;
(d) The name, address and the Taxpayer Identification Number of the buyer;
(e) The description of the goods;
(f) The quantity or volume of the goods;
(g) The value of the goods;
(h) The rate and amount of tax charged; and
(i) The total value of the goods.”
Where the purchasing dealer has followed the rule 10 (2) while accounting the purchase invoices and uploaded the same in the annexure, it cannot be said that input tax credit was wrongly availed.
The provision of Section 19(1) clearly states that input tax credit can be claimed by the registered dealer, provided if the registered dealer establishes that the tax due on such purchase has been paid by him in the manner prescribed. It would clearly establish that purchasing dealer have satisfied the conditions prescribed and therefore he is eligible and justified to claim the input tax credit during the period in question.
Going by Rule 10(2) of the TNVAT Rules read along with section 19(1) of the TNVAT Act it is clear that so long as the purchasing dealer has complied with the requirements as given under Rule 10(2), the claim of the purchasing dealer cannot by any length of reasoning be denied by the Revenue. There is also no statutory obligation for the purchasing dealer to obtain from the selling dealer a copy of Annexure II relating to his transactions and produce before the Assessing officer. Reliance is placed on the following additional case laws where the Hon’ble High Court, Madras has set aside the orders of the Assessing Officers and remitted back to apply their mind and revise order.
In the author’s opinion if the Orders are passed invoking the provision of sub-section (16) of Section 19 of the TNVAT Act, the A.O is not correct to revoke the ITC availed on genuine purchases. The provision under which the actions have been initiated, namely invoking sub-section (16) of Section 19, does not appear to be correct in view of the discussion and facts of the case. Therefore if such orders are passed by the Assessing Officer without following the court directions it would be totally incorrect, erroneous and contrary to the provisions of the TNVAT Act and Rules.