CA. V. Sundararajan Sivakasi

CA. V. Sundararajan Sivakasi

Proviso to Section 19(2) of the Tamil Nadu Value Added Tax Act was inserted vide Government Order (G.O.) No.139, dated 08.11.2013, and was brought into force on 11.11.2013.

Sec 19. Input tax credit:

(v) sale in the course of Inter-State trade or commerce falling under sub-section (1) of Section 8 of the Central Sales Tax Act, 1956 (Central Act 74 of 1956).

[Provided that input tax credit shall be allowed in excess of three percent tax for the purpose specified in clause (v);]”

Divergent Interpretation:

Some of the manufacturers have interpreted that the amendment is applicable only to traders and not to manufacturers and did not reverse input tax credit for 2% concessional rate of CST Sales. The Assessing officers issued notices to the dealers directing to reverse the credit for 2% CST sales. The manufacturers filed Writ petition before the Madras High Court.

Some of the manufacturers have interpreted that the amendment is applicable both to traders and manufacturers and reversed ITC for 2% CST sales.  Ironically the assessing officers also was under a similar mistaken impression and passed assessment orders.

Recent High court judgement on the issue:

In the case of M/S.Everest Industries Limited Coimbatore   Madras High Court  has held that the proviso, on account of erroneous interpretation by the Revenue, was causing difficulties for the manufacturers .ITC would be available no sooner the tax suffered inputs are used in the manufacture and/or processing of goods. In other words, the argument is that the limitation contained in the proviso to Section 19(2) applies to traders and not to manufacturers.

The impugned orders in each of the writ petitions are set aside. Accordingly, the writ petitions are allowed.

W.P.No.7969 of 2014:

the proviso to Section 19(2) of the 2006 Act was deleted by Act 5 of 2015 Vide  G.O.Ms.No.46, dated 01.04.2015. Therefore, the period of impact is 11.11.2013 to 01.04.2015.

Remedy to the manufactures who had reversed the ITC under mistaken impression:

It is well settled law that PAYMENT UNDER MISTAKE OF LAW — MISTAKE DISCOVERED ON NOTICING HIGH COURT DECISION — REFUND IS ALLOWED – South India corporation (p) Ltd v Deputy commercial officer and another (2000) 119 STC 145 (Tamilnadu taxation special Tribunal). In the instant case the appellant carries on business in construction work. For the years 1981-84 the dealer under the impression that purchase tax had to be paid on construction materials and paid the tax. The AO also was under a similar mistaken impression. Subsequently, Madras High Court in the case of State of Tamilnadu v East coast construction and industries has held that purchase of such construction materials and used in the construction of building will not attract purchase tax under Sec 7A(1) of TNGST Act. (1986) 61 STC 337. The appellant filed an application for refund before the Deputy commissioner (CT) Coimbatore. The DC rejected the refund claim. The appellant filed a writ application before the High Court which was transferred to the Special Tribunal and the Special Tribunal quashed the impugned order and held that the appellant is entitled for refund.

Under the mistaken impression that it was required to pay service tax the assesse paid service tax. Subsequently, the assesse came to know that service tax was not liable to be paid he claimed refund of service tax indicating that he had paid the same under the mistaken provision of law. The Tribunal held that since the amount collected by the government was not all payable by the assesse, that amount would resemble the amount collected without any authority of law and the assesse was eligible for the refund claim. – CCE v Jai Lakshmi finance Co (2006) 5 STT 317 (New Delhi CESTAT)

In CST V Shiva Analyticals (I) Ltd (2009) 21 STT 328 (Karnataka High Court) assesse paid service tax on wrong assumption that it was liable for the same. Having realised its mistake, refund was claimed and it was allowed.

In view of the above legal position the manufactures who had reversed ITC under the mistaken impression may file refund claim for the period   11.11.2013 to 01.04.2015.  The Assessing officer will reject the claim on the ground that the department has not accepted the decision of the High court and Writ Appeal has been preferred to the High Court. Time and again courts have held that phraseology of not accepting the decision is obnoxious and unparliamentary in respect of the order of the higher authority. Unless, in appeal the order of the higher authority is stayed, it operates as a valid binding decision to the lower authority.  The Andhra Pradesh High court held that the refund due to the assesse in accordance with the judgement of the Tribunal, cannot be withheld on a mere subjective opinion that the grant of refund would adversely affect the revenue and the department desired to file tax revision case before the High court against the said judgement. – Dr. Reddy’s laboratories Ltd vs The Asst. commissioner (CT) LTU & Anr (2010) 51 APSTJ p.2222.

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