Madras HC Upheld Purchasing Dealer’s ITC Right Under Pre-2016 TNVAT Rules

Assistant Commissioner (CT) Vs Vinayaga Agencies (Madras High Court)

The Madras High Court examined a case involving Vinayaga Agencies, which sought input tax credit (ITC) under the Tamil Nadu Value Added Tax (TNVAT) Act, 2006. The issue arose when the purchasing dealer, Vinayaga Agencies, was denied ITC for the tax paid on purchases made from a seller, Classic Enterprises, due to the latter’s failure to deposit the collected tax with the authorities. The case centered on the application of Section 19(1) of the TNVAT Act, which allows registered dealers to claim ITC if they can prove that the tax on their purchases has been paid to the selling dealer.

The Assistant Commissioner initially upheld the denial of ITC, arguing that since the selling dealer did not remit the collected tax, the purchasing dealer could not claim the credit. However, the learned Single Judge of the Madras High Court, in a judgment passed on January 29, 2013, ruled that Vinayaga Agencies was entitled to claim ITC. The court noted that the purchasing dealer had duly paid the tax to the selling dealer, which was sufficient to fulfill the conditions under Section 19(1) of the TNVAT Act as it stood before the 2016 amendment. The court further clarified that while the purchasing dealer was entitled to ITC, the Revenue authorities were still free to proceed against the selling dealer to recover the tax that was due.

The court’s judgment emphasized that the amendment to Section 19(1) of the TNVAT Act, effective from January 29, 2016, did not apply to this case, as the transactions in question occurred prior to the amendment. Therefore, the purchasing dealer’s right to claim ITC was upheld, and the Revenue was directed to allow the credit. The ruling confirmed that the Revenue could take action against the selling dealer for non-compliance, but it could not deny the purchasing dealer’s rightful claim to ITC based on the selling dealer’s failure to deposit the tax. The Writ Appeal filed by the Assistant Commissioner was dismissed, and the decision in favor of Vinayaga Agencies was upheld.

FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT

The State has filed the present Writ Appeal aggrieved by the common order passed by the learned Single Judge, dated 29.1.2013, by which, the learned Single Judge has allowed the W.P.No.2036 to 2038 of 2013 filed by the assessee Tvl. Vinayaga Agencies and in the order impugned, it was held that the assessee, the purchaser is entitled to claim input tax credit under the provisions of Section 19(1) of the Tamil Nadu Value Added Tax Act, 2006 having proved the fact that they have paid the due tax to his selling dealer in view of the proviso to section 19(1) of the Act, as it was stood prior to the amendment, with effect from 29.1.2016, which was substituted by the 2^nd Amendment Act 13 of 2015, in Section 19 of the Act. The relevant observations of the learned Single Judge in the order impugned before us are quoted below for ready reference.

‘7. 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. The pre-revision notices and the orders clearly state in paragraph-3 that the petitioner herein had paid the tax to the selling dealer. If that be the case, the petitioner’s case squarely falls under the proviso to Section 19(1) of the TNVAT Act. That is availed only by following Rule 10(2). It is also not in dispute that the self-assessment has been made under Section 22(2) of the TNVAT Act and therefore the petitioner was justified in claiming the input tax credit.

8. It is another matter that the selling dealer has not paid the collected tax and that liability has to be fastened on the selling It cannot be mulcted on the petitioner-purchasing dealer, which had shown proof of payment of tax on purchases made.

9. Sub-section (16) of Section 19 states that the input tax credit availed is It, however, does not empower the authority to revoke the input tax credit availed on a plea that the selling dealer has not paid the tax. It only relates to incorrect, incomplete or improper claim of input tax credit by the dealer. It is not so in these cases. In the present case, the petitioner-dealer, admittedly, had paid the tax to the selling dealer and claimed input tax credit and that was accepted at the time when the self-assessment was made. Even the pre-revision notices and the orders under challenge fairly state that the petitioner-dealer had paid tax to the dealer. It is, therefore, for the department to proceed against the selling dealer for recovery of tax in the manner known to law. The provision under which the present action has been initiated, namely invoking sub-section (16) of Section 19, does not appear to be correct on the admitted facts as above. All the revision orders revising the input tax credit on the admitted case of tax having been paid to the selling dealer, therefore, are found to be totally incorrect, erroneous and contrary to the provisions of the TNVAT Act and Rules. As a result, all the orders are liable to be set aside.’

10. For all the above reasons, the impugned orders are set aside and the writ petitions are allowed. ‘

2. The assessing authority himself has noted the fact in the impugned assessment order dated 11.1.2013 for the assessment year 2009-2010, that the petitioner assessee Tvl. Vinayaga Agency had duly paid the tax in question to its seller Tvl. Classic Enterprises, from whom, it had purchased the lubricants during the period in question. The relevant findings recorded by the assessing authority in the impugned assessment order are also quoted below

‘ They have purchased Lubricants from Tvl. Classic Enterprises, who is an assessees in the books of the Assistant Commissioner (CT), Palayamkottai Assessment Circle with TIN.3383556355. On verification of the returns, it was found that the dealers at Palayamkottai Assessment Circle had not filed the monthly returns in Form I and also not paid tax to Department for the year 2009-10. The dealer at this end has also paid tax to the dealer. Hence the dealers at this end called follows:-

For the above tax liability, the dealers Tvt. Sri Vinayaga Agencies at this end informed that they had already paid taxes regularly on the purchases, in time and the purchases are also correctly accounted for by them. Further they stated that they had not received any notice from the Assessment Circle and also promised to pay tax after consulting their Consultants. But they had not paid the above tax due so far.

4. Mr. Mohamed Shafiq, learned Special Govt. Pleader appearing for the Revenue feebly tried to submit that in case, the selling dealer does not deposit the due tax with the Treasury or he is non existent dealer, the interest of the Revenue deserves to be safeguarded in this regard and no input tax credit can be allowed unless the selling dealer has deposited the due tax collected from the purchasing dealer with the State Treasury. He also drew the attention of this Court to the amendment in the provisions of Section 19(1) of the TNVAT Act with effect from 29.1.2016 and submitted that, that should be treated as amendment of clarificatory in nature.

5. Learned counsel for the assessee, supporting the impugned order of the learned Single Judge, would submit that in view of the admitted position that the purchaser had duly paid the tax to its selling dealer, he could not be deprived of the right to claim input tax credit against his out put tax credit under the provisions of 19(1) of the Act.

6. We have heard the learned counsel appearing for both sides.

7. We are satisfied that prior to amendment and substitution of proviso under Section 19(1) of the Act, with effect from 29.1.2016, the period in question before us, is covered by the pre-amendment position of law and since the proviso (1) to section 19, which is prior to 29.1.2016, only requires the registered dealer namely, the purchasing dealer to establish that the tax due on such purchase has been paid by him in the manner prescribes, this fact was duly proved by the purchasing dealer in the present case and the assessing authority himself has noted the said fact, therefore, there was no question of denying the input tax credit in the hands of the purchasing dealer against out put dealer, in terms of 19(1) of the Act, as it stood for the period in question 2009-2010. Such giving of however does not deprive Revenue authorities to proceed against the selling dealer M/s Tvl. Classic Enterprises, to recover the tax paid by the Purchasing dealer.

8. In the present case, for non-deposit of due tax collected form the purchasing dealer M/s. Vinayaga Agencies, the Revenue is therefore free to hold enquiry against the selling dealer and collect the Revenue from the selling dealer, which money in the hands of selling dealer, is held in trust for the State by the selling dealer. It is not the case of the Revenue before us that the selling dealer in the present case is a non- existent or a ghost dealer. The identity and registration of the selling dealer and the fact that he collected the tax from the purchasing dealer in question are duly proved on record and are not disputed.

9. In view of this legal position, we do not have any doubt that the learned Single Judge was perfectly justified in allowing the writ petition filed by the Assessee directing the respondent to allow the ITC in the hands of purchasing dealer under Section 19(1) of the Act.

10. With these observations, the appeal is dismissed. No costs. Consequently, the connected CMP.No.26910 of 2019 is closed.