The petitioners in all these writ petitions are registered dealers on the file of the respective Assessing Officers under the provisions of the Tamil Nadu Value Added Tax Act, 2006 [in short “TNVAT Act”] and or the Central Sales Tax Act, 1956 [in short “CST Act”]. These cases were clubbed together as a common issue arises pertaining to the reversal of Input Tax Credit [in short “ITC”] effected by the respective Assessing Officers of the registered dealers. Therefore, it may not be necessary to refer to the facts and circumstances of each case and suffice to take such of those facts, which are necessary to decide as to the correctness of the procedure, adopted by the respective Assessing Officers, while reversing the ITC availed by the dealers.
2. The reversal of ITC are at both ends, namely, at the end of the selling dealer as well as the end of the purchasing dealer. But the basis of such reversal is common to both the dealers, since the reversal has taken place, based on verification done by the respective Assessing Officers or at the direction of superior authorities, by comparing the returns filed by the purchasing/selling dealer with that of the data maintained by the Commercial Tax Department. Thus, over a period of time, the Assessing Officers through out the State of Tamil Nadu have been issuing notices, proposing to reverse the Input Tax availed by the dealers by pointing out that the returns filed by the dealers, do not match with the data maintained by the Department. Owing to large number of cases being filed raising similar issues, it turned out be called as mismatch/web report batch of cases.
3. Before I proceed into the actual controversy involved in these cases, it may be necessary to have a over view of the provisions of the TNVAT Act, because the reversal of ITC, arising under the provisions of CST Act are to be effected under the provisions of the TNVAT Act.
4. Section 2 of TNVAT Act defines “Input Tax” to mean the tax paid under the Act in the manner prescribed by a registered dealer to another registered dealer on the purchase of goods including capital goods in the course of business. “Output Tax” defined under Section 2 means, the tax paid or payable under the Act by any registered dealer in respect of sale of any goods. Section 2 defines “reversal of tax credit” to mean reversal of ITC already claimed and availed under the Act. Section 14 deals with “reversal of tax credit”, in terms of Sub-Section 1 of Section 14, where a purchasing dealer has returned the goods to the seller for any reason, the ITC claimed already on the purchase by the dealer shall be liable to reversal of tax credit on such goods returned, in the manner as prescribed.
5. Sub-Section 2 of Section 24 states that where a selling dealer has received back the goods as a result of sales return or unfructified sale, the output tax paid or payable thereon will be reduced, adjusted or refunded in the manner as prescribed. Section 17 deals with the burden of proof and in terms of Sub-Section 2 therein, for the purpose of claim of ITC, the burden of proving such claim shall lie on such dealer.
6. Section 19 of the Act would be very relevant, which deals with ITC and the same is quoted hereunder.
“19. Input tax credit — (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.
(2) Input tax credit shall be allowed for the purchase of goods made within the State from a registered dealer and which are for the purpose of –
(i) re-sale by him within the State; or
(ii) use as input in manufacturing or processing of goods in the State; or
(iii) use as containers, labels and other materials for packing of goods in the State; or
(iv) use as capital goods in the manufacture of taxable goods.
(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
(v) Agency transactions by the principal within the State in the manner as may be prescribed
(3) (a) Every registered dealer, in respect of purchases of capital goods wholly for use in the course of business of taxable goods, shall be allowed input tax credit in the manner prescribed.
(b) Deduction of such input tax credit shall be allowed only after the commencement of commercial production and over a period of three years in the manner as may be prescribed. After the expiry of three years, the una vailed input tax credit shall lapse to Government.
(c) Input tax credit shall be allowed for the tax paid under section 12 of the Act, subject to clauses (a) and (b) of this sub-section.
(4) Input tax credit shall be allowed on tax paid or payable in the State on the purchase of goods, in excess of four per cent of tax relating to such purchases subject to such conditions as may be prescribed,-
(i) for transfer to a place outside the State otherwise than by way of sale; or
(ii) for use in manufacture of other goods and transfer to a place outside the State, otherwise than by way of sale:
Provided that if a dealer has already availed input tax credit there shall be reversal of credit against such transfer.
(5) (a) No input tax credit shall be allowed in respect of sale of goods exempted under section 15
(b) No input tax credit shall be allowed on tax paid or payable in other States or Union Territories on goods brought into this State from outside the
(c) No input tax credit shall be allowed on the purchase of goods sold as such or used in the manufacture of other goods and sold in the course of inter-State trade or commerce falling under sub-section (2) of section 8 of the Central Sales Tax Act,
Central Act 74 of 1956.
(6) No input tax credit shall be allowed on purchase of capital goods, which are used exclusively in the manufacture of goods exempted under section 15:
(7) No registered dealer shall be entitled to input tax credit in respect of-
(a) goods purchased and accounted for in business but utilised for the purpose of providing facility to the proprietor or partner or director including employees and in any residential accommodation; or
(b) purchase of all automobiles including commercial vehicles, two wheelers and three wheelers and spare parts for repair and maintenance thereof, unless the registered dealer is in the business of dealing in such automobiles or spare parts; or
(c) purchase of air-conditioning units unless the registered dealer is in the business of dealing in such units.
(8) No input tax credit shall be allowed to any registered dealer in respect of any goods purchased by him for sale but given away by him by way of free sample or gift or goods consumed for personal use.
(9) No input tax credit shall be available to a registered dealer for tax paid or payable at the time of purchase of goods, if such-
(i) goods are not sold because of any theft, loss or destruction, for any reason, including natural If a dealer has already availed input tax credit against purchase of such goods, there shall be reversal of tax credit; or
(ii) inputs destroyed in fire accident or lost while in storage even before use in the manufacture of final products; or
(iii) inputs damaged in transit or destroyed at some intermediary stage of manufacture.
10. (a) The registered dealer shall not claim input tax credit until the dealer receives an original tax invoice duly filled, signed and issued by a registered dealer from whom the goods are purchased, containing such particulars, as may be prescribed, of the sale evidencing the amount of input tax.
(b) If the original tax invoice is lost, input tax credit shall be allowed only on the basis of duplicate or carbon copy of such tax invoice obtained from the selling dealer subject to such conditions as may be prescribed.
(11) In case any registered dealer fails to claim input tax credit in respect of any transaction of taxable purchase in any month, he shall make the claim before the end of the financial year or before ninety days from the date of purchase, whichever is
(12) Where a dealer has availed credit on inputs and when the finished goods become exempt, credit availed on inputs used therein, shall be
(13) Where a registered dealer without entering into a transaction of sale, issues an invoice, bill or cash memorandum to another registered dealer, with the intention to defraud the Government revenue, the assessing authority shall, after making such enquiry as it thinks fit and giving a reasonable opportunity of being heard, deny the benefit of input tax credit to such registered dealer who has claimed input tax credit based on such invoice, bill or cash memorandum from such date.
(14) Where the business of a registered dealer is transferred on account of change in ownership or on account of sale, merger, amalgamation, lease or transfer of the business to a joint venture with the specific provision for transfer of liabilities of such business, then, the registered dealer shall be entitled to transfer the input tax credit lying unutilized in his accounts to such sold, merged, amalgamated, leased or transferred concern. The transfer of input tax credit shall be allowed only if the stock of inputs, as such, or in process, or the capital goods is also transferred to the new ownership on which credit has been availed of are duly accounted for, subject to the satisfaction of the assessing authority.
(15) Where a registered dealer has purchased any taxable goods from another dealer and has availed input tax credit in respect of the said goods and if the registration certificate of the selling dealer is cancelled by the appropriate registering authority, such registered dealer, who has availed by way of input tax credit, shall pay the amount availed on the date from which the order of cancellation of the registration certificate takes effect. Such dealer shall be liable to pay, in addition to the amount due, interest at the rate of one and a quarter per cent, per month, on the amount of tax so payable, for the period commencing from the date of claim of input tax credit by the dealer to the date of its payment.
(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.
(17) If the input tax credit determined by the assessing authority for a year exceeds tax liability for that year, the excess may be adjusted against any outstanding tax due from the dealer.
(18) The excess input tax credit, if any, after adjustment under sub-section (17), shall be carried forward to the next year or refunded, in the manner, as may be prescribed.
(19) Where any registered dealer has availed input tax credit and has goods remaining unsold at the time of stoppage or closure of business, the amount of tax availed shall be reversed on the date of stoppage or closure of such business and recovered.”
7. In terms of first proviso under Section 19, the registered dealer who claims ITC shall establish that the tax due on purchase of goods has actually been paid in the manner by the registered dealer who sold such goods and that the goods have actually been delivered. However, the proviso under Section 19 were substituted by the Act 13 of 2015 w.e.f. 29.01.2016. Sub-Section 2 of Section 19 deals with circumstances under which, ITC shall be allowed for the purchase of goods made within the State.
8. Similarly, Section 19(3)(a) pertains to purchase of capital goods for use in the manufacture of taxable goods on which ITC will be allowed. The position prior to 29.01.2016 is that, in terms of Section 19 that there shall be ITC of the amount of tax paid or payable under the Act by the registered dealer to the seller on his purchase of taxable goods specified in the first schedule. Thus, the subsequent change brought out by the Act 13 of 2015 is by substituting the expression “tax paid or payable” with the expression “tax paid”.
9. Section 21 of the Act deals with “filing of returns” under which every dealer is required to file a return in the prescribed form, showing the total and taxable turnover within the prescribed period, in the prescribed manner along with the prescribed documents and proof of payment of tax. The tax due under the said Section shall become due without notice of demand to the dealer on the last date of the period for filing return as The TNVAT Rules prescribe the form in which, the return has to be filed which as per Form-I, Form-J, Form-K, Form-L, Form-M and Form-N as the case may be.
10. Section 22 deals with the procedure to be followed by the assessing authority. In terms of Sub-Section 1, assessment in respect of a dealer shall be on the basis of the return. If the returns are in the prescribed form, accompanied by proof of payment of tax and documents prescribed, the Assessing Officer shall accept the returns and pass an order of assessment under Section 22 of the TNVAT Act. Scrutiny assessment is provided under Sub-Section 3 of Section 22. Cases where the dealer fails to file returns are dealt with under Sub-Section 4 of Section 22, which gives power for the assessing authority to assess the dealer to the best of its judgment, after affording an opportunity of being heard. Sub-Section 5 gives power for imposition of penalty. Section 22 deals with reassessment proceedings.
11. Section 25 deals with the procedure to be followed, if no return is submitted or if the return submitted is incomplete or incorrect, after making such enquiry as it considers necessary, the Assessing Officer shall determine the tax payable by the dealer to the best of its judgment. Section 27 deals with assessment of escaped turnover and wrong availment of input tax credit. The power conferred under this Section is to reopen the assessment proceedings already terminated. This provision would also be relevant for the purpose of deciding all these cases and thus quoted hereunder:
“Assessment of escaped turnover and wrong availment of input tax credit.
27. (1) (a) Where, for any reason, the whole or any part of the turnover of business of a dealer has escaped assessment to tax, the assessing authority may, subject to the provisions of sub-section (3), at any time within a period of five years from the date of assessment order by the assessing authority, determine to the best of its judgment the turnover which has escaped assessment and assess the tax payable on such turnover after making such enquiry as it may consider necessary.
(b) Where, for any reason, the whole or any part of the turnover of business of a dealer has been assessed at a rate lower than the rate at which it is assessable, the assessing authority may, at any time within a period of five years from the date of order of assessment by the assessing authority, reassess the tax due after making such enquiry as it may consider necessary.
(2) Where, for any reason, the input tax credit has been availed wrongly or where any dealer produces false bills, vouchers, declaration certificate or any other documents with a view to support his claim of input tax credit or refund, the assessing authority shall, at any time, within a period of five years from the date of order of assessment, reverse input tax credit availed and determine the tax due after making such a enquiry, as it may consider necessary:
Provided that no order shall be passed under sub-sections (1) and (2) without giving the dealer a reasonable opportunity to show cause against such order.
(3) In making an assessment under clause (a) of sub-section (1), the assessing authority may, if it is satisfied that the escape from the assessment is due to wilful non-disclosure of assessable turnover by the dealer, direct the dealer, to pay, in addition to the tax assessed under clause (a) of sub-section (1), by way of penalty a sum which shall be –
(a) fifty per cent of the tax due on the turnover that was wilfully not disclosed if the tax due on such turnover is not more than ten per cent of the tax paid as per the return;
(b) one hundred per cent of the tax due on the turnover that was wilfully not disclosed if the tax due on such turnover is more than ten per cent but not more than fifty per cent of the tax paid as per the return.
(c) one hundred and fifty per cent of the tax due on the assessable turnover that was wilfully not disclosed, if the tax due on such turnover is more than fifty per cent of the tax paid as per the return;
(4) in addition to the tax determined under sub-section (2), the assessing authority shall direct the dealer to pay as penalty a sum –
(i) which shall be in the case of first such detection fifty per cent of the tax due in respect of such claim; and
(ii) which shall be in the case of second or subsequent detections, one hundred per cent of the tax due in respect of such claim:
Provided that no penalty shall be levied without giving the dealer a reasonable opportunity of showing cause against such imposition.
(5) The powers under sub-sections (1) and (2) may be exercised by the assessing authorities even though the original order of assessment, if any, passed in the matter has been the subject matter of an appeal or revision.
(6) In computing the period of limitation for assessment or re-assessment under this section, the time during which the proceedings for assessment or re-assessment remained stayed under the orders of a Civil Court or other competent authority shall be excluded.
(7) In computing the period of limitation for assessment or re-assessment under this section, the time during which any appeal or other proceeding in respect of any other assessment or reassessment is pending before the High Court or the Supreme Court involving a question of law having a direct bearing on the assessment or re-assessment in question, shall be excluded.
(8) In computing the period of limitation for assessment or re-assessment under this section, the time during which any appeal or proceeding in respect of any assessment or re-assessment of the same or part of the turnover made under any other enactment was pending before any appellate or revisional authority or the High Court or the Supreme Court shall be excluded.”Online GST Certification Course by TaxGuru & MSME- Click here to Join
12. Section 40 prohibits any person, other than a dealer registered under the Act to collect any amount by way of tax or purporting to be by way of tax and no registered dealer shall make any such collection except in accordance with the provisions of the Act. Sub-Section 2 empowers the Assessing Officer to direct the offending registered dealer to refund the excess amount collected if done under a bonafide belief, but have collected wilfully 150% of the amount so collected. In terms of Section 63, every dealer is liable to produce the accounts to the Assessing Officer. In terms of Section 64, the dealer has to maintain an up-to-date true and correct accounts and records. This is with a view to ensure that the Assessing Officer can examine them, to verify the correctness of the returns filed and accepted by the Assessing Officer. Section 65 confers power on the authorities mentioned in the said rule to order production of accounts and powers of entry and inspection etc. Section 84 deals with the power to rectify any error apparent on the face of the record.
13. Rule 7 of TNVAT Rules, 2007, deals with filing of returns and the form which it is required to be filed. Rule 8 deals with the procedure for assessment, Rule 9 deals with tax deduction at source. Rule 10 deals with ITC and how the output has to be determined and what are the details required to be furnished for being entitled to claim ITC.
14. The above referred statutory provisions given a broad idea, as to how the taxation regime functions under the provisions of TNVAT Act. The respective Assessing Officers, either by themselves or on instructions from the Enforcement Wing officials have stated that there is mismatch of the details, disclosed in the returns compared with the details available with the Department. The revenue points out that mismatch can occur in any one of the following ways, namely, when the seller has failed to file returns; seller has filed returns but not disclose all transactions; seller furnishes incorrect details like TIN number, etc.
15. Thus, essentially the assessment are sought to be re-opened and the ITC availed by the dealers are directed to be reversed, when a mismatch occurs, when either the purchaser or the seller fails to report the transaction in their annexure I or II returns respectively. Therefore, the first aspect to be looked into is, how this process of verification could be done by the Assessing
16. To see, as to which of the provisions call for enquiry or verification conferred on the Assessing Officer and I find, such power is conferred under Section 30, 22(4), 24(1), 27(1), 27(2), 28(2), 29(d), 29(e), 67(3), 67(8) and Rule 12, 15(17)(a) and 15(17)(g). It may not be necessary for the Court to elaborate all the above statutory provisions and it would suffice to take a few provisions by way of illustration, namely, Section 19(13) which confers power on the Assessing Officer to deny benefit of ITC to a registered dealer without entering into a transaction of sale, issues an invoice or bill and the same can be done, after making such enquiry as it thinks fit.
17. Section 22 deals with the deemed assessment, which also gives power to the Assessing Officer to make such enquiry as it may consider necessary. Section 67 deals with establishment of check post or barrier and inspection of goods while in transit and gives power to the officer to make such enquiry as it deems fit. Thus, enough power has been conferred on the Assessing Officers to make an enquiry as it thinks fit or may consider necessary or as he deems fit or deems necessary.
18. Section 19 of the Act deals with “Input Tax Credit”, sub-section (1) states that there shall be Input Tax Credit of the amount of the tax paid or payable under the Act, by the registered dealer to the seller on his purchase of taxable goods specified in the First Schedule to the Act. Proviso states that the registered dealer who claims input tax credit, shall establish that the tax due on purchases has been paid by him in the manner prescribed. Sub-section (2) sets out for what purposes the Input Tax Credit shall be allowed. Sub-section (3) deals with circumstances under which input tax shall be allowed in respect of purchase of capital goods. Sub-section (5) to (9) set out the types of transaction, where the ITC shall not be allowed; Clause (a) of Section 19(10), states that the registered dealer shall not claim ITC, until the dealer receives an original tax invoice duly filled, signed and issued by a registered dealer from whom the goods are purchased, containing such particulars, as may be prescribed, of the sale evidencing the amount of Input Tax; Section 2(36) defines the ‘tax invoice’ to mean an invoice issued by a registered dealer, who sells taxable goods to another registered dealer in the State showing the tax charged separately and containing such details, as may be prescribed; Rule 10(2) of the TNVAT Rules, prescribes the details which are required to be furnished in the original tax invoice. Thus, the vital document, which is required to be produced by a dealer for claiming Input Tax Credit, is the tax invoice. In terms of Section 3(3) of the Act, Input Tax Credit is admissible for all registered dealers, who make purchases inside the State of goods specified in part B & C of the First Schedule and in terms of Section 9(2), the same benefit is admissible to dealers of goods listed in Part-A. The primary requirement for the credit being allowed to a dealer is that he must establish that he has paid tax on his purchases to the dealer in the State by producing the original tax invoice. Thus, the tax paid on the purchases of all goods dealt with by a dealer in each period could be utilised by the dealer, as Input Tax Credit in that period or in the subsequent periods and set off against the tax due on the sales of all, or any of, the goods dealt with by him.
19. The petitioners’ contention is that the conditions for being entitled to Input Tax Credit are (a) a taxable sale must be effected by one registered dealer to another registered dealer; (b) the selling dealer must be a registered dealer; (c) the selling dealer must issue a tax invoice; and (d) the purchasing dealer must pay tax to the selling dealer. Thus, it is contended that the moment the tax is paid to the selling dealer and tax invoice is issued, the credit is available to the purchasing dealer. The default of the selling dealer in not filing returns or not paying tax at his end cannot result in the denial of credit to the purchasing dealer. In such circumstances, if the selling dealer fails to remit the tax, the statute provides adequate machinery for recovery of the tax from the seller, who does not file returns or pay tax. Apart from that penal consequences are also provided under Sections 22(4), 22(5), 27(1) and 27(3). Therefore, if the selling dealer fails to pay tax, the Revenue has to proceed against the selling dealer in terms of the provisions of the Act and not deny credit to the purchasing dealer, who has fulfilled the parameters by producing the original tax invoice, filing returns and paying tax. Therefore, if the sale is not in dispute and if there are no allegations that the tax invoices are fraudulent, then the purchasing dealers are automatically entitled for credit. It is further submitted that Section 19(1) of the Act was amended by Amendment Act 13 of 2015, providing for proof of payment of tax by the vendor as condition for credit. However, this provision is prospective in effect from 29.01.2016. Further, it is submitted that when the petitioners have filed monthly returns along with required annexures, which contain the details of the purchases made as well as the sales effected, the Department compares these annexures with annexures of the seller and stating that there are discrepancies in the figures found in the two sets of annexures rejects the return of the petitioner alleging purchase suppression etc. However, before doing so, the department has not inspected the place of business of the petitioner; has not verified the books of accounts and merely has gone by the alleged discrepancy in the figures in the annexures. Therefore, it is submitted that the web report or the data maintained by the Department can, at best, be a starting point for an enquiry for considering the correctness of the return filed by the dealer, but cannot be a sole basis for making the assessment. Referring to various provisions of the Act, some of which have been referred to above, it is submitted that the provisions provide for making such enquiry as necessary and without conducting such enquiry, revenue cannot fasten the liability on the petitioners. Referring to the decision of the Hon’ble Supreme Court in the case of ‘Girdhari Lal Nannelal v. The Sales Tax Commissioner, M.P.’ reported in [(1977) 39 STC 30], it is submitted that the burden of proving the sales and purchase suppressing is on the department and the same cannot be said to have been discharged by merely rejecting the explanation of the dealer as not been satisfactory and the department must have some material on hand to reject the explanation of the dealer. The burden of proof will shift to the assessee only if the department proves that the transaction of the sales, had taken place. To support such contention, the decision of this Court in the cases of Deputy Commissioner of Commercial Taxes, Tiruchirapaii vs. N.Subramaniam Chettiar reported in 40 STC 434, G.L.Chemicals vs. State of Tamil Nadu & anr., reported in 13 VST 88, and State of Tamil Nadu vs. P.Elayaaperumal & Ors., reported in 25 VST 613 were relied on.
20. It is further submitted that in terms of Section 22(2) of the Act, the assessment made is a deemed in which there is no examination of books of accounts by the Assessing Authority. The intranet web report is normally sent to the VAT Audit team or by the Assessing Authority and when they match the month to month returns of both seller and purchaser mismatch may occur, when the seller would have reported at the end of the month i.e., 30th or 31st of the relevant month, the purchaser would have accounted it in the next month i.e., first of the succeeding month, the seller would have reported during first week and there may be sales return in the same month, there may be cases of unfructified sales, cases of loss in transit and purchaser would have accounted in the subsequent months. Therefore, unless the intranet web report along with all details are furnished, the purchaser would not be in a position to reconcile the mismatch. If the details have furnished, the purchaser would be able to reconcile the mismatch and it is thereafter the Assessing Authority has to verify the books of accounts and then cross verify it with the selling dealer before completing the assessment. In this regard, the Commissioner of Commercial Taxes has issued a circular in Circular No.10 of 2015, dated 01.04.2015 and such circular should be directed to be scrupulously followed. The learned counsels relied on the following decisions to substantiate their contentions that the procedure adopted by the respective Assessing Officer to reverse the ITC without conducting an enquiry and without verification, is wholly untenable. The decisions are:-
(i) State of Kerala vs. K.T.Shaduli Yusuff reported in  39 STC 478 (SC);
(ii) M.Rajaganapathi Traders vs. Commercial Tax Officer, Salem reported in  142 STC 130 (Mad);
(iii) State of Tamil Nadu vs. S.Ramanathan & Ors., reported in  27 VST 198 (Mad);
(iv) State of Tamil Nadu vs. A.N.S.Guptha & Sons reported in  38 VST 45 (Mad);
(v) Steel Authority of India Ltd., vs. Additional Commissioner, Commercial Tax, Jabalpur & Ors., reported in  56 VST 84 (MP);
(vi) Steel Authority of India Ltd., vs. Additional Commissioner, Commercial Tax, Jabalpur and Others reported in  57 VST 405 (Delhi);
(vii) Harsh Jewellers vs. Commercial Tax Officer, Panjagutta Circle, Hyderabad & Anr., reported in  57 VST 538 (AP);
(vii) Anvar P. V. vs. P.K.Basheer & Ors., reported in (2014) 10 SCC 473;
(ix) Hindustan Unilever Limited vs. The Deputy Commissioner (CT)-II & Anr., in W.P.Nos.28818 & 28819 of 2014, dated 29.08.2016, which was confirmed by the Hon’ble Division Bench of this Court in the case of The Assistant Commissioner (CT) vs. M/s.Infiniti Wholesale Ltd., in W.A.Nos.775 of 2016, dated 09.09.2016,
(x) Infiniti Wholesale Limited (formerly known as Woolworths Wholesale (India) Private Limited) vs. Assistant Commissioner (CT), Koyambedu Assessment Circle, Koyambedu, Chennai reported in  82 VST 457 (Mad)
(xi) K.Sales Agencies vs. Commissioner of Commercial Taxes in Karnataka, Gandhi Nagar, Bengaluru & Anr., reported in  86 VST 202 (Karn);
(xii) Ramaja yam @ Appu vs. The Inspector of Police., reported in 2016 (2) CTC 135;
(xiii) Vaga Enterprises vs. The Assistant Commissioner (CT), in W.P.No.24233 of 2016, dated 14.07.2016;
(xiv) M/s.Karthikeyan Foundation vs. CTO in P.Nos.26361 to 26366 of 2016, dated 28.07.2016; and
(xv) Coromandel Engineering Company Ltd., vs. The Assistant Commissioner (CT)., in W.P.Nos.33118 to 33126 of 2015, dated 18.08.2016
21. The learned Additional Government Pleader appearing for the respondent submitted that the reversal of ITC has been effected on the point of mismatch with the particulars as found in annexure II of the selling dealer with that of the annexure I of the purchasing dealer and this was being able to be effected on verification with the Commercial Taxes Department website. On such verification, it was found that the claim for ITC does not tally with the selling dealers’ annexure II of the monthly returns. Therefore, the said Input Tax Credit is liable to be reversed. It is submitted that mismatch can occur under the following contingencies:-
a) when the seller has failed to file the returns;
b) when the seller has filed the returns, but has failed to disclose all the transactions or a portion of the transaction sales;
c) when the seller furnishes incorrect details like incorrect TIN No., value, Tax, etc., as there is no validation in the earlier system;
d) when the seller has failed to remit the tax;
e) as per Section 19(11) of TNVAT Act 2006, the dealers are allowed to include purchases till the end of the financial year and on this count, mismatch occurs;
f) before June-2016 though the dealers are permitted to file revised returns only in manual form and not electronically and this fact may also result in mismatch;
g) when the purchasing dealer claims his transaction and ITC without making any purchases and generates the Bills only with the intention to reduce his output tax liability.
22. It is further submitted that under Section 2(n) of the Sale of Goods Act, four elements are required to constitute a valid sale, there must be a seller and a buyer; there must be an order and acceptance (invoices/mutual assent); there must be transfer of property (movement of goods from seller to buyer) and payment of consideration (a price in money, paid or promised to be paid). In cases where the purchasing dealer claims ITC, the above four elements have to be complied with and mere production of invoice alone will not entitle the purchasing dealer to avail the Input Tax Credit and in the absence of any such proof, the Input Tax Credit claim is liable to be reversed.
23. Section 2(33) defines “sale” and the simple meaning is that it is a contract involving transfer of possession and ownership of goods or property. Thus, the essential element of sale is transfer of goods or movement of goods from seller to buyer and the buyer must receive the goods physically and in the absence of the same, it can presume that it is pseudo transaction only for the purpose of availing Input Tax Credit. A sale is completed after delivery and delivery requires the mode of transfer of goods or movement of goods from one person to another and the purchaser has to prove the movement of goods from the seller to their end and this is a sine quo non for the purpose of claiming Input Tax Credit under Section 19(2) of the Act. It is further submitted that in the State of Tamil Nadu, number of dealers are increasing day by day and the conventional system was replaced by electronic system to simplify the process of filing return, obtaining forms, tracking the transactions, processing claims for refund etc. On account of bill trading, the Department initiated online filing of returns and tracking of the transactions and their continuity. It is very unfortunate that some of the dealers with intention to defraud the Government and enrich themselves on the guise of registered dealers on performing bill trading activities resulting in heavy loss with the state exchequer. It is further submitted that it is not possible for every Assessing Officer to communicate to the Assessing Officer at the other end, collect the particulars and verify whether transaction was reported or not and whether dealer who has claimed Input Tax Credit, is entitled to it or not. Therefore, to simplify the process and to curb revenue loss, online filing was implemented and the Assessing Officer will be able to verify the continuity of the transaction through the departmental web portal. Further, sales suppression can also be tracked, because of the on-line submission of the returns. The concept of ITC is based on the scheme that the tax collected at the first sale within the state must be remitted with the Government. From that point onwards, every subsequent sale is though taxable, the seller will have to remit the tax on only the value added to his purchase value, provided he had paid tax at the time of purchase. It is also pertinent to mention that the seller must be a registered dealer. If in case, the tax at the point of first sale within the state is not remitted to the government, then the subsequent purchasers, who make subsequent sale will not be entitled to ITC. Therefore, when the transaction is not reported by the seller, unless the purchasing dealer establishes to the satisfaction of the assessing authority that the tax at the time of purchase has been paid and that the tax collected at the point of first sale has been deposited with the government, the purchaser will not be entitled to ITC or proportionate Input Tax Credit. It is submitted that the followings Sections are relevant to this case as Section 22, Section 19(6), Section 22(4), Section 25, Section 27, Section 19(20), Section 29.
24. It is further submitted that on perusal of the return online, the mismatch is deducted, notice is issued to the purchasing dealer, who is called upon to indicate as to why the ITC could not be reversed, as the transaction reported by him, is not reported by the seller in his returns. The extract of the annexure II of the other end dealer is furnished. If the dealer produces material to show that the transactions had infact taken place, tax has been remitted with the Government, then the proposal would be dropped. The contention that the department has to proceed only against the selling dealer is not tenable for the simple reason that it is for the purchaser to prove that the transaction has infact taken place and payments including tax was remitted, as the burden of proof lies with the dealer under Section 17(2) of the TNVAT Act. On several occasions, the dealer turns out to be a bogus dealer and in certain cases, the seller denies the transaction and since the claim for Input Tax Credit is to be adjudicated at the end of the dealer, who claims it, the onus is on the dealer to prove the same. Reliance was placed on the decision of the Hon’ble Supreme Court in the case of The Tata Iron & Steel Co., Ltd., vs. The State of Bihar reported in AIR 1958 SC 452. From the law laid down by the Hon’ble Supreme Court in the said decision, the primary liability is on the seller to remit tax, he may even file a return remitting the tax, as if the same was collected from the purchaser, but a remittance to the Government is mandatory and under the VAT regime, if the purchaser claims ITC, he must prove that purchase tax has been levied, paid and remitted. The contention that the disclosure of statement, affidavits etc., is impermissible in terms of Section 85 of the Act is an incorrect submission, as the disclosure contemplated under the said provision is only to third parties not connected with the proceedings under the TNVAT Act. Therefore, it is submitted that the Assessing Officers have enough power to refer to the returns of the sellers to reverse the Input Tax Credit of the purchaser in case of failure to report or remit the taxes and each case has to be decided on its own facts and the Writ Petitions are not maintainable, as the assessees have an effective alternate remedy by filing appeal before Appellate Authority and the genuineness of the transaction can be verified by the Appellate Authority. On the above grounds, the learned Additional Government Pleader prays for dismissal of the Writ Petitions.
25. Heard the learned counsels appearing for the parties and perused the materials on record.
26. The revenue objects to the maintainability of the Writ Petitions on the ground that the Act provides for an effective and efficacious alternate remedy and they seek for a direction upon the dealers to avail the alternate remedy and dismiss the Writ Petitions as not maintainable. The settled legal position is that mere existence of alternate remedy would not automatically oust the jurisdiction of this Court under Article 226 of the Constitution of India. The cases have to be tested on the facts, which are available before Court and there can be no straight jacket formula. The petitioners’ contention in all these Writ Petitions is on the procedural aspect which has been adopted by the respective Assessing Officers for proposing to reverse the Input Tax Credit or ordering for such reversal. It is their submission that though the statute provides for an enquiry to be done, the Assessing Officer without embarking upon such an exercise have proceeded to reverse the Input Tax Credit, solely based upon the alleged mismatch of the details furnished in the annexures to the returns filed by the selling and purchasing dealer. It is therefore their submission that if a proper enquiry had been conducted, the purchasing dealer would have been in a position to establish the genuineness of the transaction and prove, show and demonstrate that the proposal to reverse ITC is not sustainable. Thus, in the absence of any such fair procedure being adopted, the impugned orders of assessments/notices are patently illegal and in violation of the principles of natural justice.
27. Another limb of the argument of the petitioners is that the purchasing dealer is required only to show that the tax due on the purchases have been paid by him in the manner prescribed and nothing more is required to be done and if the Department is of the view that the selling dealer has not reflected those transactions in his returns or if the selling dealer has not paid taxes, then the department has to proceed against the selling dealer and not against the purchasing dealer, as they have fulfilled the statutory requirement to be entitled to Input Tax Credit.
28. In the light of the challenge to the impugned proceedings on the above stated grounds, it is clear that the petitioners do not challenge the correctness of the individual assessment orders on facts, i.e., they do not seek for a hairsplitting exercise to be done in each and every case to verify transactions see whether the taxes have been paid by the purchasing dealer etc., and what is being questioned is the manner in which the impugned proceedings have been issued, the jurisdiction of the Assessing Officers to do so. Therefore, this Court is of the considered view that the Writ Petitions are maintainable and the Court can test whether the procedure adopted by the respondents prior to and while passing the impugned orders was fair and reasonable and whether its satisfy the statutory requirement. Hence, the preliminary objection raised by the Revenue regarding the maintainability of the Writ Petitions is rejected and it is held that these Writ Petitions are maintainable.
29. In the pre-amble to this order, this Court has referred to the various provisions of the Act, which provide for an enquiry. It may not be necessary to repeat all those provisions and it would suffice to take note of a few of the provision such as Sections 19(13), 22(4), 27(1) and 27(2). If the Assessing Officer is of the opinion that a registered dealer has acted with an intention to defraud the Government revenue, he would be entitled to deny the benefit of Input Tax Credit to such registered dealer after making such enquiry, as it thinks fit and giving a reasonable opportunity of being heard.
30. Similarly, in cases of deemed assessment under Section 22(4) of the Act, the Assessing Officer shall make such enquiry, as it may consider necessary and assess the dealer to the best of its Likewise under Section 27(1) and (2) where for any reason whole or any part of the turnover has escaped assessment, the Assessing Officer is entitled to make an assessment to the best of its judgment within the prescribed period after making such enquiry, as it considers necessary. Thus, the statute provides for a procedure to be adopted by the Assessing Officer, while denying the benefit of Input Tax Credit or while making an assessment on best of judgment basis or while making an assessment in respect of an escaped turnover. Thus, the moot question would be what is the procedure that is required to be adopted by the Assessing Officer for making such an enquiry. The statute does not provide the procedure to be adopted.
31. Having noticed that the statute does not prescribe the manner in which the Assessing Officers have to be proceeded the Principal Secretary/Commissioner of Commercial Taxes issued Circular No.10 of 2015, dated 01.04.2015. This circular came to be issued as the Commissioner received several complaints from dealers from various parts of the State regarding the manner of implementation of mismatch found in the other dealer annexures relating to sales and purchases. The Commissioner took note of the fact that mismatch reports have been generated by the Business Intelligent Unit, Interstate Investigation Cell, Enforcement Division and also by the Assessing Officers in the circles as a part of returns scrutiny or revision of assessment and that while such mismatch reports have been communicated in the form of notice to the dealer, the dealer wise mismatch projections alone are being enclosed and no detailed information provided. It was further observed that unless invoice wise data of mismatches are provided for each dealer, the dealer under analysis will not be able to come to a conclusion as to specific transactions for which, the tax is being demanded. Not providing invoice wise data of mismatch would tantamount to violation of principles of natural justice rendering the notices to be struck down by Appellate Forums and the High Courts. In this background, the following directions were issued:-
Office of the Principal Secretary/
Commissioner of Commercial Taxes
Ezhilagam, Chennai – 600005. Circular
Sub: Commercial Taxes Department – Finalization of assessments Representations received from large number of dealers citing violation of law and principles of natural justice – instructions – issued
Ref: Principal Secretary/Commissioner of Commercial Taxes Circular No.17/2014 (D3/8562/2014), dated 08.04.2014.
5. Therefore, it is ordered that all notices issued to the dealers must mandatorily enclose details of the facts referred to as the basis for the additional tax demand proposed in the notice as below.
(a) In case of return mismatch-based notices, invoice-wise data of mismatches for each demand must be mandatorily attached to the notice either in print form or as a CD or send as an email (in case it is voluminuous)
(b) The fact of enclosing such mismatch transaction data (Invoice level) shall be clearly mentioned entered in the notice and acknowledgment receipt obtained
(c) Personal hearing, if requested by the dealer shall be mandatorily ensured and a patient hearing provided to the dealer in order to understand the basis of his contentions and the same should be recorded in the assessment
(d) Orders passed thereafter must be speaking and must address every contention raised by the dealer in clear terms to ensure that the orders are fair and justified not only in appellate forum but also it is felt by the dealers, there by to which the dealer might not tend recourse.
(e) The receipt of the circular should be acknowledged.
32. In the impugned proceedings, the Assessing officers have either totally ignored the directions issued in the above circular or there has been partial compliance. Therefore, when procedure which is required to be followed, has been not adhered to that would suffice to set aside the impugned proceedings with direction for denova However, since the Court has embarked upon an exercise to examine as to what would be the just procedure and elaborate submissions having been made, proceeds to deal with the matter in further detail.
33. At this juncture, it may be useful to have a bird’s eye view of provision under the VAT Act of a few States in India. In the State of Maharastra Section 48 of the Maharastra VAT Act, 2002, deals with set off, refund etc. Subsection (2) states that no set off or refund shall be granted to any dealer in respect of any purchase made, unless the claimant dealer produces a tax invoice containing a certificate that the registration certificate of the selling dealer was in force on the date of sale by him and the due tax, if any, payable on the sale has been paid or shall be paid and unless such certificate is signed by the selling dealer or a person duly authorised by him. Sub-section (5) of Section 48 declares that in no case the amount of set off or refund or the purchase of the goods shall exceed the amount of tax in respect of the same goods, actually paid. Thus, Section 48(2) of Maharastra VAT Act mandates that the purchasing dealer should produce a tax invoice and a certificate from the selling dealer that tax due has been paid/shall be paid and he is a registered dealer on the date of sale to be enable to claim set off/Input Tax Credit. The Constitution validity of Section 48(5) was upheld in the case of Mahalaxmi Cotton Ginning Pressing and Oil Industries vs. State of Maharastra & Ors., reported in (2012) 51 VST 1 (Bombay).
34. . Section 11(7A) of the Gujarat VAT Act, 2003, states that notwithstanding anything contained in Section 11, in no case, the amount of tax credit on any purchase of goods shall exceed the amount of tax in respect of the same goods actually paid, if any under the Act or any earlier law, into the Government Treasury. The challenge to the validity of Section 11(7A) of the Gujarat VAT Act is pending before the Gujarat High Court.
35. Section 9(2)(g) of the Delhi VAT Act, 2004, inserted with effect from 01.04.2010, states that no tax credit shall be allowed to the dealers unless the tax paid by the purchasing dealer has been actually deposited by the selling dealer with the Government or has been lawfully adjusted against output tax liability and correctly reflected in the returns filed for the respective tax period.
In Shanti Kiran India (P) Ltd., vs. Commercial Trade and Tax Department, reported in (2013) 57 VST 405, Delhi, the Hon’ble Division Bench while distinguishing Mahalaxmi Cotton Ginning Pressing and Oil Industries (supra), held that in the absence of mechanism by way of which the purchasing dealer can verify, if the selling dealer has deposited tax, input tax cannot be denied to the purchasing dealer. To be noted that under the Delhi VAT Act, circulars have been issued for cross verification of the seller/purchaser returns, after the insertion of Section 9(2)(g) with effect from 01.04.2010.
36. In Gheru Lal Bal Chand vs. State of Haryana reported in  45 VST 195, (P&H) the Hon’ble Division Bench of the Punjab & Haryana held that while genuineness of a certificate and a declaration may be examined by a taxing authority, the onus cannot be placed on the assessee to establish the correctness and truthfulness of the statements recorded therein. The Department must allow the claims once proper declaration is furnished and the department can proceed against the defaulter, when the genuineness of the declaration is not in question. The Court distinguished the decision in the case of Mahalaxmi Cotton Ginning Pressing and Oil Industries (supra).
37. Under the Delhi VAT Act, 2004, several circulars have been issued and Circular No.18 of 2014-15, would be relevant, as it pertains to disposal of objections relating to the mismatch of annexures. By the said circular a specialized wing called as Special Objection Hearing Authorities (SOHA) has been constituted and those officers will dispose of the objection through computer system developed for the said purpose. Thus, it appears that a centralised mechanism had been created and the officers who are posted in the said wing have been named in the circular. To further streamline the process, circular No.21 of 2015-16, has been issued, dated 01.09.2015, to mitigate the difficulties faced while matching the transactions and it has been decided that matched transaction of a tax period would be hard-coded meaning thereby that after the filing of the return, such transactions would be unaffected by revision of return and this way the buyer would not be burden with unnecessary mismatches, caused due to revision of return by selling dealer in respect of already matched entries. In cases where both buying and selling dealer have committed mistake in reporting the transaction, it was ordered that buyer can approach the Assessing Authority of his ward with the communication to the selling dealer admitting the mistake and this will facilitate the buyer, who wants to revise the annexures to reopen the particular hard-coded transactions. The Assessing Authority after checking and verifying the transactions would take a decision for allowing both the dealers to revise the respective entries.
38. Thus, it appears that the problems on account of the mismatch is a Pan India problem and to my mind, the procedure adopted under the Delhi VAT Act regime and the circulars issued under the said Act, appear to be a more transparent system and assessee friendly. This can be borne in mind by the Revenue for necessary follow up action.
39. While on this issue, it is beneficial to refer to the decision of the Hon’ble Division Bench in the case of Deputy Commissioner of Commercial Taxes vs. N.Subramaniam Chettiyar reported in (1997) 40 STC 434 (Madras). The Hon’ble Division Bench was testing the correctness of an order passed by the Sales Tax Appellate Tribunal. The dealer’s assessment was reopened, pursuant to discovery of certain documents and one of the items included a revision of assessment said to be indicated in the statement filed for the purpose of the case. The assessee succeeded before the Tribunal in Second Appeal, which deleted the revision of assessment stating that there is nothing to show that it represented turnover of sale or purchases. While testing the correctness of the decision, the Hon’ble Division Bench pointed out that if there had been any intrinsic evidence to show, however limited it may be, it seems themselves that the transaction related to sales or purchases certainly burden was on the dealer thereafter to establish that they did not relate to the transactions of the sales or purchases. Once, it is found, as a fact by the Tribunal that there was no inkling of evidence to show that the transactions related to sales or purchases, it was certainly for the department which relies on the slips for including the amounts mentioned therein in the taxable turnover to establish that the said transactions evidenced by the slips related to sales or purchases. Thus, in terms of law laid down by the Hon’ble Division Bench, the burden of proof would be on the Department, if the Department is of the view that there is material to show that there was a sales suppression or a purchase omission.
40. The Delhi High Court in the case of Shanti Kiran India Pvt Ltd., (supra), while considering whether the VAT Authorities in the said case, were justified in disallowing the Input Tax Credit claimed by the appellant therein, purchasing dealer, held:-
16. This Court is of the opinion that in the absence of any mechanism enabling a purchasing dealer to verify if the selling dealer deposited tax, for the period in question, and in the absence of notification in a manner that can be ascertained by men in business that a dealer’s registration is cancelled (as has happened in this case) the benefit of input credit, under Section 9(1) cannot be denied. Furthermore, this Court notices that the cancellation of both selling dealers’ registration occurred after the transactions with the appellant. The VAT authorities observed that the scanty amounts deposited by the selling dealers was incommensurate with the transactions recorded, and straightaway proceeded to hold that they colluded with the appellant. Such a priori conclusions are based on no material, or without inquiry, and accordingly unworthy of acceptance.
In view of the above discussion and findings, this Court answers the substantial question framed in favour of the assessee, and against the revenue. It is held that the appellant is entitled to the credit claimed, which shall be worked out and given, after due verification, in accordance with law, within two months from today.
41. In Steel Authority of India Ltd.,(supra), the Tax Authority held that the petitioner therein did not charge tax from the purchasing dealer and the liability was cast upon the petitioner on the ground that the purchasing dealer was not eligible to issue the declaration or violated the conditions of declaration. While allowing the said Writ Petition, the Division Bench of Madhya Pradesh High Court was held that unless there was something on the face of it to suggest to the seller that the declaration was not valid or the person submitting the declaration was not entitled to give such declaration, the seller could not be expected to get the certificate or the eligibility investigated. In fact Section 21 of the 1994 Act casts liability upon the purchasing dealer, therefore, the order casting liability on the seller was set aside.
42. This Court in the case of Coromandel Engineering Company Ltd., vs. The Assistant Commissioner (CT) in W.P.Nos.33118 to 33126 of 2015, dated 18.08.2016 considered the circular issued by the Commissioner, dated 01.04.2015, and held as follows:-
7. In terms of the above circular, in cases of mismatch invoice-wise data for mismatch to each demand must be mandatorily attached or to the notice either in print form or as a CD or send as email (in case it is voluminous). Further, the fact of enclosing such mismatch transaction date (Invoice level) shall be clearly mentioned entered in the notice and acknowledgment receipt obtained. Further, personal hearing has been held to be mandatorily granted and the Assessing Officer was directed to give a patient hearing to the dealer in order to understand the basis of his contentions and the same should be recorded in the assessment proceedings. Further, the circular prescribes that the order of assessment must be a speaking order and must address every contention raised by the dealer in clear terms to ensure that the orders are fair and justified not only in appellate forum but also it is felt by the dealers there by to which the dealer might not tend recourse.
43. The Hon’ble Supreme Court in the case of State of Kerala vs. K.T.Shaduli Yusuff reported in  39 STC 478 (SC), while considering the correctness of the best of judgment assessment under Section 17(3) of the Kerala General Sales Tax Act, 1963, held as follows:-
Now, where no return has been submitted by the assessee, one of the two conditions necessary for the applicability of section 17, subsection (3) being satisfied, the Sales Tax Officer can, after making such inquiry as he may consider necessary and after taking into account all relevant materials gathered by him, proceed to make the best judgment assessment and in such a case, he would be bound under the proviso to give a reasonable opportunity of being heard to the assessee. But in the other case, where a return has been submitted by the assessee, the Sales Tax Officer would first have to satisfy himself that the return is incorrect or incomplete before he can proceed to make the best judgment assessment. The decision making process in such a case would really be in two stages, though the in- quiry may be continuous and uninterrupted: the first stage would be the reaching of satisfaction by the Sales Tax Officer that the return is incorrect or incomplete and the second stage would be. the making of the best judgment assessment.
44. In State of Tamil Nadu vs. A.N.S.Guptha & Sons, reported in  38 VST 45 (Mad), the Hon’ble Division Bench of this Court, while considering the scope of Sections 54, 54A & 55 of the TNGST Act, 1959, held thus:-
A reading of section 54, 54A and 55 of the Act would clearly indicate that the authority is vested with all the powers including invoking of the provisions of Code of Civil Procedure in summoning the witnesses; compelling production of documents and also examining and cross-examining the parties in this regard by the assessee and above all these, the assessing officer is vested with a special power to collect or get information under Section 54A of the Act. These two sections are clearly intended for utilising for the benefit of both the assessee and the Department to gather evidence or information from third parties, which will not otherwise be available for the purpose of assessment. The power under these sections (54, 54A and 55) may be used to establish, obtain accounts and other documents in the custody of other Departments like the income-tax Department or other Departments and above all these things, further power is also granted to the authorities concerned, to rectify any error apparent on the face of the record.
It is also pertinent to point out that the Legislature has thought it fit correctly to include in section 54 of the Act that an assessing authority or Commercial Tax Officer or any officer of the Commercial Tax Department not lower in the rank of Commercial Tax Officer for the purpose of this Act have all powers conferred on a court by the Code of Civil Procedure. Such a power was granted and given by the Legislature only with the intention that the authority, when deciding the factor, whether a return filed by the assessee is correct and to decide whether it is correct, all the necessary ingredients to be made available and which can be brought forward by the authority to ultimately to come to a correct conclusion that the assessment is in fact valid under law. Such wide power has been granted by the Legislature, so that such finding of fact by the first authority or latter, thus accepted or reviewed by the appellate authorities, who are also empowered to seek such further information so that, ultimately the facts are established beyond any reasonable doubt. When such is the intention of the Legislature in granting these powers even to the assessing authority, the assessing authority should exercise that power with utmost confidence with all the trappings of the court and decide the matter in the manner known to law. It is not correct to say or simply brush aside that such evidences, cross-examinations, production of documents or summoning the witnesses at the threshold, which can avoid all these multiplicity of proceedings, if such a simple exercise has been completed by the assessing authority himself without saying that the authority cannot act like a court. Therefore, the Legislature had given all these powers to all the fact-finding authorities that at least the assessee and the Revenue should be confident that every material is available before coming to a final conclusion. Hence, as held by the Supreme Court, we can only say that the assessing authority should be more cautious and give ample opportunity to the assessee so that the final decision is arrived at, at the earliest point of time.
45. The role of the Assessing Officer was considered by this Court in the case of Hindustan Unilever Limited vs. The Deputy Commissioner (CT)-II & Anr., in W.P.Nos.28818 & 28819 of 2014, dated 29.08.2016, and referring to the decision of the Hon’ble Supreme Court, it was held as follows:-
17. Presumably, this had led the first respondent to use the expression that the enforcement proposal has been received by him for implementation while issuing show cause notice dated 14.12.2010. If enforcement proposals are received for implementation by the Assessing Officer, then the purpose of issuing a show cause notice itself is lost and the powers of the Assessing Officer would stand reduced to that of the Executing Officer, when the statute prescribes a different duty to be done by him. While on this issue, it would be beneficial to refer to the role of the Assessing Officer as observed by the Hon’ble Supreme Court in the case of C. Velukutty (supra), that he must not act dishonestly or vindictively or capriciously, because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must, their Lordships think, be able to take into consideration local knowledge and repute in regard to the assessee’s circumstances, and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper estimate; and though there must necessarily be guess-work in the matter, it must be honest guess-work. In that sense, too, the assessment must be to some extent arbitrary. Explaining what is best of his judgment, the Hon’ble Supreme Court pointed out that:-
Judgment is a faculty to decide matters with wisdom truly and legally judgment does not depend upon the arbitrary caprice of a judge, but on settled and invariable principles of justice. Though there is an element of guess-work in a best judgment assessment. It shall not be a wild one, but shall have a reasonable nexus to the available material and the circumstances of each case. Though sub-section (2) of section 12 of the Act provides for a summary method because of the default of the assessee, it does not enable the assessing authority to function capriciously without regard for the available material.
46. Various provisions of the TNVAT Act had been referred to demonstrate that the role of a Assessing Officer either while making an assessment on best of judgment or while denying input tax credit, he shall do so after making such enquiry, as he thinks fit or as he may consider necessary. Thus, the procedure to be followed by the Assessing Officer though not adumbrated under the statute, he is bound to act honestly without giving room for any arbitrariness and must exercise judgment in the matter. In fact, this is a pre-requisite while making even a best judgment assessment as pointed out by the Hon’ble Supreme Court in the case of State Of Kerala vs C.Velukutty reported in  60 ITR 239 SC. If such being the position of law, the responsibility that lies with the Assessing Officer is far more greater, when the Assessing Officer seeks to reopen a completed assessment based upon returns filed by the other end dealer. If the procedure to be adopted is to be taken as a mechanical one, then it would lead to an anomalous situation, where the Assessing Officers can reopen assessments, reverse input tax credit at the stroke of a pen, merely because, there is mismatch between the returns filed by the purchasing dealer with that of the selling dealer. The various contingencies which give room for mismatch has been set out earlier. Therefore, unless a thorough enquiry is conducted with due opportunity to the dealers at both ends, the Assessing Officers would not be justified in reversing the input tax credit or taking any other cohesive action solely on the ground of mismatch. However, this principle does not mean that the Assessing Officer has no jurisdiction to examine the correctness of the returns after a deemed assessment has taken place in terms of Section 22(2) of the Act. The scheme of the Act, more particularly, Section 22 needs to be borne in mind. In terms of Section 22(1), the assessment in respect of the dealer shall be on the basis of the return relating to his turnover. The procedure under Section 22 is a simplified procedure when compared to the procedure under the TNGST Act in Section 12 therein. Sub-section (2) of Section 22 states that the Assessing Authority shall accept the returns submitted for the year by the dealer if the returns are accompanied by proof of payment of tax and documents prescribed and on such acceptance, the Assessing Authority shall pass an assessment order. Thus, when a return filed by a dealer is accepted and an order is passed, then the Assessing Authority can only revise the return and this can be done under Sections 25 and 27 of the Act or even under Section 28. Therefore, the sanctity attached to the return filed by the dealer accompanied by proof of payment of tax and documents prescribed is far more greater, than under the TNGST regime.
47. As pointed out earlier, a deemed assessment, as the assessment under Section 22(2) of the Act is popularly called, is as good as an assessment made after scrutiny. In the absence of the Assessing Authority exercising its power either under Section 25, 27 or 28 or as a result of order in appeal or revision or by way of rectification, the return attains a finality. In such circumstances, the Department is of a prima facie view that the transaction disclosed by the purchasing dealer in the annexures accompanying his return is incorrect or does not match with the transactions reported by the selling dealer in the annexure appended to his return, this may be a starting point for the Assessing Officer to embark upon an enquiry. However, in these batch of cases all that the Assessing Officers have done is to issue show cause notices to the dealers registered in his jurisdiction referring to the information uploaded in the web portal of the Department and calling upon the purchasing dealer to prove the negative. The department having accepted the return filed by the dealer, received the tax as computed by the dealer, if proposes to revise or reopen of the return, the initial burden is on the Department to establish that there is a case for reopening.
48. The settled legal principle is that change of opinion or change of officer is no ground to reopen an assessment. The reasons for reopening should not only be explicitly stated, but should be duly supported with adequate information. Invariably in all cases, the Assessing Officers merely state that on going through the details in the official website, it is seen that there is mismatch in transaction and the dealer is called upon to explain as to why the input tax credit availed by him, should not be directed to be reversed. The dealer is at loss to understand as to the basis of such a proposal made in the show cause notice. The show cause notice is bereft of particulars at the time does not even disclose the name, TIN No of the other end dealer, the invoice numbers are not furnished and in certain cases, a screen short of the web portal image is copied in the show cause notice. This Court has come across cases where allegations of mismatch were made against dealers, who are registered with a large tax payer unit and in many cases, the other end dealer is a public sector undertaking. Therefore, the moot question would be, should not the Department embark upon a proper enquiry before confronting the dealer and calling upon him to explain. A show cause notice cannot be effective, unless and until it discloses full particulars, the noticee is expected to know as to what is the case against him, which he has to respond. In certain cases, details furnished are inadequate.
49. The learned Additional Government Pleader submitted that in the recent past, the Assessing Officers have taken good care to furnish adequate information to the dealer to enable them to respond to the show cause notices. It may be true that in certain cases, covered in these batch, the show cause notices might have contained details of the invoice numbers., TIN nos of the dealer, commodity code etc. However, in the considered view of this Court that even prior to issuance of the show cause notices, the Department has to conduct an enquiry into the matter. It is not always the case, where the selling dealer is at fault and in certain cases, the purchasing dealer could be at fault and in certain other cases both may not be at fault and it may be an inadvertent error. There is a yet another category of cases, where a mismatch occurs on account of when the dealer has reported his turnover. There may be cases of unfructified transactions, cases of loss of goods due to various force major conditions and such other matters. Therefore, every case of mismatch cannot give rise to a cause of action to revise or reopen an assessment.
50. As pointed out earlier, in cases where mismatch occurs, it is a starting point for an enquiry. The first phase of enquiry should be at the Department level, as in most cases, both the dealers are registered in different assessment circles. The Court has come across cases, where such mechanically drafted show cause notices have been sent by Assessing Officers without embarking upon any enquiry, even though the other end dealer is also registered within his jurisdiction. Thus, when the Assessing Officer has data to show that the dealers registered with him, whose returns have been accepted when compared to the other end dealer does not match, then the Assessing Officer is first required to enquire with the Assessing Officer of the other end dealer to make verifications as to whether the mismatch could have occurred due to any one of the factors, which may not be due to the deliberate default of the dealer, satisfy himself that and after such verification, it prima facie appears that the returns to be revised, at that stage, the Assessing Officer would be entitled to issue a show cause notice containing full particulars and clearly stating as to what was the scope of enquiry done by him and why he is of the prima facie view that the dealer has failed to file proper returns or suppressed information. It is only then the dealer would be in a position to putforth his defence and demonstrate as to how this prima facie view is without any basis.
51. In Mahalaxmi Cotton Ginning Pressing and Oil Industries (supra), the Hon’ble Division Bench of the Bombay High Court was considering the Constitutional validity of Section 48(5) of the MVAT Act, 2002. Section 48 of the said Act deals with set off, refund, etc., Section 48(5) states that in no case, the amount of set off or refund on any purchase of goods shall exceed the amount of tax in respect of the same goods, actually paid, if any under the Act except the extent purchase tax is payable by the claimant dealer on the purchase of the said goods effected by him. One of the contentions, which is identical to the contention raised in these Writ Petitions is that the claimant dealer in order to claim a set-off is required to produce an original tax invoice, is required to maintain accounts reflecting the date of purchase, name of the selling dealer and a registration certificate, number of the tax invoice. purchase price of the goods and the tax, if any, recovered by the selling dealer and once these conditions are fulfilled, the dealer would be entitled to the benefit of a set-off irrespective of whether the selling dealer has deposited the tax collected in the Treasury. Further, the Act does not have any machinery for the purchaser to ascertain whether the seller has actually paid VAT and it casts a burden on the purchasing dealer, which is impossible to perform since the Act and the Rules do not empower the purchasing dealer to seek any document from the vendor other than the tax invoice for the purchases made. Therefore, to deny benefit of set-off for the failure of the selling dealer to deposit the tax would be to impose a condition which is impossible to perform. The selling dealers are registered in the State and collect tax as agents for the State and the State has statutory powers to recover tax from a defaulting dealer by taking recourse to the coercive arm of the law, including by way of assessment, recovery, attachment and prosecution.
52. The State contended that set-off is available in respect of tax paid; tax paid means tax in actual fact paid. Set-off is a concession which has been granted by the State Legislature in order to prevent a cascading effect and while granting such concession, the Legislature is entitled to prescribe the condition of the nature provided in Section 48(5) and but for the said provision, there would have been no right to a set-off and therefore, set-off can be availed only where the tax is paid that there is no right to a set-off independent of the provisions of Section 48, the grant of a set-off is a matter of policy introduced to protect the ultimate consumer against a cascading effect of taxes. The Hon’ble Division Bench while testing the correctness of the submission pointed out as follows:-
16. As an economic concept, translated into State legislation VAT subserves two important fiscal goals. First a system of taxation based on VAT obviates a cascading effect of tax burdens. This is achieved inter alia by the grant of a set off for input taxation and in respect of taxes paid on previous purchases. Second the VAT regime is also, and no less important, an instrument in promoting compliance and for broad basing the tax base. Both aspects of the regime have to be harmonized. This aspect merits importance because while interpreting the provisions of legislation, it is necessary to bring about a harmony that would preserve the balance between the need on the one hand of ensuring against a cascading tax burden and on the other hand of promoting regulatory compliance.
17.17. Certain fundamental principles in regard to sales tax legislation emerge from Constitution Bench decisions of the Supreme Court. In Tata Iron and Steel Company v. State of Bihar,1 a Constitution Bench of the Supreme Court, while considering the provisions of the Bihar Sales Tax Act, 1947 observed that the primary liability to pay sales tax, so far as the State is concerned, is on the seller. Though sales tax legislation 1 AIR 1958 SC 452 VBC 25/71 wp33.12.resv may permit the seller who is a registered dealer to collect the sales tax as a tax from the purchaser, that as the Supreme Court observed, does not do away with the primary liability of the seller to pay the sales tax. The Supreme Court also held that the registered dealer need not, if he so pleases or chooses, collect the tax from the purchaser and in some cases as a result of competitive conditions the dealer may find it profitable not to do so.
26…. The legislative intent underlying the previous provision was to give effect to the legislative mandate that a set off should be granted out of tax received.
27. The legislature did not contemplate the grant of a set off without any tax being received into the Government Treasury. The grant of a set off without the receipt of tax into the treasury would result in a loss of revenue, a consequence which the provision for set off does not contemplate.
28. The purpose of a set off is to obviate a cascading effect of the tax burden on the ultimate This element of legislative policy is to be balanced with the need for securing tax compliance and ensuring against a loss of legitimate revenue owing to Government. The balance between the two considerations is drawn by ensuring that while a set off is available in respect of the purchase tax paid on the same goods at an earlier stage, the set off is based on the actual payment of tax into the government treasury. Even considering the legislative history of the erstwhile VBC 36/71 wp33. 12.resv provisions contained in Section 42(3) of the Bombay Sales Tax Act, 1959, it is evident that the legislative intent was not only to confine it to a case such as Century Plastics. The plain language of Section 48(5) of the MVAT Act, 2002, cannot be controlled by the Statement of objects and reasons accompanying the introduction of a Bill pertaining to a provision contained in an earlier legislation.
But we have also traced the legislative history of the earlier provision as well (since it was relied upon by the Petitioner) in order to establish the fundamental precept that a set off arises out of the tax which has been deposited in the Government Treasury.
29. A set off constitutes a concession granted by the legislature. In the absence of a set off under Section 48(5), the selling dealer would be liable under the charging provision of the MVAT Act, 2002 to pay tax on the sale consideration. There is no independent right to a set off apart from Section 48. The entitlement to a set off is created by the taxing statute and the terms on which a set off is granted by the legislation must be strictly observed.
30. In Godrej & Boyce Mfg. Co. Pvt. Ltd. vs. Commissioner of Sales Tax,9 the Supreme Court while considering the provisions for the grant of a set off under Rule 41(9) of the Bombay Sales Tax Rules, 1959, explained the rationale for a set off as follows:
The judgment of the Supreme Court enunciates that (i) The dealer has no legal right to claim a set off of the purchase tax paid and of input credit from the sales tax payable on the sale of goods manufactured by him; (ii) The entitlement to a set off flows only out of the rules; (iii) The grant of a set off is in the nature of a concession; and (iv) It is open to the legislature while granting the concession to restrict or curtail the extent of the entitlement as a condition attaching to the concession.
32. In India Agencies (Regd.) vs. Additional Commissioner of Commercial Taxes, Bangalore [2005[ 139 STC 329, the Supreme Court observed that the condition on which the concession was granted was mandatory and a liberal view could 11 (2005) 2 SCC 129 VBC 40/71 wp33.12.resv not be taken merely on the ground that there was hardship to the dealer. Issues of hardship, ruled the Supreme Court, are for the legislature to consider.
53. The position under the TNVAT Act is no different after the recent amendment by Tamil Nadu Act, 2015, with effect from 01.2016, by which the words “tax paid or payable” occurring in Section 19(1) was substituted with the word “tax paid” and a proviso was inserted under sub-section (i) of Section 19. As mentioned above, all these cases pertained to orders passed prior to the amendment i.e., before 29.01.2016. It was argued on behalf of the petitioners that the expression used in Section 19(1) of the TNVAT Act is tax paid or payable under the Act and if the purchasing dealer is able to produce proof to show payment of tax, then nothing more is required to be done by him and he is entitled to credit as a matter of right. In the considered view of this Court, the amendment to the Act brought about by Act 13 of 2015 with effect from 29.01.2016, does not cause much impact on the controversy, which is being dealt with in these Writ Petitions, as the benefit of credit itself is a creation of the statute.
54. As explained by the Hon’ble Supreme Court, it is a concession extended to the dealer and a person, who claims such a concession has to establish that he is entitled to such concession. Such provision providing for such concession should be construed strictly, thus but for this provision under the statute, the dealer does not acquire a legal right to claim credit of the purchase tax paid and of input credit from the sales tax payable on the sale of goods manufactured by him. The entitlement to such credit flows from the statute. Therefore, the conditions to be fulfilled by the dealer to be entitled to such a credit, which is statutory in character, is mandatory. Therefore, it will be too broad principle to state that all that the dealer is required to produce along with his return, proof of payment of tax and documents required to be filed along with return and would be automatically entitled to credit. This is so because the object of introducing such mechanism permitting credit is on one hand to ensure against cascading tax burden and on the other hand of promoting regulatory compliance. Thus, if a concession so granted by the statute is shown to have been availed, furnishing incorrect details or adopting certain other dubious methods, the same requires to be dealt with under the statute and such unintended benefit has to be reversed.
55. Admittedly, in the instant case, there is no challenge to the statutory provisions and the complaint of all the dealer is largely on the procedure adopted by the respective Assessing Officers. The Principal Secretary and Commissioner of Commercial Taxes was conscious of the problems faced by the dealers as complaints were received which had lead to issuance of a circular as early as on 01.04.2015. The directions contained in the said circular are very pointed direction, but it is sad to note that the circular remains only on paper and seldom Assessing Officers follow the circular resulting in several assessments being set aside by the Court and remanded for denova consideration. Thus, this Court is fully convinced that the procedure adopted by the respondent, Assessing Officers in all these cases are half baked attempts, which have not yielded results and these cases are before this Court or before the Appellate Authorities and all that the Assessing Officers can record is that they have issued show cause notices or passed orders reversing the Input Tax Credit with no appreciable impact on the revenue collection.
56. The procedure adopted under the Maharastra VAT Act appears to be a more reasonable procedure, the Rules have been so designed to constitute independent authorities, who will in exercise jurisdiction to dispose of the objections etc. However, this Court cannot legislate nor direct the State to legislate in a particular passion and it is for the state to bring about and appropriate rules and set procedures so that when discrepancy is noted while comparing the return with that of the figures available with the Department in their web portal, there should be an exercise carried out by the department within its level before calling upon the dealer to show cause. This can be achieved only if there is a centralised mechanism and if the present practice is allowed to prevail, it would only result in multiplicity of proceedings with more number of cases pending before the Courts and Appellate forums, thus jeopardizing the interest of revenue. Therefore, it is high time the Principal Secretary and Commissioner of Commercial Taxes in consultation with him officers lays out a detailed procedure as to how to take forward cases of mismatch, evolve a central mechanism, which can go into these aspect and furnish details in full form to the respective Assessing Officers, who can decide for themselves as to whether there is a case made out to call upon their dealer to explain. If this centralized mechanism is not put in place exclusively for such purpose, it would result in notices and orders being issued by the respective Assessing Officers without even the knowledge of the Assessing Officer of the other end dealer resultantly no action being taken against other end dealer, assuming, he is at fault. Therefore, it is high time the Department wakes up and stops the one way approach and examine the matter in a holistic manner so that the defaulting dealer is brought to books.
57. Hence, for all the above reasons, all the Writ Petitions are allowed and the notices/orders either original or appellate or revisional are set aside and the matters are remanded to the respective Assessing Officers, to undertake a fresh exercise by conducting a thorough enquiry in consultation with the Assessing Officers of the other end dealer for which purpose the Commissioner of Commercial Taxes shall empower the Assessing Officers to seek information from other circles as well and in the mean time to evolve a centralized mechanism to exclusively deal with the cases of mismatch and while doing so, the Principal Commissioner shall take note of the procedures adopted by the other States, more particularly, in Maharastra, Gujarat and Delhi and if any statutory amendments have to be made, make appropriate recommendations to the State Government, and till then to devise a procedure which is fair and reasonable and afford an opportunity to the dealer to putforth his case and establish that he is entitled to the concession/set-off availed.
58. Since these Writ Petitions have been allowed and the impugned orders have been set aside and the matters have been remanded for fresh consideration the petitioners/dealers are not entitled to raise the plea of limitation, when fresh show cause notices are issued and they are directed to submit their explanation to enable the Assessing Officers to adjudicate their case. The Court places on record the valuable assistance of Ms.R.Charulatha Advocate of M/s.Lakshmikumaran and Sridharan Attorneys. Consequently, connected Miscellaneous Petitions are closed. No costs.