Denial to grant Input
tax credit on Flimsy Grounds by the VAT Authorities without following the
settled law laid down by Hon’ble Supreme Court of India and by the High Courts
Every
Registered Dealer is the agent of Department of Excise & Taxation as while
granting the registration, every registered dealer is authorized to collect the
tax while selling the goods to the purchasers to make the accountability
different types of annexures alongwith return are prescribed beside the maintenance
of account books but unfortunately, now a days, VAT Authorities has failed to
understand the basic spirit of Value Addition Tax as well as the concept of
registration and cancellation.
As
Registration is birth and cancellation is death so both are having their own role
in the tax fields. Here it is pertinent to point out that while exercising both
the powers which deals with grant of registration and cancellation must be exercised
with extra cautious. As the scheme of the VAT Act clearly classifies the liability of seller and purchaser but now
a days VAT Authorities are disallowing the input tax credit mainly on the below
mentioned grounds:
(a) Purchase
from cancelled dealer
(b) Paper
Transactions
(c) Purchase
from bogus dealer
(d) Purchase
from the sellers who has not deposited the tax
(e) Purchase
from the sellers who has purchased the goods from the persons whose
registration stands cancelled
That before arriving any conclusion
the authority must apply their mind as they are enjoying the vast powers one of
them is cross examination but number of times inspite of repeated requests, the
authorities are denying the same although it is one of the effectious mode to
arrive at the truth as well settled by the Hon’ble Supreme Court of India and
by the different High Courts while deciding the below mentioned case:
1)
39-STC Page-478
2)
30-STC Page-211
3)
5-PHT Page-350
4)
10-PHT Page-263
5)
1-PHT Page- 79 (M/s. Devi Das Gopal Kishan Vs.
State of Punjab)
6)
Swadeshi Polytex Ltd vs Collector of
Central Excise, Meerut 2000 (122) ELT 641 has held at para 4 of the judgement
as under: “In the facts and circumstances of the present case, we consider that
this contention is well-founded. When the collector has to decide afresh, he
should, if he intends to rely upon the statement of any such person, give an
opportunity of cross-examination to the appellant.”
Flimsy
Grounds on the basis of which VAT Authorities are disallowing the claims of
genuine purchasers
(a)
Purchase
from cancelled dealer
Inspite
of the settled law laid down by the Hon’ble Punjab and Haryana High Court delivered
in the case of Arjan Radio House Vs. Assessing Authority reported in 31-STC-49
1973 on the Issue of cancelled dealer Authorities working under the Act failed
to appreciate the same why so reason best known to them.
The
Judgement throws the flood of light on the concept of credit from the purchases
made from cancelled dealer as the Hon’ble Judges has observed that the
knowledge regarding cancellation of TIN cannot in law be attributed to the
purchasing taxable person like the appellant till the cancellation is published
as provided in rule 13(6) of the Punjab VAT Act, 2005.
This
issue was also clinched by the Delhi High Court while deciding the case of CST
Vs. Hari Om Oil Co. (Delhi High Court 87-STC-493) and by different other High
Courts like Bombay High Court while deciding the case of Suresh Trading Company
Vs State of Maharashtra which was later on confirmed by the Hon’ble Supreme
Court of India while deciding the case of State Of Maharashtra vs Suresh
Trading Company on 7 February, 1996
1996
(3) SCALE 536, (1997) 11 SCC 378, 1998 109 STC 439 SC
It is equally well settled
that registration cannot be cancelled retrospectively. Your kind consideration is invited to the
judgments reported as ADM Stores Vs. Commissioner of Sales Tax 18-STC-305 and
M.C. Aggarwal Vs. Sales Tax Officer 64-STC-298.
That
inspite of settled law the authorities working under the Act are not following
the same even the provision of the Act are
followed whereas it is well settled by the Hon’ble Supreme Court of India that the
authorities working are bound by the provisions of the Act. Kind attention is invited Reliance is placed
upon Supreme Court of India Ruling in the case of CCC Vs. Doaba Cooperative
Mills 1198 (37) ELT –478 wherein, it has been that: -
“ Authorities
functioning under an Act bound by its provisions”
(b)
Paper Transaction
It
is astonishing that department is also rejected the claim of ITC on the ground
that goods were not physical received by the purchaser and only bill was raised
without appreciating that physical delivery is the basic ingredient to complete
sale and in the absence of same the figure cannot be added in GTO if still
department want to disallow the credit on purchases then automatically output
tax is to be reduced. It is equally well settled by the Hon’ble Punjab and
Haryana High Court while deciding the case Pahar Chand & Sons vs State of
Punjab 30 STC 211. Even in certain circumstances where pre- intimation in the
shape of E-Trips were given to the department in those cases too the department
is raising the eyebrows by quoting that it is a case of paper transaction.
(c)Purchase from bogus
dealer
That in number of cases department
is rejecting the claim on the ground that seller is a bogus dealer but no
action is usually taken against the seller and the claim of ITC of purchaser is
disallowed without appreciating that the liability of seller cannot be shifted
to buyer. Even this type of approach is burdening the purchaser as well as
seller which ultimately resulted in excess recovery then the actual loss
whereas it is well settled that assessee may be bad but assessing authority
should not
(d) Purchase from the
sellers who has not deposited the tax
That every seller is an agent of
government who is to collect the tax and under an obligation to deposit the
same but unfortunately the authorities are recovering their tax from the
purchasers by disallowing their ITC inspite of the fact it is not permissible
as per the scheme of the Act as the primary liability cannot be shifted as
settled by the Hon’ble Supreme Court of India
Star
judgments of the Hon’ble Supreme Court and Hon’ble High Court
Kind attention is invited towards
the judgement of the Hon’ble Madras High Court in the case of the state of
Tamil Nadu Vs. Raichael Chacko Reported in 59 STC 144, in which it was observed
as under:
“The assessee purchased rubber from the
two persons, who were registered dealers and also had license from the rubber
board, and claimed that those purchases were not the first purchases in the
state and therefore the assessee was not liable to pay the purchase tax. The
assessing authority rejected the claim on the ground that the two persons had
merely lent their names without actually handling the goods and therefore the
assessee should be taken to be the first purchaser of the rubber in the state. The
Assessee’s appeal to the appellate assistant commissioner failed. The tribunal
in the appeal held that the purchases of the rubber made by the assessee from
the two persons were second purchases and therefore the sale of rubber being
taxable only on first sales, the assessee who was not the first purchaser could
not be made liable to pay the tax. The Tribunal also held that the ad hoc
addition made by the Appellate Assistant Commissioner could not be legally
sustained. On revision:
Held that the tribunal came to the right
conclusion. So long as the assessee’s purchases were second purchases from a
person or persons who were then registered dealers, the assessee could not made
liable to tax under section 3(2) of the Tamil Nadu General Sales Tax Act, 1959.
Once there had been earlier purchase inside the state, it was for the revenue
to proceed against the forst purchaser and merely had not paid the tax, they
could not proceed against the second purchaser when the statute admittedly
exempted the second sales from tax.”
Second Authority on this point is 35 STC Page No. 50
To claim benefit of tax on the ground
that the sales effected by the assessee were second sale they need not show
that their seller had in fact paid the tax at the first point and it was enough for them to show that
the earlier taxable sales and that the tax was really payable by their sellers.
That this decision was affirmed by the
Hon’ble Supreme Court of India in the state of Tamil Nadu Vs. Raman & Co.
and others (93 STC 185), which is as under:
“ From the decision of the Madras High Court
in State of Madras Vs. Raman & Co. [1974] 33 STC Page no.1 to the effect
that the assessee, which purchases condemned railway coaches sold by the
railway department and components of nissen huts sold by the director of
supplies and disposals and later dismantled them and sold the resultant timber
and iron materials in bulk as scrap, was exempted from tax, because what the
assessee purchased was scrap and when he sold the scrap later he was only a
second seller, the state preferred an appeal to the supreme court. The Supreme
Court dismissed the appeal holding that there was no merit in the appeal.”
Decision of the Madras High Court in
State of Madras Vs. Raman & Co. [1974] 33 STC page No. 1 affirmed.
From the decision of the madras High
court in Govindan & Co. Vs. State of Tamil Nadu [1975] 35 STC 50 to the
effect that to claim benefit of tax on the ground that the sales effected by
the assesses were second sales, they need not show that their sellers had in
fact paid the tax at the First point and it was enough for them to show that
the earlier sales were taxable sales and that the tax was really payable by
their sellers, the state preferred an appeal to the Supreme Court. The Supreme
court dismissed the appeal holding that there was no merit in the appeals.”
From the above judgement it is crystal
clear that once a proper vat invoice is given as prescribed under the law in a
prescribed form has been furnished by a dealer to the assessing authority. The
appellant is entitled to claim input tax credit from the payment of Vat tax. On
a subsequent sales for the goods on which the vat tax has been paid at the
stage of the first seller and it is not the duty of the subsequent seller to
pay vat tax if the first seller has not paid the vat tax and it is the duty of
the department to proceed against him and not the purchasing dealer.
(e)
Purchase
from the sellers who has purchased the goods from the persons whose registration
stands cancelled
Number of times the authorities
raising the eyebrow while granting the input tax credit that the seller who has
sold the goods has purchased the goods from the cancelled dealer and try their
level best to deny the claim which is totally against the basic principle of
concept of VAT
Conclusion
It is worthwhile to discuss that the
officers who are passing the orders without following the settled law and the
provision of the Act are just creating paper demands which is ultimately
creating a mess for the revenue as well as the dealer as in these type of cases
the department is not getting any revenue rather the machinery of the
department is involved in unnecessary litigation and it has been
rightly observed by the Hon’ble Judges of the Madras High Court reported in 92
STC Page No 621 that incompetent officer without knowledge of law are harmful
both for the revenue and the state on the one hand and assessee on the other
hand, if officers who do not have the knowledge and correct appreciation of the
law and the principles upon which power to assess and realize tax is exercised,
are appointed and allowed to hold office of responsibility, their such acts
bring a bad name to the revenue administration so it is very necessary that
while dealing with these situations the assessee should not be denied of his legitimate
claim of input tax credit on flimsy grounds.
J S Bedi Advocate
Office at Jalandhar:
5/13, Central Town, Jalandhar-144001.
Office at Punjab & Haryana High Courts:
Chamber no. 85
