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Assessee held entitled to claim credit after same was denied by Tribunal, HC
Assessee held entitled to claim credit after same was denied by Tribunal, HC
Appellant reg. dealer under VAT Act traded in electrical goods. VATO made disallowance of input credit & levied penalties. Tribunal upheld it. On appeal HC held, VAT authorities observed, scanty amts deposited by selling dealers was incommensurate with transactions recorded & straightaway proceeded to hold, they colluded with appellant. Such a priori conclusions are based on no material, or without inquiry & accordingly unworthy of acceptance.-900269
Facts in Brief:
1. Appellant trades in electrical goods and is a registered dealer under the VAT Act. It purchases goods from dealers registered under the said Act on the basis of ST.APPL. 34-39/2012 Page 1 tax invoices issued by them and on the payment of VAT at applicable rates. The appellant received notices for assessment of tax and interest under Section 32 of the VAT Act and for penalty assessment under Section 33.
2. These were for various periods between 2007 and 2008 and apparently premised on the audit of its accounts by the VAT Department for the period 01.04.2007 to 31.03.2008. The VAT Officer (VATO) by assessment orders disallowed the input claimed on account of purchases from two dealers - M/s. Balaji Enterprises and M/s. R.S. International (hereafter referred to as the "selling dealers").
3. The VATO was of the opinion that the selling dealers operated for short periods and their turn-over was high in comparison to the tax deposited by them. Consequently by the orders, the VATO demanded tax, interest and penalty for the periods in question. Arguing that the VATO's orders were not justified in law, the appellant moved the Objection Hearing Authority (OHA) under Section 74. These appeals/objections were dismissed by order dated 29.01.2010. The OHA confirmed the VATO's order.
4. Appeals were consequently preferred the VAT Act to the Tribunal, which, by the impugned order, dismissed them, upholding the disallowance of the input credit and also upholding the penalties imposed. The Tribunal was of the view that Section 9(1) permits tax credit to a purchasing dealer to the extent the tax is actually deposited by the selling dealer.
5. In doing so, the VAT Tribunal also took into consideration the amendment to Section 9(2) which was brought into force on 01.04.2010, i.e. after the appeals were preferred. That amendment inserted clause (g) to Section 9(2), clarifying that input tax credit is admissible to purchasing dealer only when tax is actually deposited by the selling dealer.
On appeal HC held as under,
6. 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.
7. 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.
8. In view of the above discussion and findings, this Court answers the substantial question framed in favor 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. The appeals are allowed in the above terms, with no order as to costs.
Case Reference - Shanti Kiran India Pvt. Ltd. vs Commissioner Trade & Tax Deptt.
