Madras High Court Directs AO To Allow Transitional Credit Of Purchase Tax Paid Under GST Act If Already Paid under VAT Act

The Madras High Court has directed the Assessing Officer to allow transitional credit of purchase tax paid under Section 140 of the TNGST Act, 2017, if the petitioner had paid “purchase tax” under Section 12(1) of the TNVAT Act.

The bench of Justice C. Saravanan has observed that the petitioner deserves a chance to defend the case as the impugned assessment order was passed during the period when the country was in semi-lockdown mode. If the VAT-TDS had indeed remained unutilized for discharging tax liability under the TNVAT Act, 2006, there should be a fresh adjustment of the amount out of the VAT-TDS towards the tax liability of the petitioner, and thereafter, ITC, which would have remained unutilized, ought to have been allowed to be transitioned under Section 140 of the Act or refunded to the petitioner under Section 54 of the TNGST Act, 2017 read with the TNVAT Act, 2006.

The petitioner/assessee is a works contractor who has rendered works contract service. The employer who had employed the petitioner as a works contractor had deducted the tax deducted at source (TDS) amount under Section 13 of the Tamil Nadu Value Added Tax Act, 2006 (TNVAT Act). The tax deducted at source was transitioned under Section 140 of the TNGST Act, 2017, along with the “purchase tax” paid by the petitioner, which was availed of as an input tax credit (ITC).

The tax transmitted was wrongly denied by the respondent. The petitioner filed the writ petition after receiving the second-mentioned final demand notice or final order, calling upon the petitioner to pay the amount confirmed towards arrears of tax.

The assessee contended that the petitioner was entitled to transition the credit of ITC lying unutilized in the VAT Account, and the Assessment Order, which has been passed without following the principles of natural justice, is therefore liable to be quashed.

The respondent department contended that the writ petition challenging the order on the ground of principles of natural justice or any other grounds, viz., lack of jurisdiction, etc., is available to the petitioner only if the writ petition was filed within the period of limitation.

The assessee contended that the assessment order was passed during the period when the second wave of COVID-19 (Omicron) was at its peak in April 2021. The explanation of the petitioner is that the petitioner engaged an aged accountant as a tax consultant to take care of the petitioner case and that the said accountant also died due to the COVID-19 pandemic. Thus, the statutory appeal could not be filed under Section 107 of the TNGST Act, 2017.

“If ITC was validly availed by the petitioner on “purchase tax” paid by the petitioner under Section 12(1) of the TNVAT Act, 2006, and the same was remaining unutilized, the petitioner was entitled to transition the same under Section 140 of the TNGST Act, 2017 as transitional credit,” the court said.

The court directed the assessing officer to re-do the assessment by first adjusting the tax deducted at source under Section 13(1) of the TNVAT Act, 2006, read with TNVAT Rules, 2007 and paying to the credit of the government, and thereafter refunding the amount of surplus input tax credit that would have remained unutilized after adjustment of the tax deducted at source under Section 13(1) of the TNVAT Act, 2006, read with TNVAT Rules, 2007 and ITC towards the tax liability for the petitioner while filing returns during periods in dispute.

Counsel For Petitioner: Aparna Nandakumar

Counsel For Respondent: C.Harsharaj

Case Title: M/s.Sri Sasthaa Constructions Versus The Assistant Commissioner (ST)

Citation: 2024 LiveLaw (Mad) 100

Case No.: W.P.Nos.20871 & 20874 of 2023 and W.M.P.Nos.20240, 20241 & 20243 of 2023

Click Here To Read The Order