Non-Production Of Original Tax Invoice From Registered Dealer, Reversal Of ITC By Dept. Doesn't Amount To Double Taxation: Madras High Court

The Madras High Court has held that when a registered dealer claims any benefit under Section 19 of the TNVAT Act 2006, he has to strictly adhere to the conditions laid down in the said section.

The bench of Justice D. Krishnakumar and Justice R. Vijayakumar has observed that the petitioner has not produced the original tax invoice from a registered dealer, and therefore, he cannot complain that the authorities are attempting to reverse the input tax credit in his favor. In fact, the petitioner has affected the purchase five months after the cancellation of the registration of the selling dealer. Since the registration of the selling dealer had already been cancelled in April 2008, he would not have paid the tax. Therefore, the allegation of the petitioner that the notice issued by the respondent department for reversing the input tax credit would amount to double taxation is not legally sustainable.

The petitioner/assessee is a registered dealer in mobile phones, and he made the purchase of Nokia mobile phones from an authorized wholesale dealer, namely M/s Smart Trading Company, Madurai, in September 2008. The petitioner had filed monthly returns in Form-I in the month of September for the assessment year 2008-2009 and claimed input tax credit for the purchase.

The respondent or department had issued a notice proposing to reverse the input tax credit claimed by the petitioner to the tune of Rs. 1,04,673 for the month of September 2008 on the ground that the registration of the selling dealer had already been cancelled.

The petitioner contended that, as per Section 19(10)(a) of the Tax Value Added Act, 2006, the only condition imposed for claiming input tax credit is to produce the original tax invoice. In the present case, though the petitioner had furnished the original tax invoice issued by the wholesale dealer, namely M/s Smart Trading Company Madurai, it has not been accepted by the authorities on the ground that the registration of the selling dealer was already cancelled and was not subsisting on the date when the petitioner had made the purchase.

The petitioner contended that it is impossible to verify the validity or subsistence of the registration of the selling dealer. The petitioner is a bona fide purchaser. If the input tax credit is reversed, the tax paid towards the purchase effected by him will result in forfeiture under Section 40. As a consequence of the provision, for a single transaction, a tax would be levied at two points, which is quite contrary to the object of the Tamil Nadu Value Added Tax Act, 2006. The provision is in violation of Articles 14 and 301 of the Constitution of India.

The department contended that the registration of the whole sale dealer was cancelled on April 21, 2008 itself, and the petitioner is said to have purchased from the said whole sale dealer in September 2008. The seller dealer is a non-existing dealer, and the assessing authority proposed to reverse the claim of input tax credit to the extent of Rs. 1,04,673 under Section 19(16) of the TNVAT Act 2006 by an audit notice.

The department argued that the audit notice issued on March 11, 2009 would not amount to double taxation, in view of the fact that the wholesale dealer (whose registration has been cancelled) has not paid any tax at all. When the petitioner seeks to take advantage of Section 19 of the TNVAT Act 2006, he is bound to adhere to the conditions imposed under the section for availing of input tax credit. The petitioner has not chosen to send any reply to the notice, and instead he filed the writ petition challenging Section 19(15) of the Tamil Nadu Value Added Tax 2006 as unconstitutional and unenforceable.

A combined reading of Section 19(15) and Section 40 clearly indicates that in order to avail of input tax credit, a registered dealer has to furnish the original tax invoice of the sale evidencing the amount of input tax, and in cases where the registration certificate of the selling dealer is cancelled by the appropriate authorities, the purchasing dealer who availed of input tax credit shall pay the amount availed on the date from which the order of cancellation of registration certificate tax was effected. Apart from that, the purchasing dealer shall also be liable to pay interest. Section 40 prohibits an unregistered dealer from collecting any amount by way of tax.

The court held that though the petitioner has challenged the constitutional validity of fiscal legislation, neither the grounds nor the submissions made on the side of the writ petitioner point out a violation of any constitutional provisions. The writ petition has been filed only to drag on the proceedings initiated by the respondent authorities for reversal of the input tax credit.

Counsel For Appellant: J.Pooventhera Rajan

Counsel For Respondent: N.Satheeshkumar

Case Title: M/s.Thillai Agencies Versus State of Tamil Nadu

Citation: 2024 LiveLaw (Mad) 65

Case No.: W.P(MD).No.12333 of 2009 and MP(MD).No.1 of 2009

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