IN THE HIGH COURT OF JUDICATURE AT MADRAS
Date of Reserving the Judgment: 27.10.2014
Date of pronouncing the Judgment: 26.11.2014
C O R A M
THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAM
Writ Petition Nos.13901, 30851 to 30880 of 2013, 3211 to 3217, 9275 and
9276, 17628 to 17632, 11423 to 11426, 16296 of 2014, 4236 of 2013, 12690 and
12691, 13135, 24402 to 24404, 24405 to 24407, 24488 to 24491 of 2014, 24828 and
24829, 309 to 311, 1956 to 1960, 26105 & 26106, 26129 & 26130, 26187
& 26188, 26234 & 26235, 26913 & 26914, 26933 & 26934 &
26987, 26988, 29272, 29273, 29698, 29699, 35109, 35118, 35119, 35126, 35127,
35297, 35298 of 2012, 4168, 4169, 4209, 4210, 9132, 9645, 12424, 12425, 12426,
13285 to 13290,13900, 13907, 13908, 15081, 15082, 15165 to 15168, 15340, 15341,
15681, 16832 to 16836, 19340, 19341, 19870 to 19872, 20070, 20071, 20462,
20524, 20525, 21148, 23435 to 23437, 23842 to 23844, 25574 to 25576, 28095,
28566, 28567, 28568, 28569, 33686, 33687, 35311, 35312, 35313, 35314 of 2013,
6123 to 6127, 6413 to 6415, 9524, 10967, 10968, 12597, 12598 of 2014,
4680 of 2013, 16301, 19450, 19451 of 2014, 28570 of 2013, 19535 of 2013 to
19549 of 2013, 33687, 35313, 35314, 24710 to 24716, 27728, 27729 of 2012, 29655
to 29660 of 2012, 28124 to 28133 of 2013, 29539 and 29446/2014, 25396/2014,
26412/2012, 26413/2012, 26556 and 26557/2012, 35102 and 35103/2012, 35121 and
35122/2012, 35246 and 35247/2012, 35252 and 35253/2012, 28463 and 28464/2012,
29418 and 29419/2012, 12949, 12950, 12951, 12952, 12953, 12954, 12955/2013,
15291 and 15292/2013, 15392 to 15395/2013, 15903 to 15906/2013, 2308/2014,
6106/2014 and 6107/2014, 29937/2014 to 29941/2014.
W.P.No.13901 of 2013
M/s.Interfit Techno Products Ltd
Rep. By its Managing Director
-A.V.Palaniswamy
SF.No.112, Madhapur Road
Karumathampatti Via
-Vs-
1.The Principal Secretary/Commissioner of
Commercial Taxes
Ezhilagam, Chepauk, Chennai-600 005
2.The Assistant Commissioner(CT)(FAC)
Prayer in
W.P.13901 of 2013:-Petition filed under Article
226 of the Constitution of India praying for the issuance of a writ
of Certiorari calling for the records on the files of the 1st respondent in VAT
Cell/Roc.No.37188/2011/Circular No.22/2011 dated 20.10.2011, quash the same.
For petitioners in W.P.Nos.13901/2013,
17628 to 17632, 12690 to 12691/2014, 13900, 15165 to 15168, 19340 to 19341, 19870
to 19872/2013, 20524, 20525, 33686, 33687/2013, 29655 to 29660/2012, 12949 to
12955, 15392 to 15395, 15903 to 15906/2013, 6106 and 6107/2014.: Mrs.R.Hemalatha
For petitioners in W.P.Nos.30851 to
30880/2013, 3211 to 3217/2014, 13907, 13908, 15340, 15341, 16832 to 16836,
20070, 20071, 20462/2013, 6413 to 6415/2014, 15291 and 15292 of 2013: Mrs.Hema
Muralikrishnan
For petitioners in W.P.Nos.9275,
9276/2014, 35109/2012, 12424, 12425, 12426, 15081, 15082, 15681, 21184, 4680,
9645/2013, 2308/2014, 29539 and 29446/2014 :- Mr.S.Raveekumar
For
petitioners in W.P.11422 to 11426 of 2013:- Mr.R.Kumar
For
petitioner in W.P.4236/2013:- Mr.C.Baktha Sironmani
For petitioners in W.P.16296/14, 309 to 311/12, 1956 to
1960/12, 26105, 26106, 26129, 26130, 16187, 16188, 26234, 26235, 26913, 26914,
26933, 26934, 26987, 26988, 26972, 26973, 29698, 29699,35118, 35119,25126,
35127,35397, 35298, 4168, 4169/2012, 4209, 4210, 23435, 23436, 23437, 23842 to
23844, 25574 to 25576, 28566, 28567, 28568, 28569, 35311, 35312, 35313,
35314/13, 6123 to 6127/14, 10967, 10968, 12597, 12598, 16301, 28570 to 28571,
35313, 35314/2013, 27728, 27729/12, 26412, 26413, 26556, 26557, 35102, 35103,
35121, 35122, 35246, 35247, 35252, 35253, 28463, 28464, 29918, 29919/2012 :-
Mr.R.Senniappan
For petitioners in W.P.24828/12, 24829/2012 :-
Mr.N.Sriprakash for Mr.N.Inbarajan
For petitioners in W.P.13285 to 13290 of 2013 :-
Mr.S.Murugappan
For petitioner in W.P.28095 of 2013: Mr.R.Selvakumar
For petitioners in W.P.9524, 19450, 19451 to 19451 of
2014 :- Mr.P.R.Kumar
For petitioners in W.P.19535 to 19549 of 2013, 28124 to
28133 of 2013 :- Ms.Ananda Gomathi Sivakumar
For petitioners in W.P.24710 to 24716 of 2014 :
Mr.N.Murali
For petitioner in W.P.25396/2014:- Mr.N.Mathivanan
For respondents : Dr.Anita Sumanth, Spl.G.P.(Taxes)
Assisted by Mr.Cibi Vishnu, AGP (Taxes) Mr.A.R.Jayaprathap, Govt.Advocate
(Taxes)
COMMON
ORDER
The relief sought for in
all these writ petitions are more or less identical and common grounds were
raised by all the learned counsels appearing for the petitioners and the prayer
made in the writ petitions having been resisted by the learned Special
Government Pleader by advancing common arguments, the writ petitions were heard
together and are disposed of by this common order.
2. To decide the
controversy in this batch of writ petitions,
it would suffice
to take note
of the facts
in one of the
writ petitions as
except the products
manufactured all transactions are said to be export sales. The facts as set out in W.P.No.24828 of
2012 are that the petitioner is engaged in the business of manufacture and
sales of Hosiery Garments and registered as dealer under the provisions of
Tamil Nadu Value Added Tax Act, 2006 (VAT
Act) and the Central Sales Tax Act, 1956(CST). The petitioner purchase yarn among other
inputs inside the State of Tamil Nadu from various registered dealers on
payment of VAT of 4% / 5% which is
converted into fabric in the manufacturing unit of the petitioner and the
fabric was thereafter processed and Hosiery garments were manufactured. The resultant Hosiery Garments were exported
by the petitioner periodically.
3. It is submitted that
during the knitting process, there was a process loss due to the flying of
loose fibres and such loss was termed as invisible waste of yarn by the Trade
and the same is less than 0.5% and such loss was unavoidable. It is further
submitted that the yarn locally purchased from registered dealers had been put
to a manufacturing process and therefore the petitioner availed Input Tax
Credit of the VAT paid by them in purchases of yarn in terms of Section 19(1)read
with Section 19(2)(ii) of
the VAT Act. The resultant final product viz., Hosiery Garments being exported
periodically, the petitioners made a claim for refund of Input Tax Credit on
the purchases of yarn in terms of Section 18(2) read
with 18(3) of the VAT Act.
Such claim of refund was made in an application in Form W as prescribed under
Rule 11(2) of VAT Rules, 2006. The refunds were granted to the petitioner
periodically. While so, the place of business of the petitioners was inspected
and the Inspecting Officers informed the petitioner that they have to pay VAT
on the invisible loss, which was arrived at 5% of the total value of the yarn
purchased by them. As that of the petitioner, the other persons, who were also
involved in the same trade were required to pay VAT on the invisible loss of
yarn emerging during manufacturing process.
4. Representation was made
by the Textile Exporters Association to the Joint Commissioner of Commercial
Taxes (Enforcement) as well as Joint Commissioner of Commercial Taxes, Coimbatore
5. The petitioners
submitted their objections to the notice issued and thereafter for about two
years nothing appears to have happened and during 2012, assessment proceedings
were initiated, which compelled the petitioners to file writ petitions
challenging the circular dated 20.10.2011 and in certain writ petitions,
challenge is to the notices issued or proceedings initiated calling upon the
petitioners to reverse the Input Tax Credit at uniform rate of 5% as well as
consequential orders reversing the input tax credit availed to the extent of 4%
/ 5%. The other writ petitions viz., W.P.No.13901 of 2013 also challenges the
impugned circular and only difference being the petitioner therein being the manufacture
of S.G.Iron & S.S.Pipe Fittings and selling the same to locally and to
outside State Dealers. The petitioner in W.P.No.9275 and 9276 of 2014 are
manufacturers of Alloy Steel and Cast Iron viz., MS Scrap, Ferrous and non
Ferrous purchased from local registered dealers and also from other States and
they are exporting furnished goods directly under Section 5(i) of the
CST Act. Though the products manufactured and exported by each of the writ
petitioners might be different, the challenge to the impugned circulars are on
common grounds, therefore, it may not be necessary to refer to the factual
scenario in each of the writ petitions product wise.
6. Ms.R.Hemalatha, learned
counsel appearing for the petitioners submitted that in terms of Section 19(1) read
with 19(2)(ii) of the Act, the petitioner is entitled for Input Tax Credit on
the entirety of tax paid on raw materials purchased from the registered dealers
inside the State of Tamil Nadu as they have utilised all raw material for the
use and manufacture of fabric. The Input Tax credit of the entire tax paid by
them on purchases becomes available in terms of Section 19(2)(ii) of
the VAT Act. It is submitted that the refunds granted to the petitioner in
terms of Section 18(2) and 18(3) read with Rule
11(2) had been correctly made by the Assessing Officer and there is no
provision under the Value Added Tax which requires reversal of ITC consequent
to the process loss such as for invisible loss of raw material. Further it is
submitted that the circular refers to Section 19(9) of the
VAT Act and the said provision deals with cases of theft, loss, destruction of
goods and in such cases, no Input Tax Credit shall be available to a registered
dealer and the Section do not deal about consumption of raw material in the
manufacturing process and inevitable resultant process loss. Further it is
submitted that the respondent has uniformly adopted 5% which is without any
basis. That apart there is no power under the VAT Actfor issuing the
impugned circular and therefore, the impugned circular has no effect of law and
has to be set aside. Further by commenting upon observation made in the order
of assessment, wherein, the Assessing Officer has stated that the assessee has
not reversed ITC on the invisible loss of raw material utilised in the
manufacture, therefore, ITC is reversed in purchase value of raw material, it
is submitted that the said observation is wholly untenable and unsustainable in
law. Therefore, the learned counsel submitted that the impugned circular
deserves to be set aside.
7. Mr. Raveekumar, learned
counsel appearing for the petitioner submitted that there is no power under the
VAT to issue circular; the Circular prescribes procedure which is not
contemplated under the Act or Rules and the refund claims to be audited before
the refund is processed is not as per the procedure stipulated under the Act;
further the petitioners are not required to prove prior sufferance of tax at
the hands of the vendor and in this regard, reliance was placed on the decision
reported in [2013] 60 VST 283(Mad) [SRI VINAYAGA AGENCIES VS. ASSISTANT
COMMISSIONER (CT), VADAPALANI-I ASSESSMENT
CIRCLE KOTAGIRI ASSESSMENT CIRCLE CHINTADRIPET
ASSESSMENT CIRCLE
8. Mr. Bakthasironmani,
learned counsel appearing for the petitioner, who is engaged in Iron and Steel
products submitted that Section
19(9)(iii) cannot be referred to missing material and referred
to the White Paper submitted by the Government with regard to VAT regime and
submitted that the circular cannot be made available in respect of assessment
for the year 2006-07. Learned counsel also referred to the decision of the
Honourable Supreme Court in the case of 2006(8) SCC 314 [THE COMMISSIONER OF CENTRAL
EXCISE VS. INDIAN ALUMINIUM CO. LTD.,].
9. Mr. N.Murali, learned
counsel appearing for the petitioner submitted that Section 19(9) applies
to goods which did not go into process of manufacture and all three
contingencies under Sub Section (9) of Section 19 only
refers to such goods; therefore, it is submitted that paragraph 13 of the
impugned circular is contrary to Section 19(9) and
there is no provision to reverse ITC on wastage. Further it is submitted that
Rule 9 and 10 does not empower reversal of ITC on manufacturing loss and
further Section 19(9) of
the VAT Act contemplates as loss prior to manufacture or in the intermediary
stage and unless the Rules are amended, action initiated by the respondent
cannot be taken as it is illegal. Further it is submitted that under the
Maharashtra VAT Act, 2002, Rule 55(5) is available and there is no such Rule
under the TNVAT Rules and therefore, there can be no power given to the
Assessing Officer to reverse the credit availed. Further it is submitted that
since Section 19(9) are
applicable only to cases before manufacture and the Section does not provide
any procedure which is normally provided by mentioning in the manner
prescribed . The learned counsel raised alternative plea stating that under the
provisions of VAT Act,
or the Rules, there is no requirement of determining the percentage of loss or
wastage or what is intermediary loss for various types of industries. Further
it is submitted that Section
19(9)(i) alone talks about reversal of tax credit and there is
no such provision for reversion underSection 19(9)(ii)&(iii)
and therefore, such provision is a piece of bad legislative drafting and
therefore it is submitted that the language of the Statute is not clear and
placed reliance on the decision in the case of GOVIND SARAN GANGA SARAN VS.
COMMISSIONER OF SALES TAX AND OTHERS reported in (1985) 60 STC 1 (SC). Further
it is submitted that the dealer pays the price for the inputs whether it goes
to the intermediary or final activity or not, however, the cost of such inputs
is taken into consideration for final price of the final product which includes
the cost of the raw material inclusive of wastage loss scrap. Therefore, the
tax levied by the Revenue is on the full rate irrespective of the wastage or
loss at the purchase point and gets full rate of tax at the point of sale at
the finished product. Therefore, both at the purchase and at the sale point,
there is no loss to the revenue from the point of view of levy of tax and
therefore, it is revenue neutral.
10. Mr. N.Sriprakash,
learned counsel submitted that zero-rated sale under Section 18 of the Act
is distinct and it is interpreted as an island under the scheme of the Act.
In this regard, the learned counsel referred to the statutory provisions
viz., Section 3(44), 5(1), Section 18(1), 18(2) of the Act. By
referring to Sub Section (2) of Section 18, it is
submitted that the dealer who makes zero-rated sale shall be entitled to refund
of the Input Tax Credit paid by him on the purchase of goods used in the
manufacture, therefore, the entire matter comes to a close and there could be
no further enquiry into that. Reliance was placed on the decision of the
Honourable Supreme Court in 1992 (57) ELT 209 (SC) [MULTIMETALS LTD VS.
ASSISTANT COLLECTOR, CENTRAL EXCISE] which was followed in 1995 (77) ELT 268
(SC) [UNION OF INDIA VS. INDIAN ALUMINIUM CO.LTD]. Further it is submitted that
even if there is loss of yarn in the manufacture process of Hosiery Garment,
the petitioner is entitled to refund under Section 18(1)of the Act.
Further it is submitted that Section 19 of
the Act has absolutely no application to the entitlement of refund under Section 18(2) and Section 18 of the Act
operates independently. Even assuming, it is applicable, the circular refers to
Sub Section (9) of Section 19 of
the Act. Admittedly, the yarn purchased is used in the manufacture, then to
contend, it is destroyed in the process of manufacture, falls foul of Section 18(2) of the
VAT Act. Further it is submitted that destroyed/destruction is put to end and
which is a deliberate act and not an invountary act. In this regard, learned
counsel referred to the Websters Dictionary for the definition for the word
destroyed as well as Black's Law Dictionary.
11. Alternatively, learned
counsel submitted that even if it is the expression "destroyed" is
stretched to mean manufacturing loss, Section 18 of the Act
is a special scheme and Section 19cannot
be interpreted into Section 18 of
the Act. By referring Section 18(3) of
the Act, it is submitted that such a bar is not available under Section 19 and the
benefit under Section 18 is
a special benefit; with a condition, at this stage, it is to be noted that
though the petitioner is not entitled to pay tax, yet, he is entitled to refund
and that is why it is a special scheme. Further, it is submitted that Section 19 deals with
Input Tax Credit and Sub Section (9) falls under Section 19and it cannot be
read into Section 18 and
in this regard, relied on a decison in 2000 (118) ELT 311 (SC) [COLLECTOR OF CENTRAL
EXCISE, JAIPUR VS. RAGHUVAR (INDIA Madras INDIA
12. Mrs. Hemalatha, while
reiterating the submissions made by the other counsels, submitted that the
petitioner had consumed and used raw material and manufacture valves and
exported the same and by virtue of the impugned order, 5% has been deducted,
the balance has to be refunded. Further it is submitted that question of filing
revision or alternative remedy does not arise in the light of the circular
issued by the first respondent.
13. Mr. Senniappan, learned
counsel for the petitioner submitted that the export value contains the raw
material purchased, though some are washed away in the dyeing process, it does
not affect the right of the petitioner to take credit. Reliance was placed in
the unreported decision of the Division Bench of this Court in T.C(R).1661 of
2008 dated 25.08.2010. It is further submitted that though there is wastage in
the dyeing process, the value of the raw material goes along with it and
therefore, reversing the credit does not arise. Further the word consumed
used in Section 18(2) of
the Act would also include evaporation. Further it is submitted that the
circular has absolutely no sanction and cannot be used to deny the credit.
14. M/s. Ananda Gomathy
Sivakumar, learned counsel submitted that there was process loss in their case
as visible and it is only sludge and cannot be used and there is no commercial
value and this aspect of the matter was not considered by the respondent and
arbitrarily they have applied circular. In other respects, the learned counsel
adopted the submission of Mr. N.Sriprakash.
15. On the above
submissions, the learned counsel for the petitioners prayed for quashing the
circular and to set aside the reversal of ITC to the extent of 5% made on the
assessees.
16. Dr. Anita Sumanth,
learned Special Government Pleader (Taxes) assisted by Mr.Cibi Vishnu, learned
Additional Government Pleader and Mr. A.R.Jayaprathap, learned Government
Advocate commenced her arguments by contending that invisible loss is not a new
concept and the Honourable Division Bench of this Court in the case of A.L.Murugan Chettiar and Another vs.
State of Tamil Nadu 1983 (53) STC 227, in fact had considered
such concept in a case arising out of the provisions of Tamil Nadu General
Sales Tax Act (TNGST), therefore, it is contended that the case as projected by
the petitioner as if invisible loss is a new concept arising for the first time
that too pursuant to the circular issued by the Commissioner is an incorrect
submission.
17. It is further submitted
that majority of the petitioners are manufacturers of Hosiery Garments and
members of Tirupur Exporters Association which had filed a writ petition before
this Court on behalf of its members in W.P.28114 of 2011. In the said writ
petition, prayer was made to prohibit the respondents from revoking or
disallowing the claim of Input Tax Credit in respect of the members of the
petitioner association by treating 5% of the local purchase of yarn as
invisible loss without authority of law. In the affidavit filed in support of
the writ petition, the petitioner contended that there is no such loss/wastage
as invisible loss in the process of conversion of yarn into cloth or Hosiery
garments and the yarn used in the conversion of cloth is totally consumed/used
and the weight of the cloth is equivalent the weight of the yarn used. It is
submitted that the said writ petition was dismissed by order dated 14.12.2011
as against whcih the association preferred an appeal in W.A.966 of 2012 and the
Honourable Division Bench of this Court did not find any reason to take a
different view than what was taken by the learned Single Judge. However, an
observation was made that it is open to the association that whenever there is
a need to conduct demonstration, it is for them to approach the concerned
officers with appropriate representation for consideration. It is submitted
that all issues were raised in the earlier writ petition and got crystalised
and now, the members of the association have filed these writ petitions taking
an inconsistent stand than what was taken in the affidavit filed in the writ
petition filed by the association and these writ petitions are after the
dismissal of the writ appeal by the Honourable Division Bench. However, the
liberty granted by the Division Bench was not availed of by the petitioners and
the present writ petitions are not maintainable.
18. Learned Special
Government Pleader further submitted that the impugned orders in each of the
writ petitions are revisable orders and the petitioner should be relegated to
file a petition under Section 52 of
the Act and the writ petition has to be dismissed as not maintainable. Further
it is submitted that though there is no power under the VAT Act to issue
circular, the impugned circular is not a statutory circular and it is in the
form of guideline and the Assessing Officer has to consider each case and
though the circular states that it should not be quoted by the Assessing
Officer, nevertheless the circular is available in the official website of the
Department, a public domain, and the petitioners have downloaded the circular
from the official website. Therefore, it is submitted that the circular cannot
be quashed on the grounds raised by the petitioners. Learned counsel referred
to Clauses 10, 13 and 14 of the circular, which is in the nature of guideline
and the VAT Rules provide for ascertaining quantities utilised to determine the
input output ratio and the assessees did not produce the books and the relevant
details and therefore, a suggestion has been made in the form of Circular and
in all cases, the impugned orders have been passed as no materials were produced
by the petitioners.
19. Referring to White
Paper on State Level VAT published by the Empowering Committee of State Finance
Ministers dated 17.01.2005, it is submitted that the example given in paragraph
2.2 of the said publication has taken a case where the entire purchase quantity
of the material has gone into production and several questions arose which have
been answered in the official website as FAQs and the answers to Question
Nos.30, 34, 37 and 40 would be relevant and the sum and substance of the
clarification is that the dealers are not eligible for Input Tax Credit on all
the inputs and there are certain restrictions and conditions for eligibility of
Input Tax Credit and the transactions not eligble for Input Tax Credit have
been listed out and goods damaged in transit, goods stolen, destroyed or lost
are not eligible for credit. Therefore, the Assessing Officer in the process of
verifying the genuineness of the claim is bound to consider the quantum of
Input Tax Credit eligible for the dealer for which Input Tax Credit analysis
have to be made as regards the input output ratio. Further, by referring to
Form W, the refund claim, it is emphasised in terms of Paragraph 2(viii)(a),
the quantity has to be discussed by the dealer to ascertain as to whether the
entire quantity purchased has gone into export and there is undertaking given
by the dealer in Form W and this procedure has been elucidated and answered in
Question No.40 of the FAQ. Further it is submitted that the contention
that Section 18 of
the VAT Act is an island under the Act is incorrect since the right to claim
ITC flows only from Section 19 and Section 18(1) and18(2) used the words
subject to such restrictions and conditions as may be prescribed and the
prescription is under Section 19.
Further it is submitted that Section 18 is
general rule for zero-rated sale and however this is subject to Section 19 and the
scheme under Section 19 applies
to all registered dealers. However, it is submitted that the dealers have not
placed any material to showSection 18 is
an "island" within the provisions of the Act and the Act being a
Taxation Statute, words cannot be inserted into the provisions. Further it is
submitted that even in cases where there is inconsistency in the two special
enactments, it has to be resolved on the basis of purpose and policy of
enactment and intentment conveyed by the language, and as regards the language
of the enactment, reference was made to the decision of the Honourable Supreme
Court in the case of Ashoka Marketing Ltd., Vs Punjab National Bank and Others
reported in 74 Company Cases 482 (SC). Therefore, it is submitted that even
assuming Section 18 and 19 are two separate
compartmens, the policy object and intent of the VAT Act has to be
borne in mind. Distinguishing the decision relied on by the learned counsel for
the petitioner in the case of Multimetals Ltd., Vs. Assistant Collector, Central
Excise (Supra), it is submitted that the said decision arose out of a case
interpreting notification issued by the Central Excise Rules 1944 and under the
Cenvat Credit Rules; Rule 2(k) defines inputs to mean whether contained in the
final product or not, it is in contradiction with the definition under
the VAT Act in
particular Section 2(23) and 2(24); once again
referring to the decision of the Division Bench in the case of A.L.Murugan
Chettiar (supra), it is submitted that invisible loss cannot be regarded as
part of turnover as it disappears and while computing the input output ratio,
the Assessing Officer is entitled to take into consideration that portion of
the loss which is ocurring and to deny the credit to that extent. Further it is
submitted that the petitioners are not challenging the provisions of the Act
and their challenge is only to the circular. Further, it is submitted that in
W.P.9275 and 9276 of 2014, the circular has been challenged in its entirety for
which there is no cause of action and hence the writ petitions are liable to
dismissed. Further it is submitted that though the circular uses the word
shall its tenor is suggestive and Form W in Clause 2(viii) uses the
expression relatable to the export and therefore to that extent, which has been
exported could qualify for grant of credit and the machinery provision is
available under Section 27(2) of
the Act. On the above grounds, the learned Special Government Pleader (Taxes)
prayed for dismissal of the writ petitions.
20. In reply, learned
counsel for the petitioners submitted that the Honourable Supreme Court in the
decision of Multimetals Limited (supra), does not refer to the definition of
input under the Central Excise Rules and by reading Section 2(23) of the
VAT Act which defines "input" to mean goods including capital goods
purchased by the dealer in the course of business, read along with Section 18(2) of the
VAT Act entitles the dealer to refund of input tax paid on purchase of the
goods which are exported as such or consumed or used in the manufacture of
other goods that are exported as specified in Sub Section 1 of Section 18 of
the Act. Therefore, the question which arose in Multimetals Limited (supra) is
whether it is used in the manufacture and the Honourable Supreme Court was not
dealing with definition of "input" under Cenvat or Central Excise Act.
Further it is submitted that under Section 19(9)(iii) of
the VAT Act, the word destroyed to mean the deliberate act on the part of the
assessee and in this regard, reference is made to Form I and the Form does not
speak of loss in the course of manufacture. Further it is submitted that the
procedure under Section
19(16) of the VAT Act is not applicable to a case falling
under Section 18of
the VAT Act and the order passed on a refund claim made under Form W is not a
provisional order and once credit has been granted, there is no mechanism to
reverse. By referring to the decision in the case of Mathuram Agrawal Vs. State
of Madhya Pradesh reported in AIR 2000 SC 109 in a Taxing Act, it is not
possible to assume any intention or governing purpose of the statute more than
what is stated in the plain language; it is not the economic results sought to
be obtained by making the provision which is relevant in interpreting a fiscal
staute and equally impermissible is an interpretation which does not follow
from the plain, unambiguous language of the statute and the words cannot be
added to or substituted. Further it is submitted that the illustration given
under the FAQ supports the contention of the petitioner. Distinguishing the
decision in the case of A.L.Murugan Chettiar (supra), it is submitted that the
decision is not applicable to the petitioners case as it was different
enactment and it is not dealing with credit. Further it is submitted that
disposal of the earlier writ petition filed by the Association is not a bar to
maintain these writ petitions since the writ petition was dismissed on the
ground of lack of locus standi. It is submitted that to the extent of loss is
of no consequence for Section 18(2) of
the VAT Act and loss is of no relevance and the moot question would be loss
relevant or not while claiming refund under Section 18 of the VAT
Act.
21. Mr. N.Murali, learned
counsel for the petitioners reiterated the contention raised in the written
submissions and submitted that the question would be whether the input come
into manufacture or not and there is nothing more to be answered, if the answer
to this question is satisfied.
22. Mr. Raveekumar, learned
counsel would submit that by the impugned circular, the respondent are
attempted to alter invoice price, which is impermissible in the light of the
decision of this Court in Jayam and Co. Vs. Assistant Commissioner (CT)
reported in (2013) 65 VST 260 (Mad). Further it is submitted that there is no
specific statute stating that Section 18(2) of the
VAT Act is subject to restrictions under Section 19 of the VAT
Act. Further it is submitted that all the refund claims have been sanctioned
and the same are sought to be reversed solely based on the circular and mere
change of opinion cannot be a ground to reopen. Further, it is submitted that
the impugned circular is absoluteely without jurisdiction and without any
authority of law andSection 19(9) of
the VAT Act does not speak of manufacturing loss .
23. Heard the learned
counsels appearing on behalf of the petitioners and the learned Special
Government Pleader appearing on behalf of the State. The following questions
fall for consideration in these batch of writ petitions.
(1) Whether the impugned
Circular No.22/2011 dated 20.10.2011 is bad in law for want of jurisdiction to
issue the same under the provisions of the TNVAT Act and the effect of such
Circular on the assessments made by the Assessing Officer?
(2) Whether Section 18 of
the TNVAT Act is a Scheme by itself or whether the benefit to a dealer
under Section 18 is
subject to the conditions prescribed under Section 19, more
particularly Section 19(9) of the TNVAT Act ?
(3) Whether in the given
facts and circumstances would it be sufficient for a dealer who claims refund
under Section 18(2) of the TNVAT Act of the input tax paid on the purchase of the
goods, to show that those goods are used in the manufacture and nothing more ?
Whether the Assessing Authority should embark upon a fact finding exercise to
ascertain the quantum of loss, if any ?
(4) If it is held that the
relief under Section 18(2) of TNVAT Act is subject to Section 19 of TNVAT Act,
whether the circumstances mentioned in Section 19(9)(i),(ii) and
(iii) would cover manufacturing loss ?
(5) Whether the respondent
assessing authorities were justified in adopting a uniform percentage as
invisible loss and calling upon the dealer to reverse the Input Tax Credit
availed to that extent ?
(6) Whether the
petitioners/dealers are justified in contending that there is no machinery
under the TNVAT Act to reverse the refund granted pursuant to an order passed
on an application filed by the dealer in Form W under Rule 11(2) of the TNVAT
Rules ?
24. Though the writ
petitioners manufacture different products, all of them are exporters and
availed benefit of Section 18 of
the VAT Act, which covers zero-rated sales, defined under Section 2(44) of the
VAT Act, which means sale of any goods, on which, no tax is payable, but credit
for the input tax related to that sale is admissible. Broadly, the challenge in
all these writ petitions are on two grounds, firstly, by contending that the
Circular dated 20.10.2011 is illegal, without jurisdiction and could not have
been a basis for reopening the refund claim. The second limb of argument is
with regard to the effect of Section 19 of
the VAT Act on refund claims made by the petitioners under Section 18(2) of the
VAT Act. In this regard, a contention was raised that Section 18 of the VAT
Act is an independent provision, an island by itself, and the claim for
refund under Sub Section (2) of Section 18 is not
contingent upon any conditions stipulated under Section 19 of the VAT
Act.
25. The impugned Circular
dated 20.10.2011 was issued in supersession of earlier circulars and on a
reading of the preamble portion of the circular, one can decipher the intention
behind the issue of such circular.
26. The learned Special
Government Pleader admitted that the impugned circular is not a statutory
circular, but, nevertheless, it is a guideline issued to the Assessing Officer
by the Commissioner, the Head of the Department. In the case of Canon India
Private Limited Vs. State of Tamil Nadu and others in W.P.No.4042 of 2008 etc
batch, an identical contention was raised by the petitioners therein contending
that there is no enabling provision under the TNVAT Act to issue circulars and
clarification, which would bind the Assessing Authorities and that the power to
issue clarification and Advance Ruling was conferred on a State Level Authority
comprising of the Commissioner of Commercial Taxes and two Additional
Commissioners by insertion of Section 48A of
the VAT Act from 27.09.2011. Therefore, it was contended that on the date on
which the said clarification was issued, based on which, enhanced tax was
demanded there was no enabling power to issue such clarification. In this
regard, reliance was placed on the decision of the Division Bench of this Court
in the case of Texx One Private Ltd., Vs Principal Commissioner and
Commissioner of Commercial Taxes, Chepauk, Chennai and another (2012) 52 VST
377 (Mad), wherein, the Honourable Division Bench held that on the date when
the circular was issued, the Commissioner did not have statutory powers to
issue such circular and the net result is that the circular has no statutory
force. After taking note of the decision of the Honourable Division Bench, it
was observed that the circular issued by the Commissioner though stated to be
without jurisdiction, having been issued by the highest officer of the
department, the Assessing Officers, who are subordinate officers, cannot be
expected to take a different view. In the light of the said finding, it was
observed that there will be no necessity to avail the alternate remedy under
the Act.
27. As noticed above, the
respondent themselves admitted that the impugned circular has no statutory
force. In such circumstances, the question of quashing the circular does not
arise, as there was no power to issue such circular and this being not a
statutory circular, not binding on the assessing authority. As pointed out in
the case of Canon India
28. When we refer to the
impugned circular, it is seen that the Department was concerned about the large
number of refund claims, which were settled throughout the State of Tamil Nadu
29. Lapse No.8 in the
circular deals with No tax credit for wastage not made refunded . After referring to the relevant
statutory provision, viz., Section 18 of
the VAT Act read with Rule 11(2) of the VAT Rules, Section 19(18) read
with Rule 10(10) (b) and Rule 11(1), the Commissioner has proceeded to issue
certain guidelines regarding (i) Admissibility of refund claims with regard to
time limit fixed under Section 18(3) of
the VAT Act; (ii) Maintenance of the Consolidated refund register; (iii)
Maintenance of Refund Register; (iv) the details which have to be verified
while processing a refund claim in Form W; (v) manner in which export documents
have to be examined; (vi) cases relating to rejection or revision of export
value; (vii) prior sufferance of taxes; (viii) necessity to make Input and
Output ratio analysis; (ix) Pointing out cases where two incorrect tax
collection; excess tax collection or collection of tax in contravention of tax
in contravention of the provisions of the Act by suppliers to exporters; (x)
procedure to be followed to detect double claims of ITC; (xi) reversal of ITC
on wastage by applying Section 19(9) of
VAT Act; (xii) Refund on purchase of capital goods; (xiii) Declaration to be
submitted in respect of deemed sale in the course of export under Section 5(3) of the
Central Sales Tax Act, 1956; (xiv) Audit by the Enforcement Wing; (xv) Prior
approval to be obtained from Deputy Commissioner (CT) or by Joint Commissioner;
(xvi) the manner in which written communication has to be sent; (xvii)
procedure for internal audit; (xviii) Reconciliation of refunds with
Banks/Treasury and (xix) Rectification of refund order.
30. The above is an overall
view of the purport and intent of the circular issued by the Commissioner. The
question now would be what is the effect of such circular on the refund claim
made by the petitioner and whether the circular could be the starting point for
issuance of notice to reopen the already sanctioned refund.
31. Now, we come to the
first question framed for consideration. Viz., Whether the impugned Circular
No.22/2011 dated 20.10.2011 is bad in law for want of jurisdiction to issue the
same under the provisions of the TNVAT Act and the effect of such Circular on
the assessments made by the Assessing Officer?
The circular has been
admitted to be a non-statutory circular, yet, having been issued by the Head of
the Department would have an effect on the Assessing Authorities, therefore, is
there a need to quash the circular. In the preceding paragraphs, the purpose
and intent of the circular has been set out. The circular deals with various
issues, one of which pertains to referred claims pertaining to zero-rated
sales. Thus, reading the circular as a whole, apart from other issues, it
appears that substantial number of refund claims pertaining to zero rated sale
has arisen in the State of Tamil Nadu and on random check by the Department,
several lapses were noticed which has led to the issuance of the circular. The
Head of the Department is undoubtedly empowered to regulate the conduct of the
business or manage the affairs of his establishment. The Head of the Department
is entitled to give administrative instruction, which shall be binding on all
his subordinates. The problem would arise only when certain subordinates
without due application of mind mechanically apply the
circular/guideline/instruction and proceed to take action unmindful of the
factual and legal position. There might be cases where the administrative head
will issue instructions to the subordinates for the day-to-day conduct of the
affairs of the establishment. But in the instant case, the subordinate officers
as well as the Commissioner are all authorities functioning under a taxation
statute and each one of them exercising quasi judicial function. Therefore,
even though the Commissioner may be the Head of the Department, the manner, in
which a particular return is to be assessed or a refund has to be granted or
refused cannot be issued in the form of guideline or instruction to the
Assessing Officer.
32. The Assessing Officer,
the first fact finding authority, who examines the return or refund claim is
bound to ensure that the parameters prescribed under the statute are complied
with. He is duty bound to apply his mind independently and scrutinise the
assessment order or process the refund. Upon failure to do so, it would be
clear abdication of the power and duties enshrined on the Officer. On a reading
of the circular, it shows that the past experiences were not too pleasant for
the Department, as random checks reveal several bogus refund claims. This has
prompted the Commissioner to issue guideline to his subordinate officers. While
doing so the Commissioner has cautioned the Officers to act in accordance with
the provisions of the statute and not quote the circular. Therefore, on the
grounds raised by the petitioner, there is no necessity to quash the impugned
circular as the same being non-statutory. Such a non-statutory guideline cannot
transgress into the adjudicating power of the Assessing Officer or the
Appellate Authority or refund authority under the provisions of the VAT Act. Therefore, at
best, it could be a guideline issued to the Officers to wake up and get
themselves reminded of all the statutory responsibilities cast upon them, while
processing refund claims among other things. As stated earlier, the lapses,
which have been mentioned in the circular, which appears to have to come to
light during random check is illustrative and not exhaustive. There may be
cases where random check did not reveal certain lapses; that does not mean
those lapses are condoned as it has not been taken note of by the Commissioner
while issuing circular; such interpretation would stifle the provisions of the
Act.
33. The Honourable Division
Bench in the case of Madras Granites (P) Limited Vs Commercial Tax Officer, Arisipalayam Circle , Salem
34. In the light of the
above decisions, the only conclusion that could be arrived at is that the
assessing officer cannot be solely guided by the impugned guidelines and has to
exercise his quasi-judicial powers. In any event there is no cause of action to
challenge the impugned circular and such prayer made in one of the writ
petitions in W.P.9276/2014 is rejected.
36. The Honourable Division
Bench in the case of Pizzeria Fast Foods Restaurant (Madras) Pvt Ltd., Vs
Commissioner of Commercial Taxes, Chennai and others [supra] noted that the
circular issued by the Commissioner under Section 28-A of the TNGST Act is not
binding on the assessing authority or the appellate authority, yet, the fact
that since the Commissioner is a superior authority to the assessing officer or
appellate authority cannot be overlooked, it would be impracticable to expect
the subordinate authority to take a view contrary to the view expressed by the
Commissioner. Therefore, the Division Bench held that the writ petition was
maintainable even without exhausting alternative remedy.
37. The decision in the
case of Ashok Lanka and another Vs. Rishi Dixit and others reported in (2005) 5
SCC 598 was cited by the learned counsel for the petitioner to contend that the
circular was bad in law. On a careful reading of the said decision, it is seen
that the matter arose under the provisions of Chattisgarh Excise Act, 1915 and
the question was whether the circular issued by the Commissioner of Excise in
terms of Section 7 of
the said Act could override the rule making power of the State. In my view, the
decision is clearly distinguishable on facts and does not render support to the
cases on hand.
38. In the light of the
above, the question of quashing the impugned circular is unnecessary in the
light of the stand taken by the respondents that the impugned circular is not statutory
and at best could serve as guideline. A note of caution is added by observing
that no Assessing Officer or Adjudication Authority exercising powers under
the VAT Act or
Rules framed thereunder can blindly follow the circular while considering a
return or refund claim. Accordingly the challenge to the impugned circular is
held to be unnecessary since the circular is a non-statutory circular and is in
the nature of guideline and the prayer for quashing the circular is rejected.
Question No.1 is answered accordingly.
39. Question No.2:- Whether
Section 18 of the TNVAT Act is a Scheme by itself or whether the benefit to a
dealer under Section 18 is
subject to the conditions prescribed under Section 19(9) of the TNVAT Act ?
This issue raised by the
petitioners is by contending that Section 18 is an Island by itself and not subject to conditions prescribed
under Section 19(9) of the TNVAT Act.
VAT is an indirect tax on
the domestic consumption of goods and services, except those that are
zero-rated (such as food and essential drugs) or are otherwise exempt (such as
exports). It is levied at each stage in the chain of production and
distribution from raw materials to the final sale based on the value (price)
added at each stage. It is not a cost to the producer or the distribution chain
members, and whereas its full brunt is borne by the end consumer. It avoids the
double taxation (tax on tax) of a direct sales tax.
40. At this stage, it would
be necessary to quote the relevant provisions of the Act.
Section 2(23) input
means any goods including capital goods purchased by a dealer in the course of
his business. Section 2 (24)
: input tax means the tax paid or payable under this Act by a registered
dealer to another registered dealer on the purchase of goods including capital
goods in the course of his business; Section 2(44) :-
zero rate sale means a sale of any goods on which no tax is payable but
credit for the input tax related to that sale is admissible. Section 18:- Zero-rating.-
(1) The following shall be zero-rate sale for the purpose of this Act, and
shall be eligible for input tax credit or refund of the amount of the tax paid
on the purchase of goods specified in the First Schedule including capital
goods, by a registered dealer in the State, subject to such restrictions and
conditions as may be prescribed:-
(i) A sale as specified
under sub-section (1) or (3) of Section 5 of the
central Sales Tax Act,
1956(Central Act 74 of
1956);
(ii) Sale of goods to any
registered dealer located in Special Economic Zone in the State, if such
registered dealer has been authorised to establish such units by the authority
specified by the Central Government in this behalf ; and
(iii) Sale
(2) The dealer, who makes
zero-rate sale, shall be entitled to refund of input tax paid or payable by him
on purchase of those goods, which are exported as such or consumed or used in
the manufacture of other goods that are exported as specified in sub-section
(1), subject to such restrictions and conditions as may be prescribed.
(3) Where the dealer has
not adjusted the input tax credit or has not made a claim for refund within a
period of one hundred and eighty days from the date of accrual of such input
tax credit, such credit shall lapse to Government. Section 19:- 19. (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 :
Input tax credit. 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 156
(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
1956.
(vi) 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 unavailed 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
(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, 1956. 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
calamity. 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 157 (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 later.
(12) Where a dealer has
availed credit on inputs and when the finished goods become exempt, credit
availed on inputs used therein, shall be reversed.
(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. Rule 11 :-
Refunds- (1) The assessing authority shall issue refund of amount specified in
Form P within ninety days from the date of service of the said Form, failing
which the assessing authority shall also pay the interest at the rate
prescribed under the Act along with such refund amount.
(2) The dealer who claims
refund due to sale effected by him under sub-section (1) of Section 18shall file an
application in Form W to the assessing authority along with copies of invoices
or bills of related purchases within one hundred and eighty days from the date
of accrual of such claim. The assessing authority after verification of the
correctness of the claim, shall issue refund within ninety days from the date
of the receipt of the application in Form W.
41. Zero-rated sale as
defined under Section 2(44) of
the VAT Act means sale of any goods on which no tax is payable, but credit for
the input tax related to that sale is admissible. Section 18 of the VAT
Act deals with zero rating and Sub Section (1) defines what are zero rated
sales for the purpose of VAT Act and
shall be eligible for input tax credit or refund of the amount of tax paid on
the purchase of goods specified in the First Schedule including capital goods,
by a registered dealer in the State, subject to restrictions and conditions
prescribed. In Clause (i) to (iii) underSection 18(1) lists
out the zero rated sales which are eligible for the benefit of input tax
credit. Sub Section (2) of Section 18 speaks
of entitlement of a dealer who makes zero-rate sale, be entitled to refund of
input tax paid or payable by him on purchase of those goods, which are exported
as such or consumed or used in the manufacture of other goods that are exported
as specified in Sub-Section (1) of Section 18, subject to
restrictions and conditions as may be prescribed. Sub Section (3) of Section 18 stipulates
the period within which, the refund claim has to be made which is 180 days from
the date of making zero-rate sale failing which such credit shall lapse to
Government.
42. From the above, it is
clear that to enable a dealer to avail a benefit under Section 18 of the VAT
Act, the sale effected by him shall be a sale of any goods on which no tax is
payable. The statute gives him an incentive to take credit of the input tax by
way of refund. The terms input tax credit or refund occurring in Sub
Section (1) of Section 18 is
of relevance while interpreting the term refund contained in Sub Section (2)
of Section 18. It is relevant
to point out that under the VAT regime no dealer has a right to claim input-tax
credit independent of the provisions ofSection 19. It has been
held set-off provided under the VAT Act is in the
nature of concession. (See M.Mohammed Haji Vs. State of Kerala
43. In the case of USA
Agencies and Others Vs. Commercial Tax Officer, Attur (Rural) Assessment
Circle, Attur and Others reported in [2013] 66 VST 74 (Mad), the Division Bench
has considered the validity of Section 19(11) of the
VAT Act. While considering the design of the VAT Act, its concept,
coverage, compulsory requirement to be complied with and other relevant
details, it was pointed out that the essence of VAT is in providing set-off for
the tax paid earlier and this is given effect through the concept of input-tax
credit/rebate. While considering the expression in the manner prescribed , it
was pointed out that the said expression has been used in several places
in Section 19 and in
several other places in TNVAT Act including Section 18(2) of VAT
Act. Considering the said expression being liberally used under the TNVAT Act,
it is held that the expression in the manner prescribed occurring in Section 3(3) shall be
referable only to the manner prescribed in Section 19 and such
expression makes it clear that input tax credit could be availed of in the
manner prescribed and one such modality and the time frame is prescribed
under Section
19(11) of the Act and it is not merely procedural. Therefore,
it was pointed out that it is a settled provision of law that a person claiming
benefit of exemption must show that he satisfies the eligiblity criteria and
for the said purpose, the provision must be strictly construed.
44. The Honourable Division
Bench of the Bombay High Court in the case of Mahalaxmi Cotton Ginning Pressing
and Oil Industries Vs. State of Maharashtra and Others reported in [2012] 51
VST 1 (Bom), considered the validity of Section 48(5) of the Maharashtra Value
Added Tax Act, 2002 which states that in no case, the amount of set-off or
refund on any purchase of goods shall exceed amount of tax in respect of the
same goods, actually paid, if any, under the Act or any earlier law, into the
Government treasury except to the extent where purchase tax is payable by the
claimant dealer on the purchase of the said goods effected by him. While
considering the validity of the said provision, among other things, it was
pointed out that when the 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.
45. Section 19 of the VAT
Act deals with input tax credit. Section 2(24) defines
input tax to mean the tax paid or payable under the VAT Act by a
registered dealer to any other registered dealer on the purchase of goods
including capital goods in the course of his business. This tax paid by the
registered dealer to another registered dealer on the purchase of goods is
entitled to be availed as a credit termed as input tax credit provided that
the registered dealer, who claims credit shall establish that the tax due on
such purchases has been paid by him in the manner prescribed. Therefore, the
amount which is sought to be refunded in the cases of zero rated sale by filing
application under Section 18(2) is
that input tax paid by the dealer for the purchase of the goods and Section 18 gives such
benefit to the registered dealer, despite the fact that no tax is payable by
him on export sale. Therefore, the expression input tax credit cannot be
divested from Section 18of
the VAT Act and Section 18 of
the VAT Act only carves out an exception with regard to benefit which will
accrue to the registered dealer since he is not liable to pay any tax on export
sale and the tax paid by him on the purchase of goods under normal
circumstances would be enjoyed by him as a credit, which is being granted to
the registered dealer as a refund since there is no tax liability cast on him.
Sub-Clause (i) to (iii) of Sub-Section (1) of Section 18 of the VAT
Act speaks about types of zero rate sale which shall be eligible for input tax
credit or refund of the amount of the tax paid on the purchase of goods
specified in the First Schedule including capital goods, by a registered dealer
in the State subject to such restrictions and conditions as may be prescribed.
Therefore, for all practical purposes, the benefit which accrues to the
registered dealer is in effect input tax credit and that will ripen into refund
claim by the dealer under Sub-section (2) ofSection 18. If such a reasoning
is applied, then the resultant consequence is such input tax credit shall be
available to the dealer subject to restrictions and conditions stipulated
under Section 19of
the Act. Therefore, the contention raised by the learned counsel for the
petitioners that Section 18 of
the VAT Act is an independent provision and an island by itself for the VAT
Tax regime and not dependant upon any contingency and any of the conditions
stipulated under Section 19 of
the VAT Act are arguments, which are stated to be rejected. There is no such
exception carved out in the statute. Section 18 of the VAT
Act does not begin with a non-obstante clause, rather, a procedure prescribed
for cases of zero rated sale. As already observed, the proper test to be
applied is not the terminology used viz., refund, but, in essence, what amount
refunded is undoubtedly a credit, which is being refunded as there is no tax
liability in zero-rated sale.
46. The learned counsel for
the petitioner relied on the decision of the Honourable Supreme Court in the
case of J.K.Cotton Spinning & Weaving Mills Co.Ltd., Vs. The Sales Tax
Officer, Kanpur and Another reported in 1965 16 STC 563 (supra) emphasising on
the expression in the manufacture of goods used in Section 8(3)(b) of
the Central Sales Tax Act, 1956 and contended that what is required to be
proved by the petitioner is that the goods purchased by them is used for the
manufacture of goods, which were exported. On a careful reading of the decision
of the Honourable Supreme Court, it is seen that the Honourable Supreme Court,
while considering the expression in the manufacture of goods held that it
should normally encompass the entire process carried on by the dealer of
converting the raw materials into finished goods. Further, while rendering such
findings, the Honourable Supreme Court pointed out that there is no warrant for
limiting the meaning of the expression in the manufacture of goods since the
Legislature has contemplated that the goods to qualify under Section 8(3)(b) must
be intended for use as raw materials or as plant, or as equipment in the
manufacture or processing of goods. The emphasis laid is on the usage of the
words that such goods must be intended for use in the manufacture. However,
there is no corresponding provision under the TNVAT Act and therefore, the
decision is distinguishable on facts.
47. The learned counsel
relied on the decision in the case of Multimetals Ltd., Vs. Assistant
Collector, Central Excise (supra) [1992 (57) ELT 209(SC)] which arose under the
provisions of Central Excise and Salt Act, 1944 wherein an
exemption provided under the Central
Excise Tariff Act in respect of Copper and Copper Alloys in any
crude form, which are used in the manufacture of pipes and tubes of copper and
copper alloys. By referring to the Notification, which was subject matter of
the said case, the learned counsel emphasised on the word are used employed
in the said Notification and submitted that all that the petitioner has to
establish for being entitled for refund under Section 18(2) of the TNVAT Act is
to show that they used raw materials in the manufacture. However, this Court is
not inclined to accept the submission for two reasons. Firstly, the
Notification which was subject matter of consideration in the case of
Multimetals (supra) was under the Central Excise Tariff Act,
the scheme of which was entirely different and the purport and intent of the
notification is different. In the cases on hand, we are not concerned with
exemption provision, but statutory provision, as to whether it is contingent
upon compliance of certain requirements since the benefit availed under the
TNVAT is a set-off, it is a concession. However, the decision was rendered by
interpreting Notification and the Honourable Supreme Court, while interpreting
the Notification took note of the fact that if in the process of manufacture of
pipes and tubes of copper and copper alloys out of copper and copper alloys in
any crude form is used, exemption is granted as provided. Secondly, the
emphasis is on the words in the manufacture of which duty paid copper or
copper alloys in any crude form or manufacture thereof, are used. In my view,
the correct interpretation would be to read the expression are used in
conjunction in the manufacture of which and that would lead to the correct
interpretation of the judgment, which does not render any assistance to the
case of the petitioners.
48. The decision in the
case of Steel Authority of India Ltd., Vs. Collector of Central Excise [1996
(88) E.L.T. 314 (SC)] is an appeal filed challenging the order passed by the
CEGAT and the question was whether the appellant was entitled for concessional
rate of duty. The exemption notification provided for exemption in respect of
raw naphtha which is intended in the use of manufacture of fertiliser exempting
the manufacturing process. It was held that raw naphtha is utilised in its
plant for the manufacture of fertiliser and the benefit of exemption
notification is extended. In the present proceedings, the petitioner has
approached this Court by way of writ petitions challenging the circular as well
as the orders of assessment which are in most cases exparte orders since the
dealer did not respond to the show cause notice. The assessing officer also
made an adhoc assessment and adopted a uniform percentage stating that the same
is treated as invisible loss and direction was issued to reverse the ITC. The
net result is there has been no examination of the manufacturing process as to
what is the actual manufacturing loss or production loss or invisible loss. This
cannot be done without examining each manufacturing process or identical
manufacturing process. Infact, the association of Textile Exporters were
granted liberty by the Honourable Division Bench to make a demonstration before
the concerned assessing officer. It is not known as to why they did not avail
such opportunity which should have been availed as it is the appropriate method
for ascertaining as to whether on facts there is a process loss or a
manufacture loss. Therefore, the decision does not render support to the case
of the petitioner.
49. While on this issue, as
pointed out by the learned Special Government Pleader, the concept of invisible
loss came up for consideration before the Honourable Division Bench of this
Court in the case of A.L.Murugan Chettiar and another Vs. State of Tamil Nadu
[(1983) 53 STC 227] and in the said case, the assessee contended that in the
matter of estimated purchase value, the value of the quantity in terms of
weight which had disappeared owing to driage or other reasons should not be
taken note of. The Honourable Division Bench pointed out that if an assessee
maintains correct accounts of purchases, then, even though after purchase, the
raw cotton gets reduced in weight and therefore, what is termed as invisible
loss occurs to the assessee, that subsequent development would have nothing to
do with the determination of the purchase turnover at the time of purchase. It
was further pointed out that even as there is no provision in the Act making
allowance for driage or wastage in the manufacturing process of a commodity
which is taxable at purchase point, even so, there cannot be an estimated
allowance for driage or wastage in cases where purchase value has perforce to
be estimated in the absence of correct data or figures in the assessees'
accounts.
50. Therefore, the issues
raised by the petitioner being questions of fact cannot be adjudicated in the
writ petition and the decision of the Honourable Supreme Court in the case of
Ashoka Marketing Ltd., and another Vs. Punjab National Bank and others [74
Company Cases 482 (SC)] would fully support the conclusion arrived by this
Court, wherein, the Honourable Supreme Court pointed out that disputed
questions of fact cannot be adjudicated in the writ petition, more so, in
taxation matters. Furthermore in none of the Writ Petition, there is any
challenge to the statutory provisions of the TNVAT Act.
51. In the light of the
above, Question No.2 is answered against the petitioners and it is held thatSection 18 of the VAT
Act is not an independent provision, not a scheme by itself and forms part of
the statute. Consequently, the Input tax credit or refund, which is claimed
under Section 18 of
the VAT Act is subject to restrictions and conditions under Section 19 of the
Act.
52. Question No.3:- Whether
on the given facts and circumstances would it be sufficient for a dealer who
claims refund under Section 18(2) of the TNVAT Act of the input tax paid on the
purchase of the goods to show that those goods are used in the manufacture and
nothing more ; Whether the Assessing Authority should embark upon a fact
finding exercise to ascertain the quantum of loss ?
Question No. (4) If it is
held that the relief under Section 18(2) of TNVAT Act is subject to Section 19
of TNVAT Act, whether the circumstances mentioned in Section 19(9)(i),(ii) and
(iii) would cover manufacturing loss ?
It has been the endeavour
of the learned counsel appearing for the petitioners to impress upon this Court
that all that the petitioners is expected to establish is that he has paid
input tax on the purchase of the goods and nothing more is required. To
substantiate the contention, reference has been made to definition contained
in Section 2(24) of the
VAT Act read with Section 18 of
the Act. It is submitted that for a refund claim under sub section (2) of Section 18, all that the
registered dealer is to prove is that he has paid tax on the purchase of those
goods, which are used in the manufacture of other goods that are exported.
While answering Question No.2, it has been held that Section 18 of the VAT
Act cannot be divested from the other provisions of the Act and whatever claim
made under Section 18(2) of
the VAT Act was subject to the restrictions and conditions under Section 19 of the VAT
Act.
53. Section 18(1) of the
Act stipulates that the eligibility for input tax credit or refund shall be
subject to restrictions and conditions as may be prescribed. Similar expression
is found in sub section (2) of Section 18. In my view,
the restrictions and conditions found in Section 19 of the VAT
Act, is the only provision, which deals with the manner in which input tax
credit is admissible. Therefore, the dealer is bound to satisfy that his sale
is a zero rated sale and that he is entitled for input tax credit as he has
paid tax on purchases effected by him and those goods purchased have been
exported as such or consumed or used in the manufacture of other goods and on
establishing the same would be entitled to the credit subject to such
restrictions and conditions as may be prescribed.
54. If we look at Section 19 of the VAT
Act, there are various restrictions and conditions imposed. Sub Section (2)
of Section 19 deals with
input tax credit for purchase of goods made within the State from a registered
dealer, which are for the purpose of the circumstances set out in Clauses (i)
to (vi) under Section 19(2).
Sub Section (3) of Section 19 deals
with purchases of capital goods in the use of manufacture of taxable goods and
the manner in which input tax credit is permissible. Sub Section (4) of Section 19 deals with
input tax credit on tax paid by him in the State on the purchase of goods, in
excess of three per cent of tax relating to such purchases subject to such
conditions. Sub Section (5) of Section 19 deals with
sale of exempted goods underSection 15;
allowability of tax paid in other States or Union Territories; input tax paid
by any other States or Union Territories on goods brought into this State from
outside the State and allowability of input tax 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) ofSection 8 of the
Central Sales Tax Act, 1956. Sub Section (6) of Section 19 places a
clear embargo stating that no input tax on purchase of capital goods, which are
used in the manufacture of goods exempted under Section 15 and the
proviso provides that the purchase of capital goods which are used in the
manufacture of exempted goods and taxable goods, input tax credit shall be
allowed to the extent of its usage in the manufacture of taxable goods in the
manner prescribed. Sub Section (7) of Section 19 deals with
circumstances in which the registered dealer shall not be entitled to input tax
credit. Sub Section (8) of Section 19 prohibits
the credit being allowed in respect of any goods purchased for sale but given
away by him by way of free sample or gift or goods consumed for personal use.
Sub Section (9) of Section 19 states
that no input tax credit shall be available to a registered dealer for tax paid
or payable at the time of purchase of goods setting out three circumstances
under Section (9) of Section 19.
Therefore, if any one of the circumstances stand attracted, no input tax credit
shall be available to the registered dealer. Having held that Section 19 cannot be
read in isolation, it necessarily follows that the benefits which flow to the
dealer under Section 18 is
subject to restrictions and conditions stipulated under Section 19 of the
Act.
55. In the light of the
above, the registered dealer, who claims for refund of the input tax underSection 18(2), which
itself in the nature of credit has to first satisfy that the circumstances set
out in Section 19(9) are
not attracted. Therefore, it is not sufficient for the registered dealer to
merely state or show that the goods were used in the manufacture and there is
nothing more to be done by him and he would be entitled to the entire credit of
the tax paid by him on the input by way of refund. The said contention cannot
be accepted in the light of the discussion made above. In such circumstances,
the dealer is bound to prove that the circumstances set out in Section 19 of the VAT
Act are not attracted, which places embargo on the right of the registered
dealer to avail input tax credit and satisfy the Assessing Officer that none of
the circumstances set out underSection 19 of
the VAT Act prohibit the claim made by the dealer for which it is essential for
the Assessing Authority to embark upon on fact finding exercise on each
individual claim which may be unique and distinct. Therefore, the Assessing
Officer has to conduct an exercise by which it is to be ascertained as to
whether the representation made by the dealer is justified and is not hit by
any any of the restrictions and conditions contained in Section 19 of the
Act.
56. In all these cases,
despite different products manufactured by the petitioners, the respective
Assessing Officers have reopened the refund claims already sanctioned or
refused to process the refund claims and issued notices to the dealers. The
dealers did not respond since some of the dealers viz., Hosiery manufacturers
through their Association filed Writ Petition before this Court. The writ
petition was dismissed on the ground that the association cannot canvass
individual tax claims. The view taken was affirmed by the Honourable Division
Bench. It is to be noted that the Hosiery Manufacturers in the earlier round of
litigation stated that there is no loss of goods in the goods purchased by them
and the entire material was converted into final product. However, in the
present batch of cases, a different contention has been raised which appears to
be a contradictory stand, wherein, the petitioners would admit that there is
loss of input which occurs in the process of manufacture, which cannot be to
the extent of 5% probably 0.5% which is invisible loss. Therefore it is the
duty of the dealer to factually establish that the circumstances set out under
Clauses (i) to (iii) in Section 19(9) are
not attracted in their process of manufacture. The interpretation given by the
petitioners to Clause (i) to (iii) of Section 19(9) as to
its applicability can be decided without examining the facts of each process
which has to be done by the assessing officers. The yarn may be blown of in the
process of manufacture or the metal may get evaporated in the process of
manufacture etc. Nevertheless, the dealers now admit that there is quantity of
the input which does not form part of the final product and the question would
be whether this missing quantity of input, which does not form part of the
final product could be taken for the purpose of availing input tax credit,
which is in the form of refund to dealers (zero-rated). Whether the loss which
is said to be minimal in the case of textile manufacturers, which according to
them is not a loss by destruction cannot be adjudicated in these writ petitions
as it is essentially a question of fact. Clause (i) of Section 19(9) uses
the expression for any reason . Therefore whether it is a process loss or
manufacturing loss or destruction or theft, loss while process loss or
manufacturing loss or destruction or theft, loss while in storage, damage in
transit or destruction at some intermediary stage of manufacture are to be
established before the assessing officer by the dealer and to satisfy the
assessing officer that loss of the goods purchased is not covered under any one
or more of the contingencies underSection 19(9) of
the Act. The Assessing Officers appear to be have been impulsive after issuance
of the impugned guideline partly precipitated by the dealers since they did not
avail opportunity granted by the Honourable Division Bench before whom they
agreed to demonstrate their manufacturing process before their concerned
Assessing Authority that there is no loss of material. Be that as it may, the
earlier round of litigation did not decide the merits of the issue. Therefore,
the same cannot be an embargo for the petitioners, who may be the members of
the earlier writ petitioner association and in any event, there was no finding
on the legal issues while deciding the earlier writ petitions or that matter in
the Writ Appeal. Question Nos.3 and 4 are answered accordingly.
57. Question No.5:- Whether
the respondent / assessing authorities were justified in adopting a uniform
percentage as invisible loss and calling upon the dealer to reverse the
Refund / Input Tax Credit availed to that extent ?
In the light of the
conclusion arrived in respect of Questions 1 to 4 in the preceding paragraphs,
it is to be seen as to whether the respondent/Assessing Officers could have
adopted a uniform percentage and taken that as a basis and reopened the refund
claims. The answer to this question should be in the negative, since each
Assessment proceedings is an independent proceedings, the Assessing Officer
cannot ignore facts. He is expected to go through the books of accounts, the
details furnished etc. In all these cases, the claim for refund is based on a
statutory form viz., Form W, which states the information required to be
furnished under three heads viz.,(1)Particulars of the goods exported, (2)
Particulars of the Input tax paid and (3) Amount of refund claimed. Based on
these particulars, the Assessing Officer has to independently apply his mind
and ascertain as to what is the description of goods exported; the quantity of
the goods exported; the value and other details to establish export. While
coming to the particulars of the input tax paid, apart from the statutory requirements
such as TIN Number of the seller etc., the quantity on which the input tax was
paid is also one of the information to be furnished by the dealer. Another
column, which is relevant in Clause (vii) is input tax credit relatable to the
export. In the said column, three types of information is required to be
furnished viz., quantity of inputs relatable to the export (b) value (c) Input
tax on (b). After furnishing all these details, the dealer states the amount
which he claims as refund; the dealer certifies that the information is correct
and undertake to refund, on demand being made, if any refund is made
erroneously to him and a further declaration that there is no parallel claim
for the refund on the same year. After filing of Form W, the duty enjoined upon
the Assessing Officer is not a ministerial act. This is precisely what the
impugned circular attempt to focus on. Form W Claim for refund is not a single window
procedure where the refund is automatic. Such an interpretation is not tenable
and it is not in consonance with the scheme of the Act.
58. VAT Act was
introduced, since in the erstwhile structure, there were problems of double
taxation of commodities and multiplicity of taxes, resulting in a cascading tax
burden. Under VAT, a set-off is given for input tax as well as tax paid on
previous purchases and the benefits which flow to a dealer on the introduction
of VAT was that he is entitled to
(i) a set-off will be given
for input tax as well as tax paid on previous purchases.
(ii) other taxes, such as
turnover tax, surcharge, additional surcharge etc were abolished,
(iii) rationalisation of
the overall tax burden.
(iv) general fall in the
prices of products.
(v) self-assessment
procedure by the dealers themselves
(vi) increase in
transparency
(vii) higher revenue
growth.
59. Therefore, going by the
object of the enactment, the Assessing Officer is bound to examine the refund
claim under Section 18 in
accordance with the procedure stipulated for availing input tax credit by
applying Section 19 of
the VAT Act and it is only then, the Authority can pass an order on a refund
claim. Therefore, the processing of refund application under Form W is in
effect akin to an assessment proceedings since the benefit which flows under
claim in Form W, is in effect, the amount which the dealer avail as refund
would be a credit if the transaction was not a zero rated sale. The learned
counsel for the petitioners placed reliance on the decision of the Honourable
Supreme Court in the case of Union of India Vs. Indian Aluminium Co.Ltd., [1995
(77) ELT 268 (SC)], which arose out of the appeals filed by the Union of India
Vs. Collector of Central Excise and the question regarding levy of excise duty
on aluminium dross and skimmings, which were removed by the assessees without
payment of duty. The Honourable Supreme Court examined the said manufacturing
process and rendered the finding. The question whether in the manufacturing
process, there is process loss is undoubtedly a question of fact. Whether
lesser quantity of raw material would be sufficient to achieve the quantity of
end product is also question of fact. Therefore, this decision in fact would
render support to the conclusion of the Court stating that there cannot be a
uniform percentage fixed by the authority and it has to be based on the
individual manufacturing process. Hence, Question No.5 is answered in favour of
the petitioners and it is held that the Assessing Officers were not justified
in adopting uniform percentage as invisible loss and calling upon the dealer to
reverse the refund/input tax credit availed to that extent. Consequently, all
notices issued to the petitioner for reopening and all consequential order
passed reversing the input tax credit to the extent of either 4% or 5% or adhoc
basis stands set aside. However, liberty is granted to the concerned Assessing
Officer to issue show cause notices to the petitioners clearly setting out the
circumstances under which they propose to revise or call upon the petitioner to
reverse refund sanctioned and after receiving their objections shall proceed in
accordance with law.
60. Question No.6 : Whether
the petitioners/dealers are justified in contending that there is no machinery
under the TNVAT Act to reverse the refund granted pursuant to an order passed
on an application filed by the dealer in Form W under Rule 11(2) of the TNVAT
Rules ?
This question is relatable
to Question No.5. While answering Question No.5 in favour of the dealers, it
has been held that the Assessing Officer cannot adopt uniform procedure and
direct reversal of the refund to the extent of 4% /5 % stating that the credit
availed to that extent is relatable to the invisible loss of the material
purchased which has been used in the manufacture. According to the petitioner,
once a refund has been sanctioned, it is final for all purposes and there is no
procedure prescribed under the Act for reversing the refund sanction. This
submission does not merit acceptance in the light of the reasoning given above
that whatever refund sanctioned under Section 18(2) of the
Act, which in effect a credit in the hands of the dealer is subject to the
restrictions and conditions in Section 19 of VAT
Act. If there is wrong availment of refund, furnishing of wrong information or
any other matter, which ultimately leads to a conclusion that the refund
ordered was incorrect or erroneous then, the Assessing Officer is entitled to
direct the petitioner to reverse the same. Further more, the assessee has given
an undertaking in Form W agreeing to refund the amount which was paid
erroneously. It is submitted by the learned counsel for the petitioner that
this undertaking is relatable only to information furnished in Form W and
therefore, it does not empower the Assessing Officer to review the order passed
under Sub Section 2 of Section 18. This contention also does not merit
acceptance for two reasons. Firstly, Form W is a statutory form under Rule
11(2) of the VAT Rules and the said rule empowers the Assessing Authority to
verify the correctness of the claim before issuing refund. The correctness of
the claim deals with the particulars furnished relatable to the transaction.
Therefore, the undertaking given by the dealer in Form W is with regard to
information furnished for the purpose of verification to be done by the
Assessing Officer under Rule 11(2) of the VAT Rules for being entitled to
refund under Section 18(2).
Therefore, it is not as if the Act does not provide a remedy in the event of a
wrong or erroneous refund sanctioned as it has been held that the refund claim
under Section 18 is
subject to restrictions and conditions contained under Section 19.
61. Having held that Section 18 is not an
island by itself but subject to restrictions and conditions laid down
in Section 19 of VAT Act
and having observed that there cannot be uniform yardstick in all types of
manufacturing process; to ascertain as to whether there is process loss or
manufacture loss or invisible loss, there is no necessity to examine as to what
is stated to be a loss by the petitioner, whether it is invisible loss or
whether it is destruction loss or whether it would be falling within any one of
the parameters specified in Sub-Section 9 of Section 19 of VAT Act, this being a question
of fact has to be established by the dealer when called upon by the authority.
Therefore, those questions are left open. It was contended by the petitioner
that there is no power to review of the decision or order passed under Section 18 of VAT
Act, since it is an independent provision. This Court has held that Section 18 of VAT Act
is subject to the restrictions and conditions under Section 19 of VAT
Act. Therefore, if in a given cases of wrong availment, Section 19 provides
for reversal. Therefore, it is incorrect to state that once the refund is
granted, reopening does not arise. Such interpretation is not in consonance
with the scheme of the Act; more so, when what is given to the petitioner is
concession or set-off.
62. In the light of the
above conclusion, the decision relied on by the learned counsel for the
petitioner in the case of Binani Industries Limited Vs. Assistant Commissioner
of Commercial Taxes VI Circle, Bangalore and Others [2007] 6 VST 783 (SC) with
regard to reopening of the assessment does not render assistance to the case of
the petitioners. Accordingly Question No.6 is answered against the petitioners.
63. In the result, (1) the
challenge to the impugned circular is held to be unnecessary since the circular
is a non statutory circular and is in the nature of guideline and the prayer
for quashing the circular is rejected.
(2) Section 18 of the TNVAT
Act is not an independent or a separate stand alone provision under the
provisions of TNVAT Act but subject to other provisions of the Act
including Section 19 of
the VAT Act.
(3) For the reasons
assigned, it is not sufficient for a dealer claiming refund under Section 18(2)of the Act to
show that he has paid input tax on the goods purchased; that those goods are
used in the manufacture and nothing more but there is duty upon the dealer to
satisfy the Assessing Authority that the claim is not hit by any of the
restrictions or conditions contained under Section 19 of the VAT
Act. In this regard, it is essential for the Assessing Authority to embark upon
the fact finding exercise to ascertain the quantum of loss of the goods which
were purchased on which tax was paid vis-a-vis the goods manufactured from and
out of the goods purchased and to examine as to whether they fall within any of
the restrictions contained in Section 19 of the VAT
Act. The Assessing Officer has to conduct an exercise by which it is to be
ascertained as to whether the representation made by the dealer is justified
and is not hit by any any of the restrictions and conditions contained in Section 19 and in
particular Section 19(9) of
the VAT Act.
(4) It is held that the
Assessing Authorities are not justified in adopting uniform percentage as
invisible loss and calling upon the dealer to reverse the input tax credit
availed to that extent. Consequently, all notices issued to the petitioner for
reopening and all consequential order passed reversing the input tax credit to
the extent of either 4% or 5% or on adhoc per centage stands set aside.
However, liberty is granted to the concerned Assessing Officer to issue
appropriate show cause notices to the petitioners clearly setting out under
what circumstances they propose to revise or call upon the petitioner to
reverse refund sanctioned and after inviting objections proceed in accordance
with law.
(5) The undertaking given
by the dealer in Form W is with regard to information furnished for the purpose
of verification by the Assessing Officer under Rule 11(2) of the VAT Rules for
being entitled to refund under Section 18(2). Therefore,
it is not as if the Act does not provide a remedy in the event of a wrong or
erroneous refund sanctioned when Section 18 cannot be
treated as an independent provision but subject to restrictions and conditions
under Section 19 of
the VAT Act.
64. The Writ petitions are
disposed of accordingly. No costs. Connected MPs are closed.
26.11.2014 Index:Yes/No
Internet:Yes/No nvsri T.S.SIVAGNANAM, J.
nvsri To
1.The Principal
Secretary/Commissioner of Commercial Taxes Ezhilagam, Chepauk Chennai-600 005
2.The Assistant
Commissioner(CT)(FAC) Trichy Road Circle Coimbatore order in W.P.13901/2013 etc
Batch 26.11.2014