Goods & Services Tax (GST) in IndiaTransitional Credit of Purchase tax paid under GST Act allowed if already paid under VAT Act

The Hon’ble Madras High Court in M/s Sri Sasthaa Constructions V/s The Assistant Commissioner (ST) [W.P.Nos.20871 & 20874 of 2023] decided on 16.02.2024, allowed the transitional credit of purchase tax paid under Section 140 of the Tamil Nadu Goods and Services Tax Act, 2017 (hereinafter referred to as “TNGST Act”), if the petitioner had paid “purchase tax” under Section 12(1) of the Tamil Nadu Value Added Tax Act, 2006 (hereinafter referred to as  “TNVAT Act”).

FACTS

The M/s Sri Sasthaa Constructions (hereinafter referred to as “Petitioner”) is a works contractor who has rendered works contract service. The employer availing the services of the Petitioner had deducted the tax deducted at source (hereinafter referred to as “TDS”) amount under Section 13 of the  TNVAT Act. The TDS was then further transitioned under Section 140 of the TNGST Act, along with the “purchase tax” paid by the Petitioner which was availed of as an input tax credit.

The Respondent denied the transmitted tax to the Petitioner. The Petitioner filed the present writ petition after receiving the  order-in- original dated. 21.06.2023 (hereinafter referred to as “impugned order”), asking the petitioner to pay the amount towards the arrears of tax.

ISSUES BEFORE THE HIGH COURT 

1. Whether the Petitioner is entitled to transition the credit of ITC lying unutilized in the VAT Account?
2. Whether the statutory limit to file an appeal be extended due to a lack of principles of natural justice by the Authority?

CONTENTIONS OF THE PARTIES

The Petitioner contended that they were  entitled to transition the credit of ITC lying unutilized in the VAT account and the impugned order  which has been passed did not follow the principles of natural justice and therefore is liable to be quashed.

The Petitioner further submitted that the said impugned order was passed during the second wave of the pandemic in April 2021. The tax consultant employed by the Petitioner was aged and died due to COVID-19 pandemic. Thus, the appeal could not be filed under Section 107 of the TNGST Actwithin the limitation period.

The Respondent primarily contended that the present writ petition challenging the order on the grounds of natural justice or any other ground will only be available when the petition was filed within the period of limitation. The Respondent relied on Assistant Commissioner (CT) LTU, Kakinada and others Vs. Glaxo Smith Kline Consumer Health Care Limited [(2020) 19 SCC 631] to contend that the writ petition cannot disregard the statutory period of limitation for redressal of the grievance.. The wide powers entrusted with the High Court does mot include the power to issue a writ which may be inconsistent with the legislative intent regarding the dispensation.

FINDINGS

The Hon’ble Madras High Court accepted the reasonable explaination of the Petitioner for not having filed an appeal in time under Section 107 of the TNGST Act.  The High Court held that if the ITC was validly availed by the Petitioner on “purchase tax” paid by the Petitioner under Section 12(1) of the TNVAT Act  and if the same remained un-utilized, it will be entitled to transition the same under Section 140 of the TNGST Act  as transitional credit.

The Hon’ble Court further stated that the Petitioner deserves a chance to defend the case as the impugned order was passed during the semi-lockdown period. If the VAT-TDS had indeed remained unutilised for discharging tax liability under the TNVAT Act then  there should be a fresh adjustment of the amount out of the VAT-TDS towards the tax liability of the Petitioner. Thereafter, ITC, which would have remained unutilized, ought to have been allowed to be transitioned under Section 140 of the TNGST Act or refunded to the Petitioner under Section 54 of the TNGST Act read with the TNVAT Act.

The Hon’ble High Court directed the Assessing Officer to re-do the assessment by first adjusting the TDS under Section 13(1) of the TNVAT  Act, read with TNVAT Rules, and owing to the credit of the government, and thereafter refunding the amount of surplus input tax credit that would have remained unutilized after adjustment of the tax deducted at source under Section 13(1) of the TNVAT Act, read with TNVAT Rules,  and ITC towards the tax liability for the Petitioner while filing returns during periods in dispute.

AMLEGALS REMARKS

This case highlights the importance of procedural fairness and equitable treatment, especially during extraordinary circumstances such as the COVID-19 pandemic. The decision reaffirms the rights of taxpayers to legitimately transition unutilized input tax credit, provided it was lawfully availed, thus ensuring a balance between taxpayer rights and compliance. Additionally, the directive for reassessment with proper adjustment and refund mechanisms demonstrates the court’s commitment to upholding justice and fairness in tax administration. This case serves as a significant precedent for protecting taxpayer interests while maintaining the integrity of tax laws.

– Team AMLEGALS