Flowserve (India) Controls Pvt. Ltd. vs Assistant Commissioner (CT), Avanashi Road Circle

T.S. Sivagnanam, J.

Heard Mr. N. Prasad, learned counsel for the petitioner and Mr. A.R. Jayaprathap, learned Government Advocate for the respondent and with the consent of either side, the writ petition itself is taken up for final disposal. The petitioner is a registered dealer under the provisions of the Tamil Nadu Value Added Tax Act, 2006. The petitioner is a private limited company and has factories at Coimbatore and Chennai, inter alia, involved in the manufacture of industrial pumps, valves and its parts.

The issue involved in this writ petition pertains to the assessment year 2013-14. The assessee filed returns for the relevant period and on verification of the returns, the assessing officer pointed out that they have effected sales and claimed ITC and after reversing the ITC, balance ETC has been adjusted under both the provisions under the TNVAT and CST Act and the remaining is in their account. Further, it is stated that on verification of the returns and records, it was noticed that the petitioner has not claimed refund of ITC in form W the export sales constitutes 65 per cent. of the total sales, therefore, the petitioner should reverse the ITC relating to the export after deducting the tax dues within 180 days from the date of export as it had lapsed to the Government according to section 18(3) of the TNVAT Act; therefore the petitioner was called upon to reverse ITC as it had lapsed to the Government. Further, it was stated that the petitioner has not reversed the FTC according to section 19(2) of the TNVAT Act with effect from November 11, 2013 and therefore, there was a proposal to reverse such ITC. The petitioner was granted 15 days time to submit their objection. The petitioner submitted a detailed objection dated August 7, 2014 copy of which has been enclosed in the typed set of papers filed along with this writ petition.

The learned counsel for the petitioner pointed out that the petitioner has clearly explained as regards the closing input-tax credit balance during the month from November 2013 onwards. In this regard, reference was made in paragraphs 6.2 to 6.10 of the Explanation with regard to proposal to reverse the ITC under section 19(2) of the Act. The petitioner pointed out that the demand is purely on account of the amendment to section 19(2) by Amending Act 28 of 2013 and sought to justify as to how the said amendment would not affect the petitioner, as they are manufacturers of goods within the State and the goods were purchased from registered dealers which are for the purpose of use in the manufacture within the State ; consequently, clause (ii) of section 19(2) of the Act, i.e., inputs are for the purpose of use as input in the manufacture or processing of goods in the State. Other contentions in the objections were found in paras 7.3 to 7.16 of the reply/objection dated August 7, 2014. The petitioner also asked for grant of opportunity of personal hearing.

The assessing officer in the impugned order of assessment, after referring to the contents of the notice dated June 19, 2014 has briefly set out the objections raised by the dealer in the objections dated August 7, 2014, while finalising the assessment. The assessing officer adopted a formula, viz., by stating that proportionate ITC due for refund on zero rated sale. It is seen that this formula adopted by the assessing officer has been done for the first time and such formula was not adopted while issuing show-cause notice dated June 19, 2014. Therefore, if only the dealer had been put on notice referring proportionate ITC due for refund on zero rated sale and proposing to calculate, then only, the dealer would be in a position to submit his objections. If show-cause notice does not disclose the basis to such calculation, then, the dealer would not be in a position to know what is passing in the minds of the assessing officer and that is the reason the dealer would not object to reverse the proposal effectively. Therefore, the resultant consequence would be the impugned proceedings and has traveled beyond the scope of the show-cause notice by adopting the procedure, which was not disclosed to the petitioner at the time of proposal dated June 19, 2014. Hence, this court is satisfied that the impugned order suffers from serious procedural infirmity and the same is in violation of principles of natural justice.

So far as the second issue with regard to proposal of ITC under section 19(2) of the Act, the assessing officer did not advert into any of the objections raised except to state that as per section 19(2)(v), the reversal was proposed as per the amended section ; as per the section, there is no exception for manufacturer. The petitioner in their objection/reply dated August 7, 2014 elaborately dealt with the issue relating to section 19(2)(v) and the petitioner stated that the said provision was not attracted as the Legislature has not sought to restrict the credit in respect of goods which are for the purpose of use in manufacture or processing within the State. It is seen from the reply that the petitioner would state that they being manufacturers, they would fall within clause (ii) of section 19(2), i.e., inputs are for the purpose of use as input in the manufacture or processing of goods in the State. Therefore, the assessing officer while dealing with second issue regarding applicability of section 19(2) did not assign any reasons.

This is one more reason to find fault with the impugned assessment order. In the light of the above, this court has no hesitation to hold that the impugned assessment order calls for interference in this writ petition. Accordingly, the writ petition is allowed and the impugned order is quashed and the matter is remitted to the respondent for fresh consideration, after grant of opportunity of personal hearing, in which the petitioner will be entitled to urge all the contentions raised in their objection dated August 7, 2014 and also to point out as to how the formula adopted by the respondent will not apply to them. In this regard, the petitioner is also entitled to submit further objections, if needed. No costs. Connected M.P. is closed.