Claim of Input Tax Credit of the petitioner firm has been rejected and interest has been imposed upon the petitioner firm, as provided under Section 30 of the Jharkhand Value Added Tax Act, 2005

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M/S. Tarapore & Company vs The State Of Jharkhand Through The … on 17 December, 2019

                                                               W.P. (T) No. 773 of 2018

                                                                and connected matter

                                            -1-

                 IN THE HIGH COURT OF JHARKHAND AT RANCHI

                             W.P. (T) No. 773 of 2018

                                       With

                              I.A. No.1495 of 2018

        M/s. Tarapore & Company, Jamshedpur.                  ….. …   Petitioner

                                           Versus

  1. The State of Jharkhand through the Secretary,

           Finance Department, Ranchi.

  1. The Commissioner of Commercial Taxes, Ranchi.
  2. Deputy Commissioner of Commercial Taxes,

           Jamshedpur Urban Circle, Jamshedpur.

  1. Assistant Commissioner of Commercial Taxes,

           Jamshedpur Urban Circle, Jamshedpur.

  1. M/s Sanatan Enterprises, Jamshedpur.                …. … Respondents

                                          With

                                 W.P. (T) No. 5978 of 2018

        M/s. Tarapore & Company, Jamshedpur.                     ….. … Petitioner

                                            Versus

  1. The State of Jharkhand, through

           Secretary cum Commissioner of Commercial Taxes, Ranchi.

  1. The Deputy Commissioner of Commercial Taxes,

           Urban Circle, Jamshedpur.

  1. The State Tax Officer, Sakchi, Jamshedpur.
  2. State Bank of India,

           Main Branch, Bistupur, Jamshedpur.                    …. … Respondents

                                            ——–

               CORAM :         HON’BLE MR. JUSTICE H.C. MISHRA

                          : HON’BLE MR. JUSTICE DEEPAK ROSHAN

                                            ——–

        For the Petitioner               : Mr. M.S. Mittal, Senior Advocate

                                           Mr. Rahul Lamba, Advocate

                                           Ms. Varsha Ramsisoria, Advocate

                                           Mr. Naveen Kumar, Advocate

                                           Mr. Zaid Imam, Advocate

        For the Respondent No.5          : Mr. Sumeet Gadodia, Advocate

                                           Mrs. Shilpi John, Advocate

                                           Mr. Ranjeet Khuswaha, Advocate

        For the State                    : Mr. Atanu Banerjee, Sr. S.C.III

                                           Mr. Ashwini Bhushan, A.C. to Sr. S.C.III

        For State Bank of India          : Mr. Ratnesh Kumar, Advocate.

                                            ——–

14/ 17.12.2019      Heard learned counsel for the petitioner and learned counsels for

        the respondents.

                                                           W.P. (T) No. 773 of 2018

                                                           and connected matter

  1. As both these writ applications are connected matters, they have been heard together and are being disposed of by this common Judgement.
  2. In W.P.T. 773 of 2018, the petitioner is aggrieved by order dated 20.11.2017, as contained in Annexure-5 to the writ application, passed by the respondent Assistant Commissioner of Commercial Taxes, Urban Circle, Jamshedpur, whereby the claim of Input Tax Credit (herein after referred to as ‘ITC’), of the petitioner firm has been rejected and interest has been imposed upon the petitioner firm, as provided under Section 30 of the Jharkhand Value Added Tax Act, 2005, (herein after referred to as the ‘JVAT Act’). The petitioner has also challenged the demand notice, issued pursuant thereto, as contained in Annexure-6 to the writ application.
  3. In W.P.(T) No. 5978 of 2018, the petitioner has challenged the garnishee orders issued by the Sales Tax Officer, Jamshedpur Circle, whereby the Banks, in which the petitioner firm is having their accounts, were asked by the respondent authority to recover the amount of Rs. 20,21,801/- from the account of the petitioner and deposit the same in the Government Treasury. In course of hearing, we are informed by learned counsel appearing for the State Bank of India, that the said garnishee order has been carried out and the amount has already been withdrawn from the account of the petitioner firm, and deposited in the Government Treasury. As such for all practical purposes, W.P.(T) No. 5978 of 2018 has become infructuous.
  4. Facts giving rise to W.P.(T) No. 773 of 2018 are that the petitioner firm, which is engaged in the work contract, and the respondent No.5 M/s Sanatan Enterprises, both are registered under the JVAT Act. For the purposes of carrying out its business, the petitioner firm made certain purchases in the financial Year 2015-16, from M/s Sanatan Enterprises, for the total amount of Rs. 1,08,91,031.81, on which the petitioner also made the payment of VAT to the seller, amounting to Rs. 11,89,744.13, for which the tax invoices were also issued to the petitioner firm by the selling dealer, i.e., M/s Sanatan Enterprises. In the return filed by the petitioner firm, the said amount of Rs.11,89,744.13 was claimed as ITC. However, during the scrutiny of the returns, it was found that the said amount did not reflect in the MIS as regards the return filed by M/s Sanatan Enterprises, from which, purchases were made. Accordingly, the notice under Section 33 of the JVAT Act was issued to the petitioner firm on 21.08.2017. In reply to the notice, the petitioner produced all the necessary documents, including tax invoices W.P. (T) No. 773 of 2018 and connected matter supplied to it by the selling dealer, in order to the satisfy the Assessing Authority that while making the purchases, the petitioner had discharged all the tax liabilities, and it was the selling dealer, who had not deposited the tax in the Government Treasury, for which the petitioner firm was not at all at fault.
  5. After giving a hearing to the petitioner firm, the impugned order dated 20.11.2017 was passed by the Assessing Authority, which has been brought on record as part to Annexure-5 of the writ application, a perusal whereof shows that the Assessing Authority, i.e., the Assistant Commissioner Commercial Taxes, Urban Circle, Jamshedpur, came to the conclusion that the petitioner firm had made the purchases from M/s Sanatan Enterprises for the amount showed in this return, and had also paid the amount of VAT to the selling dealer, and it was in fact the selling dealer, who had not filed its return and deposited the amount in the Government Treasury. As such, the Assessing Authority disallowed the claim of ITC of Rs. 11,89,744.13, made by the petitioner firm, and interest was imposed upon the petitioner.
  6. The said claim of the petitioner was disallowed, in view of sub-clause (xvii) brought in Section 18(8) of the JVAT Act, by Jharkhand Value Added Tax (Amendment) Act, 2015, which reads as under:-

“18. Input Tax Credit. – (1) —————–. (8) No input tax credit under sub-Section (1) shall be claimed or be allowed to a registered dealer –

(xvii) In case the amount of Input Tax Credit on any purchase of goods shall exceed the amount of tax in respect of the same goods actually paid, if any, under this Act into Government Treasury.”

  1. At this stage, it may be stated that though this provision is not very happily worded, but the intent of the Legislature was clearly that the ITC was to be claimed or allowed on any purchase of goods, only to the extent the amount of tax was actually paid with respect to the said goods in the Government Treasury. In the present case, in view of the fact that no tax was actually paid in the Government Treasury by the selling dealer, the ITC claimed by the petitioner was disallowed by the Assistant Commissioner Commercial Taxes, and also interest was imposed by the impugned order dated 20.11.2017. It is this order that the petitioner has challenged in W.P.(T) No. 773 of 2018, also challenging the vires of the aforesaid sub-clause (xvii) brought in Section 18(8) of the JVAT Act by way of amendment, being violative of Article 14 of the Constitution of India, being discriminatory in nature. The petitioner has also challenged the aforesaid provision, submitting W.P. (T) No. 773 of 2018 and connected matter that there is no mechanism available in the JVAT Act, so as to enable the purchaser to ensure that the selling dealer deposits the tax realised from the purchasing dealer in the Government Treasury.
  2. The respondent No. 5 M/s Sanatan Enterprises has also appeared upon notice, and filed their counter-affidavit, in which it is an admitted fact that the purchases were made by the petitioner from this respondent, and VAT was also paid to the tune of Rs. 11,89,744.13, but in paragraph-7 of the counter affidavit, it is stated that due to the circumstances beyond its control, the answering respondent could not file its statutory return under the provisions of the VAT Act, within the stipulated time. In paragraph-8 of the counter-affidavit, it is further stated that due to non-filing of the statutory return within the statutory time, online portal / registration granted to the answering respondent was blocked by the State of Jharkhand, due to which the answering respondent could not file its return even belatedly. Further, in paragraph-11 of the counter-affidavit, it is stated that the answering respondent is always willing to pay the admitted tax liability and it is still ready and willing to pay to the tax liability, but due to the blockage of linkage, the answering respondent was not able to discharge its tax liability. In other words, it is an admitted fact even by the respondent No. 5, the selling dealer herein, that the purchaser had paid VAT amount on the purchases made by it, but it was solely due to the default on the part of selling dealer, the same was not deposited in the Government Treasury, and the selling dealer is still ready and willing to pay the tax, if the portal is reopened for making the payment.
  3. Learned senior counsel appearing for the petitioner has submitted that in view of the aforesaid facts, it is absolutely clear that the petitioner firm was not at all at fault while making the purchases and also in paying the amount of VAT to the seller. The purchaser also got tax invoices from the seller and accordingly, claimed the ITC in its return, which was disallowed solely due to default on the part of the seller, as the ITC claim of the petitioner mismatched due to non-filing of return by the seller and not depositing the VAT amount in the Government Treasury. Learned senior counsel has challenged the vires of Section 18(8)(vii) of the JVAT Act, and has also taken additional point that the notice issued to the petitioner was barred by limitation, as provided in Rule-18 of the Jharkhand Value Added Tax Rules, 2006, which prescribes that no scrutiny of the return could be made after the expiry of 30 days from receiving the returns, and in the present case, the W.P. (T) No. 773 of 2018 and connected matter returns were received by the concerned authorities on 03.01.2017, whereas the notice was issued on 21.08.2017, which was after the expiry of the period of 30 days. Yet another point has been taken by learned senior counsel for the petitioner that the interest has been imposed upon the petitioner-firm without issuing any notice under Section 30 of the J.V.A.T Act. However, the order-sheet brought on record as Annexure-5 to the writ application shows that such notice was given to the petitioner on 07.11.2017 in course of hearing itself. Since in the facts of this case, for the reason stated later in this Judgement, we do not propose to enter into the questions of vires, or limitation, or defect in the notice, if any, the submissions of learned senior counsel on these points need not be discussed in detail.
  4. Learned counsel for the State, on the other hand, has submitted that there is no illegality in the impugned action, inasmuch as, Section 40(2) JVAT Act entitles the authorities under the Act, upon being satisfied that any registered dealer has concealed any sales or purchases or furnished incorrect information in its return, to impose interest / penalty for such concealment or furnishing incorrect information in the return. It is also submitted by learned counsel for the State, relying upon the decision of the Bombay High Court in M/s. Mahalaxmi Cotton Ginning Pressing and Oil Industries, Kolhapur Vs. The State of Maharashtra & Ors. (W.P. No. 33 of 2012, decided on 11.05.2012), that the legislature never intended to grant of a set off without any tax being received into the Government Treasury, as the grant of a set off without the receipt of tax into the treasury would result in a loss of revenue to the State Exchequer. It is also submitted by learned counsel for the State that the entitlement to ITC is created by the taxing statute and the terms on which a ITC is allowed by the legislation must be strictly followed. Accordingly, learned counsel submitted that there is no illegality in the impugned order passed by the respondent Assessing Authority. Learned counsel for the State has also submitted that the petitioner has moved this Court without availing alternative remedy of appeal and revision, as provided under JVAT Act, and as such, this writ application is fit to be dismissed on this count alone.
  5. Though, learned counsel for the State has supported the impugned action of the authorities in denying ITC to the petitioner and imposing the penalty / interest in view of the express provisions of law, but it is admitted by learned counsel for the State, in view of the statements made in the counter-affidavit filed by the respondent No.5, that the petitioner firm had W.P. (T) No. 773 of 2018 and connected matter actually paid the amount of VAT to the seller and to that extent, it cannot be said that the petitioner was at any fault, particularly when the seller did not file the return. It is the stand of leaned counsel for the State that under the provisions of the Act, action could be taken against both the purchaser and the seller, and the action has been taken against the seller as well.
  6. Having heard learned counsels for both the sides and upon going through the peculiar facts of this case, we find that the petitioner firm had acted absolutely in a bona fide manner, as is also apparent from the impugned order dated 20.11.2017, as contained in Annexure-5 to the writ application, and had discharged its tax liability by paying the VAT amount to the selling dealer and had filed its return within time, claiming the applicable ITC, but it was solely due to the laches on the part of the selling dealer, that the return had not been filed by the selling dealer, and the tax amount was not deposited in the Government Treasury. As such, it is apparent that the amount of tax and interest has been saddled upon the petitioner firm and has also been realised by way of garnishee order, which have been challenged in the other writ application, for no fault on part of the petitioner, but solely due to the fault of the selling dealer. We are satisfied that the petitioner had discharged its liability under the VAT Act, and there being no mechanism under the JVAT Act, by which, the petitioner could compel the seller also to discharge their duty, it was not within the competency of the petitioner to compel the selling dealer to file the return within the stipulated time, and deposit the tax collected from the petitioner in the Government Treasury.
  7. In the backdrop of these facts, we do not intend to enter into the challenge to the vires of Section 18(8) sub-clause (xvii) brought by way of amendment, or into the questions of limitation, or defect in the notice, if any, as we are satisfied that due to the bona fides on part of the petitioner, no punitive action was required to be taken, or warranted against the petitioner. We are also at a loss, upon going through the impugned order dated 20.11.2017 passed by the respondent Assistant Commissioner of Commercial Taxes, Jamshedpur, as to when he was satisfied upon the documents, produced by the petitioner firm that it was the selling dealer, which had defaulted in filing its return or depositing the tax collected from the petitioner in the Government Treasury, how the punitive action could be taken against the petitioner firm, only for the reason that the JVAT Act provided for such action against both the dealers. We are not entering into the questions of W.P. (T) No. 773 of 2018 and connected matter vires etc., as in appropriate cases, it may be necessary for the State authorities to invoke the provision of Section 18(8) sub-Section (xvii) with respect to the defaulting dealers, who may be either the purchasers or the sellers, but certainly any punitive action is warranted only against the defaulting dealer, and not against the dealer acting in bona fide manner. The intent of the Legislature cannot be to punish the dealer acting in bona fide manner. We are also at a loss as to how, in the facts of this case, no action was taken at the appropriate time against the selling dealer under Section 40(2) of the JVAT Act, though, it is the contention of learned counsel for the State, that belatedly such action has been taken against the selling dealer also. Since the action taken against the petitioner was absolutely uncalled for, unwarranted and cannot be sustained in the eyes of law, we are of the considered view that the availability of the alternative remedy cannot be treated as a bar for maintaining this writ application.
  8. For the foregoing reasons, we hereby quash the order dated 20.11.2017 passed by the respondent Assistant Commissioner, Commercial Taxes, Urban Circle, Jamshedpur, denying ITC to the petitioner and imposing the interest, and also the demand notice, as contained in Annexures-5 and 6 to the writ application, and further direct that the total amount of Rs.20,21,801/- realised from the petitioner by way of garnishee order, be refunded to the petitioner within a period of three months from the date of production / communication of this order. We give the liberty to the respondent authorities to realize the tax with admissible interest / penalty from the respondent No. 5, in view of the admission of the respondent No. 5 in paragraphs 7, 8 and 11 of the counter affidavit filed by them, in which, the respondent No. 5 has stated that they are still ready and willing to pay the tax, if the portal is reopened by the State Government for making the payment.
  9. Consequently, W.P.(T) No. 773 of 2018, is hereby, allowed, with the directions / observations as above, whereas W.P.(T) No. 5978 of 2018 stands disposed of as infructuous. The pending interlocutory application also stands disposed of.

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