M/S. Asian Fabrix Private LTD. vs. The State Tax Officer

Held

The Court held that the impugned order rejecting the rectification petition was liable to be set aside. The Court reasoned that the Respondent's rejection was based on grounds (non-production of stock register) that were not central to the Petitioner's claim for rectification, which was based on an alleged error apparent on the face of the record concerning the application of Section 19(9)(iii) of the TNVAT Act and the treatment of invisible manufacturing loss. The Court acknowledged the Petitioner's submission that the issue of invisible loss and its impact on ITC denial was not adequately addressed. The Court directed the Petitioner to approach the Respondents with relevant documentary evidence and make submissions supporting their claim that invisible loss as part of the manufacturing process should not lead to denial of ITC. The Assessing Authority was directed to pass orders in accordance with law upon receipt of the documents and submissions, within eight weeks. The Court did not expressly leave any issue undecided, but the substantive merits of the rectification were deferred to the Assessing Authority.

Facts

The Petitioner, Asian Fabricx Private Limited, a registered dealer under the Tamil Nadu Value Added Tax Act, 2006, challenged the rejection order dated 26.07.2021 by the State Tax Officer. The Petitioner had filed monthly returns for the assessment year 2014-2015, reversing 5% Input Tax Credit (ITC) towards manufacturing loss under Section 19(9)(iii) of the Act. Subsequently, the Petitioner filed a rectification application under Section 84 of the TNVAT Act, stating the reversal was a mistake as the actual manufacturing loss was 0.5%. The Petitioner relied on a High Court decision in 'Interfit Techno Products Limited' regarding invisible loss. The Petitioner argued that the rejection order did not address the core issue of whether Section 19(9)(iii) was attracted, instead wrongly citing the Petitioner's failure to maintain a stock register.

Key Issues

1. Whether the rejection of the rectification application by the Respondent, on grounds unrelated to the core issue of manufacturing loss and invisible loss, is legally sustainable, particularly when the Petitioner sought to rectify an alleged error apparent on the face of the record under Section 84 of the TNVAT Act? 2. Whether the Petitioner's claim that the reversal of 5% ITC towards manufacturing loss was a mistake, and that the actual invisible loss was 0.5%, should have been considered in the rectification proceedings, in light of judicial pronouncements on invisible loss and denial of credit? Petitioner's Arguments: The Petitioner contended that the Respondent erred in rejecting the rectification petition by focusing on the absence of a stock register, which was irrelevant to the merits of the rectification application. The Petitioner argued that Section 19(9)(iii) of the TNVAT Act was not attracted in this case, as the input tax credit was not used for goods that lost their identity or ceased to exist physically in the manufacturing process. The Petitioner relied on the decision in 'Interfit Techno Products Limited Vs The Principal Secretary, Commissioner of Commercial Taxes' and subsequent judgments holding that invisible loss might not be a reason for denial of credit. The Petitioner asserted that the core issue raised in the rectification application was not addressed. Respondents' Arguments: The Respondents, through the Special Government Pleader, submitted that the Petitioner failed to produce the stock register and other relevant documents when called upon to do so. However, they also conceded that if the Petitioner produced the relevant documentary evidence, it would be considered, and a rectification order would be passed.