V.R.Muthu And Bros vs. The State Tax Officer-1.

Held

The Court held that the pre-revision notices proposing an ad-hoc reversal of input tax credit were not sustainable in law. The Court reasoned that the proposal from the Enforcement Wing was not binding on the Assessing Officer, who is an independent authority required to complete assessments based on books of accounts and returns, after providing the assessee an opportunity. The Court found that the pre-revision notices were triggered by an inspection by the Enforcement Wing, which could be a cause to reopen assessment under Section 27 of the Act. However, the Assessing Officer should have first issued a notice to the assessee to produce all records to examine whether there was any accumulation of input tax credit due to a lesser sale price than the purchase price, in line with the Circular dated 04.11.2013. The Court emphasized that while the circular does not bind the assessee, it binds the subordinate Assessing Officer. Therefore, the pre-revision notices directly proposing ad-hoc reversal were set aside. The Court allowed the writ appeals, set aside the orders of the Writ Petitions, and consequently, the pre-revision notices were quashed. The matters were remanded to the respondent Assessing Officer, who was directed to issue a fresh show cause notice requiring the appellant to produce all their books of accounts and records for examination in light of the 04.11.2013 circular. After examination, the Assessing Officer was to form a prima facie opinion, issue a revision notice, provide an opportunity for objections and personal hearing, and then complete the assessment.

Facts

The appellant, M/s.V.R.Muthu & Bros., a registered dealer under the Tamil Nadu Value Added Tax Act, 2006, filed writ petitions challenging pre-revision notices issued by the respondent, the State Tax Officer-1, Virudhunagar. These notices pertained to the assessment years 2011-12 to 2014-15. The challenge was based on the respondent's alleged failure to consider a circular dated 04.11.2013 issued by the Commissioner of Commercial Taxes regarding the application of Section 19(20) of the Act. The appellant also argued that the respondent did not follow a previous Division Bench order which held Section 19(20) valid prospectively and directed adherence to the 04.11.2013 circular. The appellant further contended that the pre-revision notices proposed an ad-hoc reversal of input tax credit without proper examination of records, and that the proposal originated from the enforcement wing, which should not bind the assessing officer. The respondent argued that the pre-revision notices could not be challenged directly and that the appellant should submit objections.

Key Issues

1. Whether the pre-revision notices issued by the respondent Assessing Officer, proposing an ad-hoc reversal of input tax credit, are sustainable in law, considering the alleged failure to follow the Commissioner's Circular dated 04.11.2013 and a previous Division Bench order, and the contention that the proposal was mechanically adopted from the enforcement wing? (Question of law and mixed fact and law, turning on Section 19(20) of the TNVAT Act and the Circular dated 04.11.2013). Petitioner's Arguments: The appellant argued that the Assessing Officer failed to adhere to the Commissioner's Circular dated 04.11.2013, which provided specific directions on applying Section 19(20) of the TNVAT Act. They also contended that a previous Division Bench order had directed the Assessing Officer to proceed based on this circular. Furthermore, the appellant asserted that the Assessing Officer could not mechanically accept the proposal from the enforcement wing and that any reversal of input tax credit required a thorough examination of records, not an ad-hoc reversal without basis. They claimed to have records demonstrating that sale prices were generally higher than purchase prices. Respondent's Arguments: The respondent argued that the pre-revision notices could not be challenged at this stage and that the appellant should submit their objections to the Assessing Officer.