M/S Thangamayil Jewellery LTD vs. The Assistant Commissioner(CT)

Held

The Court held that Section 19(2)(ii) of the Tamil Nadu Value Added Tax Act, 2006, is invalid to the extent it denies the availment of input tax credit (ITC) in respect of raw materials (bullion/worn-out jewellery) purchased within the State, despatched for conversion into the final product (jewellery) outside the State, which upon conversion are received back and sold within the State of Tamil Nadu. The Court reasoned that the mere fact that the manufacturing unit is located outside the State cannot be a basis for denying ITC. Consequently, the Court also held that the respondents cannot retain ITC on goods purchased within the State by invoking Section 19(4) of the Act to the extent of the rate of tax provided therein, as this would render the relief inefficacious. The Court allowed the writ petitions on the same lines as a previous judgment in Patina Gold Ornaments Pvt. Ltd. v. The Assistant Commissioner (CT), Erode.

Facts

The petitioners, M/s. Thangamayil Jewellery Ltd., are engaged in the sale of gold jewellery. They purchase bullion within Tamil Nadu and send it outside the state for manufacturing into jewellery. The finished ornaments are then brought back into Tamil Nadu and sold. The petitioners sought to claim input tax credit (ITC) under Section 19(2)(ii) of the Tamil Nadu Value Added Tax Act, 2006, for the tax paid on the bullion purchases. However, this claim was denied due to the provisions of Section 19(2)(ii) and Section 19(4) of the Act. The petitioners challenged these provisions as unconstitutional and illegal, leading to the present writ petitions. One petition sought a declaration that the provisions were unenforceable, while the other sought to quash the proceedings of the Assistant Commissioner disallowing ITC.

Key Issues

1. Whether Section 19(2)(ii) of the Tamil Nadu Value Added Tax Act, 2006, is invalid to the extent it denies input tax credit (ITC) for raw materials (bullion) purchased within the State, sent outside for conversion into finished jewellery, and then brought back and sold within the State. 2. Whether Section 19(4) of the Tamil Nadu Value Added Tax Act, 2006, is invalid to the extent it prevents the retention of ITC on goods purchased within the State, when such goods are processed outside the State and brought back for sale. The petitioner argued that the denial of ITC under these provisions infringes Articles 14, 19(1)(g), and violates Articles 301 and 304(a) of the Constitution, as it amounts to an illegal recovery without the sanction of Article 265. The petitioner contended that the location of the manufacturing unit outside the State should not be a basis for denying ITC. The revenue did not record any specific arguments in the judgment provided, but implicitly defended the validity of the impugned sections.