M/S.Shiv Timber Industries vs. The Commercial Tax

Held

The Court held that the assessing officers had failed to conduct the necessary preliminary enquiries before issuing show-cause notices and passing orders denying Input Tax Credit (ITC). It was emphasized that the web reports or data maintained by the Department serve only as a starting point, requiring further investigation. The Court found that in some cases, the assessing officers had enclosed web reports and invoice numbers, but this did not satisfy the requirement of a proper enquiry as laid down in the cited precedents and circulars. The Court reiterated that the default of a selling dealer in not filing returns or not paying tax cannot automatically result in the denial of credit to the purchasing dealer; action must be taken against the defaulting seller. The Court quashed all impugned orders and consequential demand notices, remitting the matters back for fresh consideration. The assessing officers were directed to conduct a thorough enquiry, consult with the assessing officers of the other end dealers, and only if a prima facie case of revised returns is established, issue a show-cause notice with complete particulars, including invoice-wise details and reasons, as per Circular No.10 of 2015 and the judgment in [2017] 99 VST 343 (Mad). An opportunity for personal hearing must be provided before passing reasoned orders within eight weeks.

Facts

The petitioners, various businesses including Shiv Timber Industries, TVL.V.K.Palasarakku Maligai, and others, filed multiple writ petitions before the Madurai Bench of the Madras High Court. The petitions challenged orders and notices issued by Commercial Tax Officers and Assistant Commissioners. The core issue revolved around the denial of Input Tax Credit (ITC) to purchasing dealers due to alleged non-compliance or non-payment of taxes by the selling dealers. The petitioners sought to quash these orders, demanding a fresh assessment with an opportunity for personal hearing and consideration of relevant records. The tax periods under challenge varied across the petitions, with specific assessment numbers and dates of impugned orders cited.

Key Issues

1. Whether the assessing officers were justified in issuing show-cause notices and passing orders denying Input Tax Credit (ITC) to purchasing dealers without conducting a thorough enquiry into the alleged non-compliance of selling dealers, as mandated by established procedures and circulars? (Question of law and mixed fact and law, turning on principles of natural justice and procedural fairness in tax assessment). Petitioner's arguments: The petitioners contended that the revenue authorities failed to conduct proper enquiries before issuing show-cause notices and passing adverse orders. They argued that the default of a selling dealer in filing returns or paying tax should not lead to the denial of ITC to the purchasing dealer. They relied on the principle that action should be taken against the defaulting selling dealer, not the purchasing dealer. They also cited the judgment in Infiniti wholesale Limited Vs. Assistant Commissioner (CT) and another case reported in [2017] 99 VST 343 (Mad) to support their claim for a proper enquiry and personal hearing. Revenue's arguments: The judgment does not explicitly record arguments made by the revenue or state. However, the impugned actions of the revenue authorities suggest they believed they were empowered to deny ITC based on discrepancies found in web reports or data, without further extensive enquiry.