Ms Tarapore And Company Through One Of Its Constituted Attorney Sri B D Bodhanwala vs. The State Of Jharkhand Through The Secretary Finance Department

Held

The Court held that the petitioner had acted in a bona fide manner, having paid the VAT to the selling dealer and filed its returns within time. The disallowance of ITC and imposition of interest and penalty were solely due to the laches of the selling dealer, who failed to file its return and deposit the tax. The Court found that the petitioner had discharged its liability under the VAT Act and had no means to compel the seller to fulfill its obligations. Therefore, the punitive action against the petitioner was unwarranted and unsustainable. The Court quashed the order dated November 20, 2017, denying ITC and imposing interest, as well as the demand notice. It directed the refund of Rs. 20,21,801/- realized through garnishee orders to the petitioner within three months. The Court granted liberty to the authorities to realize the tax and interest from the selling dealer, M/s Sanatan Enterprises, which had admitted its willingness to pay if the portal was reopened. The Court did not delve into the challenge to the vires of Section 18(8)(xvii) or issues of limitation/notice defects, deeming the petitioner's bona fide actions sufficient reason to set aside the punitive measures.

Facts

The petitioner, M/s. Tarapore & Company, challenged an order dated November 20, 2017, by the Assistant Commissioner of Commercial Taxes, Jamshedpur, which rejected its claim for Input Tax Credit (ITC) of Rs. 11,89,744.13 and imposed interest. The petitioner had purchased goods worth Rs. 1,08,91,031.81 from M/s Sanatan Enterprises in the financial year 2015-16 and paid VAT to the seller, obtaining tax invoices. However, the seller, M/s Sanatan Enterprises, failed to file its returns and deposit the tax. The Assistant Commissioner disallowed the ITC based on Section 18(8)(xvii) of the Jharkhand Value Added Tax Act, 2005 (JVAT Act). A connected writ petition challenged garnishee orders that led to the recovery of Rs. 20,21,801/- from the petitioner's bank accounts, which had already been deposited into the government treasury, rendering that petition infructuous.

Key Issues

1. Whether the disallowance of Input Tax Credit (ITC) to the petitioner and the imposition of interest under Section 18(8)(xvii) of the JVAT Act, 2005, is legally sustainable when the petitioner had bona fide paid the VAT to the selling dealer, but the selling dealer failed to deposit the tax into the government treasury? (Question of law) Petitioner's arguments: The petitioner argued that it acted in good faith, paid the VAT to the seller, and had no mechanism under the JVAT Act to ensure the seller deposited the tax. It contended that the seller's default should not penalize a bona fide purchaser. The petitioner also challenged the vires of Section 18(8)(xvii) as violative of Article 14 of the Constitution of India due to discrimination. Revenue's arguments: The State supported the impugned action, citing the express provisions of the JVAT Act. However, it admitted that the petitioner had paid the VAT to the seller and that action had also been taken against the seller. The State contended that the law allowed action against both purchaser and seller.