The Madras High Court, in a recent ruling, held that assessment cannot be reopened merely on ground of mismatch found in the VAT Department’s website.
Justice T. Sivagnanam was hearing a bunch of petitions filed by various dealers wherein the petitioners challenged the action of the VAT Officials who proposed to reverse Input tax credit availed by the petitioners on ground that the returns filed by the dealers, do not match with the data maintained by the Department.
The petitioners submitted before the High Court that the conditions stipulated under the Act for the entitlement of input tax credit are that, (i) a taxable sale must be effected by one registered dealer to another registered dealer; (ii) the selling dealer must be a registered dealer; (iii) the selling dealer must issue a tax invoice; and (iv) the purchasing dealer must pay tax to the selling dealer.The petitioners urged that the default of the selling dealer in not filing returns or not paying tax at his end cannot result in the denial of credit to the purchasing dealer since the Act says thatthe moment the tax is paid to the selling dealer and tax invoice is issued, the credit is available to the purchasing dealer. According to them, if the selling dealer fails to remit the tax, the statute provides adequate machineries, including penal actions for recovery of the tax from the seller, who does not file returns or pay tax.Therefore, they submitted that if the selling dealer fails to pay tax, the Revenue has to proceed against the selling dealer in terms of the provisions of the Act and not deny credit to the purchasing dealer, who has fulfilled the parameters by producing the original tax invoice, filing returns and paying tax.
Analyzing the provisions of the Act and referring to judicial precedents, the bench said that the Assessing Officer cannot reverse input credit merely on ground of mismatch and before doing so, the officer shall conduct a thorough enquiry and shall give a reasonable opportunity to the dealers in the both ends. “However, this principle does not mean that the Assessing Officer has no jurisdiction to examine the correctness of the returns after a deemed assessment has taken place in terms of Section 22(2) of the Act.”
The bench pointed out that it is the settled legal principle is that change of opinion or change of officer is no ground to reopen an assessment. “The reasons for reopening should not only be explicitly stated, but should be duly supported with adequate information.”
It was observed that in most of the cases, the Assessing Officers re-open the assessment proceedings by merely relying upon the mismatch in the details in the official website. The bench said that such mismatch detected is a starting point for an enquiry. Where both the dealers are registered in different assessment circles and there returns are not matching with each others, then the Assessing Officer is first required to enquire with the Assessing Officer of the other end dealer to make verifications as to the genuineness of the case. After such enquiry, if it prima facie appears that the returns to be revised, at that stage, the Assessing Officer would be entitled to issue a show cause notice containing full particulars and clearly stating as to what was the scope of enquiry done by him and why he is of the prima facie view that the dealer has failed to file proper returns or suppressed information.
“A show cause notice cannot be effective, unless and until it discloses full particulars, the notice is expected to know as to what is the case against him, which he has to respond. In certain cases, details furnished are inadequate.”
Read the full text of the Judgment below.
