In a major relief to the Indian Oil Corporation, the Madras High Court has set aside the orders of the VAT department reversing input tax credit (ITC).
The petitioners, Indian Oil Corporation had purchased Petroleum products, such as Motor Spirit (petrol), High Speed Diesel oil (HSD), furnace oil, Low Sulphur Heavy Stock (LSHS), Bitumen and Naphtha among others. Furnace oil is an input for power generation and is used by HT industrial users as fuel in gensets, to ensure and maintain continuous production. When the State was facing power shortages and hence the demand for furnace oil at the instance of the HT industrial consumers rose, The petitioner approached the State for assistance in this regard and, at their instance, three Notifications came to be issued granting exemption from tax on the sales of furnace oil under Section 30 of the Act.
Later, the State Government issued three notification including one in 2013 that superceded the second G.O. and expanded the exemption to include sale of furnace oil by one oil company to another oil company, apart from sales to HT consumers registered under Act for use in gensets.
As per the impugned notification, the conditions imposed in the 2013 Notification were (i) a requirement that the HT consumers produce a certificate in Form–I annexed to the Notification and (ii) refund of VAT paid was subject to production of original documents such as sale bills and proof of payment of tax as well as certificates in the forms annexed to the Notification. Refunds obtained from the respondent of the tax paid, were to be fully restored to the respective HT consumers.
The department further proposed to reverse Input tax credit (ITC) under Section 19(5)(a) of the Act for the period 01.02.2012 to 06.02.2013, vide notice dated 08.09.2016.
Before the High Court, the petitioner challenged the above notifications and contended that the right of ITC has already accrued and thus cannot be retrospectively taken away by the State.
Allowing the writ petitions, Justice Anita Sumanth quashed the impugned orders and observed that “None of the Notifications in this case touch upon the aspect of Input Tax Credit in the hands of the selling dealers, and had they done so, the officer would perhaps have been right in stating that the grant of ITC even in the place of such express provision for reversal in the Notification, was an error apparent on record. Since the Notification did not mention anything about ITC or reversal, the impugned proceedings would also have to be tested in the context of whether at all Section 84 could be applied in this case, and thus fail.”
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