Purchase Tax u/s 12 TNVAT Not Payable Due to Software Glitch: Madras HC Sets aside Tribunal Order in Form 1 Filing Issue [Read Order]

The Madras High Court has quashed a purchase tax demand raised under Section 12 of the Tamil Nadu Value Added Tax ( TNVAT ) Act, ruling that an assessee cannot be penalized for technical issues in the commercial tax department’s online filing system.

The assessee, TVL Kurian Abraham Pvt Ltd, engaged in the manufacturing of latex gloves, was subjected to revised assessment orders demanding purchase tax for the period between 2007 and 2011.

The matter was raised because of a fundamental defect in the department's online Form I portal. During the relevant period, whenever an assessee entered their purchase turnover, the software automatically added the purchase tax to both the tax payable and the Input Tax Credit (ITC) columns, effectively neutralizing the figures submitted, the assessee.

Therefore, the assessee could neither physically pay the purchase tax nor properly claim the ITC, despite having fully discharged their tax liability on the sales turnover. Acknowledging this difficulty and the fact that it was a revenue-neutral situation, the first appellate authority initially set aside the tax demand.

However, the Revenue appealed before the Tribunal. The Tribunal reversed the appellate authority's decision and restored the original demand, holding that the statutory obligation to pay purchase tax under Section 12 could not be bypassed merely by citing software limitations. Aggrieved by this order, the assessee approached the High Court.

After hearing the matter, the High Court bench noted that the issue was a byproduct of the department's defective digital infrastructure, which the government itself later rectified in May 2010.

The Court observed that there was no loss to the public exchequer and no deliberate tax evasion or undue benefit derived by the assessee.

Justices N. Anand Venkatesh and K.K. Ramakrishnan further noted that had the software functioned correctly, any purchase tax paid by the assessee would have been immediately available as ITC to be adjusted against output tax. Therefore, demanding payment for an error created by the department's own portal was deemed unjust and entirely unreasonable.

Thus, the Court set aside the impugned order of the Tribunal. The bench restored the order of the first appellate authority, deciding in favor of the assessee.

Adv. H.Jasima Yasmin for M/s. Ajmal Associates (in all revisions) appeared for the petitioner.

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