S.29 Cannot Be Used to Reassess ITC Claim: Allahabad HC Quashes Reassessment Initiated Without Escapement of Turnover [Read Order]
The Court ruled that reversal of Input Tax Credit can only be undertaken during regular assessment under Section 14 of the U.P. Value Added Tax Act, 2008.
The Allahabad High Court held that reassessment proceedings initiated only to reverse Input Tax Credit under Section 29 of the U.P. Value Added Tax Act, 2008 (U.P. VAT Act) were without jurisdiction, as Input Tax Credit (ITC) does not form part of turnover and its reversal cannot be treated as escapement of turnover for reassessment purposes.
The petitioner, M/s Swati Menthal and Allied Chemical Ltd., was engaged in the manufacturing and trading of mentha oil derivatives and had undergone regular assessments for Assessment Years 2014-15, 2015-16, and 2016-17. During these assessments, the Assessing Officer accepted the petitioner’s sales made against Form-I under the Central Sales Tax Act, 1956 and granted ITC on raw materials used for supplies made to Special Economic Zone units.
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Later, based on a proposal alleging that the petitioner had not reversed ITC on SEZ supply transactions, the Additional Commissioner invoked Section 29(7) of the U.P. VAT Act, 2008 and authorised reassessment proceedings. These authorisations and related notices formed the basis of the present challenge.
Represented by Rahul Agarwal, the petitioner argued that reversal of ITCis governed exclusively by Section 14 of the U.P. VAT Act, 2008, and such reversal can only occur during regular assessment proceedings. Further, Section 29 of the U.P. VAT Act, 2008 permits reassessment only when there is escapement of turnover, and since Input Tax Credit is not connected to turnover, reassessment on this basis was wholly without jurisdiction.
The bench comprising Justice Indrajeet Shukla and Justice Saumitra Dayal Singh held that"M/s Swati Menthal and
Allied Chemical Ltd. vs State of U.P. & 3 Others " of the U.P. VAT, 2008 authorises reassessment only where the “turnover of purchase” or “turnover of sale” has escaped assessment or where an incorrect rate of tax has been applied. ITC, being an allowance arising under Section 13 of the U.P. VAT, 2008, is not dependent on turnover or rate of tax and therefore falls outside the scope of reassessment under Section 29 of the U.P. VAT, 2008.
The bench observed that reversal of ITC is governed exclusively by Section 14 of the U.P. VAT, 2008 and must occur during regular assessment. Since the original assessment orders had already examined and accepted the petitioner’s ITC claim, there was no statutory basis to reopen those assessments solely for reversal of credit.
The High Court ruled that the authorities lacked jurisdiction to permit reassessment for the purpose of redetermining or reversing Input Tax Credit. Accordingly, the Court quashed the reassessment authorisations and notices.
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