Assessee entitled to full ITC claim for VAT paid at higher rate – High Court

Assessee entitled to full ITC forVAT paid at higher rate if the liability had been borne by the assessee and not passed on – High Court

ABCAUS Case Law Citation:
ABCAUS 2667 (2018) (12) HC

The instant revision was filed by the assessee under the Uttar Pradesh Value Added Tax (VAT) Act, 2008 ( the Act) against the decision of the Commercial Tax Tribunal, Allahabad, upholding the order passed by the lower authorities in reversal of Input Tax Credit (ITC).

The assessee purchased goods which were liable to tax @ 4% together with 1% cess which was also disclosed in the tax invoice.

However, the seller charged tax @ 5% on the total invoice amount including the discount availed by the assessee on such purchase.

During the year in question, the assessee sold goods and against the tax payable on the sale turnover, the assessee claimed ITC for excess tax suffered from the purchaser resulting in refund payable to the assessee.

The Assessing Authority reversed the ITC claimed by the assesseeon the reasoning that the amount of tax for which ITC was claimed represented 30% tax on the goods purchased by the assessee. Therefore, the AO confined the benefit of ITC in proportion to tax chargeable on sales on the discounted purchase value on the goods and the balance was reversed. 

Before the Hon’ble High Court the assessee submitted that under the Act, there is no provision or principle existing, as may allow the Assessing Authority to reverse any amount of tax actually paid by the purchasing dealer.

It was argued that even if it is assumed that excess payment on tax may have been made by the purchasing dealer, so long as it is not disputed that the I.T.C. being claimed is with respect to the same goods and it had not been passed on to the purchaser, the revenue authorities acted wholly contrary to law in reversing the I.T.C. In this regard.

The assessee placed reliance on the provision of Section 13(1)(a)  of the U.P. VAT Act, 2008 and submitted that the it was entitled to I.T.C. on full amount of input tax paid.

It was submitted that for the purpose of claiming I.T.C., it is not relevant what was the exact rate of tax payable or chargeable as per the scheduled rates on the goods purchased by the dealer but under the value added scheme of taxation, it would remain relevant what amount of tax had actually been paid by the assessee on purchase of goods, that were subsequently sold by him upon value addition.

It was submitted that in absence of any statutory injunction to restrict the claim of ITC to the tax actually payable, to allow the revenue authorities to restrict that claim, would be wholly contrary to law, and also to defeat the very object of value added taxation where under the tax on subsequent transactions on sale of the same goods have to be confined to value addition component. 

The Hon’ble High Court noted that, it was undisputed that the amount with respect to which the I.T.C. was claimed was admittedly the amount paid by the assessee by way of tax on purchase of goods that have given rise to the dispute. 

The Hon’ble High Court observed that the language of Section 13(1)(a) [table entry 1(1)] read with Section 2(p) of the Act, is sufficiently clear and provides that the input tax credit would be referable to the entire amount of tax i.e. the aggregate amount of tax paid or payable, in respect of the purchase of goods.

The Hon’ble High Court opined that insofar as the legislature has itself contemplated that amount paid, may itself give rise to input tax, there is no room to enter into any exercise of interpretation to restrict the plain meaning of the word ‘paid’. 

The Hon’ble High Court opined that to confine the word ‘paid’to the amount that would be payable under the schedule would be to allow violation of the Act by ignoring the word ‘or’ appearing with the word ‘paid’and ‘payable’ under Section 2(p) of the Act. Then, Section 13 of the Act clearly allows full amount of input tax to be eligible for input tax credit, in case of sale of goods inside the State. 

The Hon’ble High Court opined that when it was undisputed that thesale was made by the assessee within the State, the reasoning offered by the authorities based solely on the excess realization of tax made by the seller cannot be sustained. 

The Hon’ble High Court opined that the seller merely acted with abundant caution in realizing the higher amount to avoid any litigation withthe State authorities and there was absence of any allegation of the assessee had passed on the liability of higher tax paid.

Accordingly,  the question of law raised by the assessee was answered in favour of the assessee and against the revenue and the revision was allowed.

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