The denial of input credit to a purchasing dealer was unjustified and iniquitous, and the absence of a mechanism enabling a purchasing dealer to verify if the selling dealer deposited tax was emphasized.

MR. JUSTICE S.RAVINDRA BHAT

1. The present judgment will dispose of six appeals preferred under Section 81 of the Delhi Value Added Tax Act, 2004 (hereafter called “VAT Act”) challenging a common order of the Value Added Tax Appellate Tribunal (“VAT Tribunal”) dated 05.01.2012. The question of law urged in the present case is:

“Whether in the facts and circumstances, the VAT authorities were justified in disallowing the input credit claimed by the appellant, a purchasing dealer.”

2. The brief facts necessary for deciding the case are that the appellant trades in electrical goods and is a registered dealer under the VAT Act. It purchases goods from dealers registered under the said Act on the basis of tax invoices issued by them and on the payment of VAT at applicable rates. The appellant received notices for assessment of tax and interest under Section 32 of the VAT Act and for penalty assessment under Section 33. These were for various periods between 2007 and 2008 and apparently premised on the audit of its accounts by the VAT Department for the period 01.04.2007 to 31.03.2008. The VAT Officer (VATO) by assessment orders disallowed the input claimed on account of purchases from two dealers – M/s. Balaji Enterprises and M/s. R.S. International (hereafter referred to as the “selling dealers”). The VATO was of the opinion that the selling dealers operated for short periods and their turn-over was high in comparison to the tax deposited by them. Consequently by the orders, the VATO demanded tax, interest and penalty for the periods in question. Arguing that the VATO’s orders were not justified in law, the appellant moved the Objection Hearing Authority (OHA) under Section 74. These appeals/objections were dismissed by order dated 29.01.2010. The OHA confirmed the VATO’s order.

3. Appeals were consequently preferred the VAT Act to the Tribunal, which, by the impugned order, dismissed them, upholding the disallowance of the input credit and also upholding the penalties imposed. The Tribunal was of the view that Section 9(1) permits tax credit to a purchasing dealer to the extent the tax is actually deposited by the selling dealer. In doing so, the VAT Tribunal also took into consideration the amendment to Section 9(2) which was brought into force on 01.04.2010, i.e. after the appeals were preferred. That amendment inserted clause (g) to Section 9(2), clarifying that input tax credit is admissible to purchasing dealer only when tax is actually deposited by the selling dealer.

4. The appellant argued that the VAT authorities have misconstrued the relevant provisions and that the impugned order of the Tribunal upholding the objection hearing authority’s order is based on an erroneous interpretation of the VAT Act. Learned counsel submitted that the VATO in this case was influenced by the fact that the two selling dealers had transacted business for a short duration and that their registrations had been cancelled. It was argued that the appellant as a purchasing dealer had no control over the affairs and functioning of the selling dealers and that in the absence of any statutory authority during the relevant period, could not be held liable for such parties’ default. It was argued that as a purchaser, if any liability was imposed or ordained by the statute, the tax authority would be justified in fastening it in respect of particular transactions, to the extent that any sale or transaction had to fall within the turn-over for the relevant period, every dealer was obliged to include it. Learned counsel highlighted that the subsequent cancellation and the registration of the selling dealers in this case could not be the basis for tax liability of a purchaser.

5. Reliance was placed on behalf of the Appellant on decision reported as State of Maharashtra v. Suresh Trading Company 1998 (109) STC 439 (SC) where the Supreme Court had rejected the Revenue’s contention in a similar factual setting. Learned counsel also relied upon the