Aathi Hotel VS Assistant Commissioner

The petitioner in this case has asserted that despite filing TRAN-1 and claiming a credit of Rs. 3,86,271, said credit was never utilized. Consequently, they argue that the imposition of interest and penalties under the Tamil Nadu Goods and Services Tax Act, 2017 should not apply. This argument stems from the fact that the entire transitional credit was reversed by the petitioner in their monthly returns for January 2020, relating to the Assessment Year 2019-2020.

The petitioner’s counsel further contends that Section 74 of the Tamil Nadu Goods and Services Tax Act, 2017 is applicable only in cases of wrong utilization of credit availed. They reference Section 50(3) of the Act, asserting that interest under this provision applies only when there is an undue or excess claim of Input Tax Credit, or an undue or excess reduction in output tax liability. The rate of interest in such cases is subject to government notification, not exceeding 24%.

Moreover, the petitioner’s counsel argues that Section 42(10) of the Act, which deals with situations where amounts are reduced from output tax liability in contravention of provisions, is not applicable to their case. They assert that this provision applies when the reduced amount must be added to the recipient’s output tax liability, subjecting them to tax and interest as per the specified rate under Section 50(3) of the Act.

In essence, the petitioner contends that they never utilized the credit claimed in TRAN-1, and therefore, the provisions regarding interest and penalties should not apply to them. They provide a detailed legal interpretation of relevant sections of the Act to support their argument, seeking relief from the court based on the circumstances of their case. This summary encapsulates the petitioner’s stance and legal arguments presented before the court for adjudication.

In this legal matter, the petitioner’s counsel argues against the applicability of Section 42(7) of the Tamil Nadu Goods and Services Tax Act, 2017, contending that Section 47(2) is the relevant provision in the case of a recipient. Section 42(7) pertains to the reduction of output tax liability by the recipient if the supplier declares invoice or debit note details in a timely manner. However, the petitioner’s counsel maintains that this provision is not applicable to their situation.

Furthermore, the counsel for the petitioner cites a decision by the Hon’ble Division Bench of the Patna High Court in the case of Commercial Steel Engineering Corporation Vs. State of Bihar. They specifically reference paras 29, 35, and 36 of the judgment, highlighting the legislative intent regarding the recovery of tax credits. The judgment emphasizes that penal proceedings are warranted only when the transitional credit is utilized, and the tax liability is reduced accordingly. The petitioner’s counsel argues that this important aspect was overlooked in the respondent’s order.

On the opposing side, the learned Additional Government Pleader for the respondent argues that the petitioner has an alternate remedy under Section 107 of the Tamil Nadu Goods and Services Act, 2017, and thus the writ petition should be dismissed. They assert that the petitioner was not entitled to Input Tax Credit under the erstwhile Tamil Nadu Value Added Tax Act, 2006, nor entitled to transition credit under the provisions of the Tamil Nadu Goods and Services Tax Act, 2017. Therefore, they contend that the petitioner is liable to pay interest and penalty for wrongly availing transitional credit.

This legal dispute revolves around the interpretation of relevant provisions of the tax law and the applicability of penalties for the petitioner’s actions. Both parties present nuanced arguments supported by legal precedents, highlighting the complexity of tax legislation and its implementation. The court is tasked with adjudicating on these matters, weighing the merits of each argument and determining the appropriate course of action.

The learned Additional Government Pleader for the respondent continues their argument by asserting that the petitioner’s actions indicate a lack of bona fide intention. They highlight the fact that the petitioner was not registered as a dealer of furniture products under the TNVAT Act, 2006. This, coupled with the attempt to avail and transition credit, suggests an intention to wrongly utilize input tax credit that was not legitimately available to the petitioner.

Furthermore, the respondent’s counsel points out discrepancies in the petitioner’s actions, noting that while the petitioner had un-availed credit amounting to Rs. 2,29,850, they transitioned a credit of Rs. 3,86,271, indicating an attempt to wrongfully utilize the credit.

The learned Additional Government Pleader emphasizes that the imposition of interest and penalty is consequential under Section 74 of the TNGST Act, 2017, considering the nature of the petitioner’s actions. They therefore advocate for the dismissal of the writ petition.

After hearing arguments from both sides and examining the impugned order along with the referenced decision of the Hon’ble Patna High Court, the court notes the undisputed facts of the case. It is established that the petitioner, a hotelier, had purchased capital goods for business purposes and availed input tax credit on these purchases with the intention of setting off tax liabilities related to a hypothetical furniture business that the petitioner intended to start.

However, there is no evidence to suggest that the petitioner had indeed commenced such a furniture business. Instead, it becomes apparent that the petitioner had attempted to transition a significant credit amount, presumably with the anticipation of using it against future tax liabilities. This lack of actual business activity coupled with the attempted credit transition points to a lack of bona fide intention on the part of the petitioner.

In summary, the court acknowledges the respondent’s arguments regarding the petitioner’s questionable intentions and the consequential nature of interest and penalty under the law. These factors contribute to the court’s assessment of the case and subsequent decision-making process.

Following the issuance of a Show Cause Notice to the petitioner on 09.05.2019, the petitioner responded and acknowledged their mistake via a reply dated 04.02.2020. Additionally, the petitioner reversed the transitional credit in the returns filed for the month of January 2019-20 using Form GSTR-3B under Rule 61(5) of the TNGST Rules, 2017. Importantly, there are no records to indicate the utilization of this credit.

Upon examination of the facts on record, it becomes evident that although the petitioner made an improper attempt to transition the aforementioned credit, they did not utilize it. Furthermore, the petitioner took corrective action by reversing the credit on 10.02.2020, subsequent to the issuance of a Show Cause Notice, within the prescribed period under Section 73 of the TNGST Act, 2017, invoking Section 74 of the same Act.

However, it is notable that the Show Cause Notice did not contain the necessary elements to justify the invocation of Section 74 of the TNGST Act, 2017 against the petitioner. This observation underscores a potential discrepancy between the allegations made in the Show Cause Notice and the legal provisions invoked therein.

In summary, the facts presented indicate that while the petitioner initially attempted to transition credit improperly, they rectified the error by reversing the credit and demonstrating a willingness to comply with legal requirements. However, the Show Cause Notice failed to provide adequate justification for invoking Section 74 of the TNGST Act, 2017 against the petitioner. This analysis provides crucial context for the ongoing legal proceedings and underscores the need for careful consideration of the facts and legal provisions at hand.

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