Madras High Court
Fashion Knits vs The Principal Secretary / on 19 July, 2021
W.P.No.11632 of 2014
and M.P.Nos.1, 2 & 3 of 2014
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 19.07.2021
CORAM
THE HON'BLE Mr. JUSTICE S.M.SUBRAMANIAM
W.P.No.11632 of 2014
and
M.P.Nos.1, 2 & 3 of 2014
FASHION KNITS
Government Recognised Star Export House,
81, 82, Angeripalayam Main Road,
Gandhi Nagar (PO),
Tirupur – 641 603.
Represented by its Partner, R.Ramu ...Petitioner
Vs
1.The Principal Secretary /
Commissioner of Commercial Taxes,
Ezhilagam, Chepauk,
Chennai.
2.The Assistant Commissioner (CT)
Tirupur – I Assessment Circle,
Tirupur.
3.The Commercial Tax Officer,
Enforcement III, Tirupur.
4.The State of Tamilnadu
Represented by its Secretary,
Commercial Taxes and Registration Department,
Fort St.George, Chennai. ... Respondents
https://www.mhc.tn.gov.in/judis/
1
W.P.No.11632 of 2014
and M.P.Nos.1, 2 & 3 of 2014
PRAYER : Writ Petition filed under Article 226 of the Constitution of
India praying to issue a Writ of Certiorari, calling for the records of the
1st respondent herein in VAT Cell/Roc.No./37188/2011 (Circular
No.22/2011) dated 20.10.2011, quash the same and consequently forbear
the 2nd respondent from reducing 5% of the refund claim of the petitioner
on the estimated invisible loss of input yarn and visible loss of wastages
accured in the manufacture of knitted garments in the State of Tamil
Nadu and exported.
For Petitioner : Mr.M.Hariharan
For Respondents : Mr.V.Nanmaran
Government Advocate
ORDER
The relief sought for in the present writ petition is to call for the
records of the 1st respondent herein in VAT Cell/Roc.No./37188/2011
(Circular No.22/2011) dated 20.10.2011, quash the same and
consequently forbear the 2nd respondent from reducing 5% of the refund
claim of the petitioner on the estimated invisible loss of input yarn and
visible loss of wastages accured in the manufacture of knitted garments
in the State of Tamil Nadu and exported.
https://www.mhc.tn.gov.in/judis/
W.P.No.11632 of 2014
and M.P.Nos.1, 2 & 3 of 2014
2. With reference to the similar prayer, this Court has considered
the issues and passed an order dated 04.12.2019 in W.P.No.3172 of 2014
and the relevant paragraphs are extracted hereunder:
“2.This issue is now covered by a decision of this
Court in Interfit Techno Products Ltd. Vs Principal
Secretary/Commissioner of Commercial Taxes, Ezhilagam,
Chennai and Another, (2015) 81 VST 389 (Mad).
3.In paragraph Nos.61 & 62, learned Single Judge has
summarised his views as follows:-
61. In the light of the above conclusion, the decision
relied on by the learned counsel for the petitioner in the
case of Binani Industries Limited v. Assistant
Commissioner of Commercial Taxes VI Circle,
Bangalore [2007] 6 VST 783 (SC) with regard to
reopening of the assessment does not render assistance
to the case of the petitioners. Accordingly Question No. 6
is answered against the petitioners.
62. In the result,
(1) the challenge to the impugned circular is held to be
unnecessary since the circular is a non statutory circular
and is in the nature of guideline and the prayer for
quashing the circular is rejected.
(2) Section 18 of the TNVAT Act is not an independent or
a separate stand alone provision under the provisions of
TNVAT Act but subject to other provisions of the Act
including Section 19 of the VAT Act.
(3) For the reasons assigned, it is not sufficient for a
dealer claiming refund under Section 18(2) of the Act to
show that he has paid input tax on the goods purchased;
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W.P.No.11632 of 2014
and M.P.Nos.1, 2 & 3 of 2014
that those goods are used in the manufacture and
nothing more but there is duty upon the dealer to satisfy
the Assessing Authority that the claim is not hit by any of
the restrictions or conditions contained under Section 19
of the VAT Act. In this regard, it is essential for the
Assessing Authority to embark upon the fact finding
exercise to ascertain the quantum of loss of the goods
which were purchased on which tax was paid vis-a-vis
the goods manufactured from and out of the goods
purchased and to examine as to whether they fall within
any of the restrictions contained in Section 19 of the VAT
Act. The Assessing Officer has to conduct an exercise by
which it is to be ascertained as to whether the
representation made by the dealer is justified and is not
hit by any any of the restrictions and conditions
contained in Section 19 and in particular Section 19(9)
of the VAT Act.
(4) It is held that the Assessing Authorities are not
justified in adopting uniform percentage as invisible
loss and calling upon the dealer to reverse the input
tax credit availed to that extent. Consequently, all
notices issued to the petitioner for reopening and all
consequential order passed reversing the input tax
credit to the extent of either 4% or 5% or on adhoc
per centage stands set aside. However, liberty is
granted to the concerned Assessing Officer to issue
appropriate show cause notices to the petitioners
clearly setting out under what circumstances they
propose to revise or call upon the petitioner to reverse
refund sanctioned and after inviting objections
proceed in accordance with law.
(5) The undertaking given by the dealer in Form W is
with regard to information furnished for the purpose of
verification by the Assessing Officer under Rule 11(2) of
the VAT Rules for being entitled to refund under Section
18(2). Therefore, it is not as if the Act does not provide a
remedy in the event of a wrong or erroneous refund
sanctioned when Section 18 cannot be treated as an
https://www.mhc.tn.gov.in/judis/
W.P.No.11632 of 2014
and M.P.Nos.1, 2 & 3 of 2014
independent provision but subject to restrictions and
conditions under Section 19 of the VAT Act.
4.The Writ Petition is disposed in terms of the above
decision of this Court referred to supra. There is no provision
under the TNVAT Act, 2006, to call upon a dealer who is a
manufacture to reverse credit on “invisible loss” of input in the
course of manufacture of final product. TNVAT Rules, 2007 also
does not speak about input-output norm. Further, Rules also do
not contemplate 100% assimilation of inputs into final products.
Section 19(9)(i), (ii) & (iii) of TNVAT Act, 2006 only deals with
three situation when input tax is not available. They are as
follows:-
(9) No input tax credit shall be available to a registered
dealer for tax paid or payable at the time of purchase of
goods, if such-
(i) goods are not sold because of any theft, loss or
destruction, for any reason, including natural calamity.
If a dealer has already availed input tax credit against
purchase of such goods, there shall be reversal of tax
credit; or
(ii) inputs destroyed in fire accident or lost while in
storage even before use in the manufacture of final
products; or
(iii) inputs damaged in transit or destroyed at some
intermediary stage of manufacture.
5.In my view, the expression "inputs destroyed at some
https://www.mhc.tn.gov.in/judis/
W.P.No.11632 of 2014
and M.P.Nos.1, 2 & 3 of 2014
intermediary stage of manufacture" in sub Clause (iii) of Section
19(9)(iii) of TNVAT Act, 2006 will not take within its fold those
inputs "consumed" in the manufacture of final product. Only
when inputs are “destroyed at some intermediary stage of
manufacture”, reversal of input tax credit is warranted. They
would be instance of inputs which are withdrawn at an
intermediary stage of manufacture and are incapable of being
used further and are sold as scrap/waste or physically destroyed
by an assessee having no residual value. Such inputs alone can be
construed as "inputs destroyed at some intermediary stage of
manufacture". There is no scope for reversal of input tax credit
on inputs which get consumed during the course of manufacture
as “invisible loss”. The authorities may therefore keep these
observations while passing orders in the Show Cause Notice
which have been issued.
6.Accordingly, this Writ Petition is disposed in terms of the
above decision of this court. No cost. Consequently, connected
Miscellaneous Petitions are closed.”
https://www.mhc.tn.gov.in/judis/
W.P.No.11632 of 2014
and M.P.Nos.1, 2 & 3 of 2014
3. In view of the judgment cited supra, the present writ petition
stands disposed of. No costs. Consequently, connected miscellaneous
petitions are closed.
19.07.2021
Pns
Internet:Yes
Index:Yes
Speaking order
To
1.The Principal Secretary /
Commissioner of Commercial Taxes,
Ezhilagam, Chepauk,
Chennai.
2.The Assistant Commissioner (CT)
Tirupur – I Assessment Circle,
Tirupur.
3.The Commercial Tax Officer,
Enforcement III, Tirupur.
4.The Secretary,
The State of Tamilnadu
Commercial Taxes and Registration Department,
Fort St.George, Chennai.
https://www.mhc.tn.gov.in/judis/
W.P.No.11632 of 2014
and M.P.Nos.1, 2 & 3 of 2014
S.M.SUBRAMANIAM, J.
Pns
W.P.No.11632 of 2014
and M.P.Nos.1, 2 & 3 of 2014
19.07.2021
https://www.mhc.tn.gov.in/judis/
