A division bench of the Madras High Court, while allowing a bunch of petitions filed by jewelers across he Tamil Nadu State, has quashed the order of the Commercial Tax department disallowing Input Tax Credit (ITC) to the petitioners.
Before the High Court, the petitioners contended that they were in the business of purchasing bullion as well as worn-out jewellery from registered dealers after remitting requisite tax and then sending them to other States for conversion into new jewellery since there was a great demand in the State for designs made by craftsmen in States such as Kerala. Since the finished new jewellery was brought back to Tamil Nadu and sold against tax invoices, they claimed a right to get Input Tax Credit.
Justices Rajiv Shakdher and R. Suresh Kumar declared section 19(1) of the Tamil Nadu VAT Act as invalid since it denied Input Tax Credit (ITC), in the nature of rebate, with respect to worn-out gold jewellery purchased in Tamil Nadu on payment of tax, sent to other States such as Kerala and Karnataka for being converted into new jewels and then brought back for sale on payment of tax once again.
The bench held that “the mere fact that the manufacturing unit is located outside the State of Tamil Nadu cannot be the basis for denial of Input Tax Credit under Section 19(1) of the 2006 Act. Clause (ii) of Sub-Section (2) of Section 19 of the 2006 Act is, thus, declared bad in law.”
Justice Shakdhr, who penned the judgment, observed that “The argument of the respondents… is flawed in the facts of this case. This is because the impugned provision applies across the board making neither a distinction between old and new business/industry nor limiting its impact to a specified period. The result is that goods which are similar in quality and nature bear a different tax burden, thus, violating Article 304(a) of the Constitution.”
“The impugned provision seeks to pivot the denial of tax credit on the basis of circumstance and not on the basis of quality or nature of goods. The fact that ITC is denied on the basis of where the manufacturing unit of the assessee is located results in hostile discrimination against those who have their manufacturing unit located outside the State of Tamil Nadu,” he added.
Read the full text of the Order below.
