The High Court of Madras held that excess Input Tax Credit (ITC) has to be refunded back to the dealer. There was no provision for carrying forward such Input Tax Credit for adjustment of tax liability for the subsequent period.

The petitioner, Tvl.M.R.Motor Company is a dealer of Motor Vehicles who had claimed a refund of excess Input Tax Credit (ITC) in terms of Sections 19(17) & 19(18) of the TNVAT Act, 2006 read with Rule 10(10)(a) & (b) and Rule 11 of the TNVAT Rules, 2007. The petitioner filed a refund claim and requested the respondent authority to refund a sum of Rs.46,03,026/- being accumulated Input Tax Credit for the Assessment Years from 2006-2007 up to 2009- 2010.

The petitioner thereafter filed Writ Petition before the Court I, to consider its representation for a refund of the accumulated credit which had by then purportedly increased to Rs.1,06,72,081/-. The Writ Petition was disposed of by an order It directed the respondent to consider the representations of the petitioner and pass orders on merits in accordance with the law.

The petitioner thereafter filed another representation and requested the respondent to refund the accumulated credit of Input Tax Credit.

The question that arises for consideration is whether the petitioner was entitled to refund of Input Tax Credit in terms of Section 19(17) and 19(18) of the TNVAT Act, 2006 and whether the Department was justified in disallowing the refund of claim on the ground that the petitioner was still in business and was adjusting the amount regularly.

The single-judge bench of Justice C. Sarvanan held that excess Input Tax Credit (ITC) has to be refunded back to the dealer. There was no provision for carrying forward such Input Tax Credit for adjustment of tax liability for the subsequent period.

The court relied on the decision of the Hon’ble Supreme Court in Unichem Laboratories Ltd vs. CEE which said, “There can be no doubt that the authorities functioning under the Act must, as are in duty bound, protect the interest of the Revenue by levying and collecting the duty in accordance with the law, no less and also no more. It is no part of their duty to deprive an assessee of the benefit available to him in law with a view to augment the quantum of duty for the benefit of the Revenue. They must act reasonably and fairly.”

“I am of the view that the impugned order passed by the respondent cannot be sustained and the same is liable to be quashed with consequential direction to refund the amount lying unutilized after adjustment at the beginning of each financial year,” the court said.