Supplier sued buyer for unpaid invoice balances after buyer withheld amounts citing lost input tax credit under the TN VAT Act and liquidated damages for delayed delivery. Upholding both courts below, this Court found no substantial question of law and dismissed the second appeal.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
S.A.No.1035 of 2019
IN THE HIGH COURT OF JUDICATURE AT MADRAS
| Reserved on | 01.08.2025 |
|---|---|
| Pronounced on | 10.10.2025 |
CORAM
THE HONOURABLE MRS.JUSTICE K.GOVINDARAJAN THILAKAVADI
S.A.No.1035 of 2019
M/s. Rishabh Enterprises, rep. by its Partner Mr.Rakesh Daga, No.66/39, Tirumalai Pillai Road, T. Nagar, Chennai 600 017. ...Appellant Vs.
M/s. Bharat Heavy Electricals Limited Rep. by its Managing Director High Pressure Boiler Plant Tiruchirapallai 620 014. ...Respondent
Prayer : Second Appeal filed under Section 100 CPC, 1908 against the aggrieved portion of judgment and decree dated 26.02.2019 passed in A.S. No.426 of 2018, on the file of the XVII Additional City Civil Court, Chennai, confirming the aggrieved portion of Judgment and decree dated 08.12.2016 passed in O.S.No.3094 of 2015, on the file of the V
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Assistant City Civil Court, Chennai.
For Appellant : Mr. K.S. Ganesh Babu For Respondent : Mr.S.Shyam Kumar
JUDGMENT
In this Second Appeal, challenge is made to the aggrieved portion of judgment and decree dated 26.02.2019 passed in A.S. No.426 of 2018, on the file of the XVII Additional City Civil Court, Chennai, confirming the aggrieved portion of Judgment and decree dated 08.12.2016 passed in O.S.No.3094 of 2015, on the file of the V Assistant City Civil Court, Chennai.
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Rs.3,21,650/- is outstanding in respect of the abovesaid purchase and the same has to be paid along with 24% interest per annum. Hence, the total outstanding amount payable by the defendant is Rs.3,89,320/-. Hence the suit.
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which the said invoices were sent by plaintiff and the date seal of defendant company on the said covering letters show that the said invoices reached the defendant company only on 7.4.2014 and 3.7.2014 respectively. Copy of the invoices along with the covering letters are filed along with the written statement. Further the date of invoice No.2783 is 15.7.2014 and the date of receipt of the same by defendant is 2.3.2015 and the copy of the invoice showing its date and also date seal showing the date on which they are received by the defendant company is filed along with the written statement. On receipt of the said invoices, the defendant has processed the bills and payment to the tune of Rs.21,32,633.00 was made to the plaintiff. The amounts of Rs.2,72,534.00 was deducted from the bill amounts as detailed above under section 19(11) of Tamil Nadu Value Added Tax Act, 2006 (for short "TN VAT Act"), input tax credit needs to be taken within the same month of transaction of taxable purchase. If this cannot be done, credit shall be claimed before the end of the financial year or before ninety days from the date of purchase, whichever is later. The invoices at SL. 1 to 5 of the table are submitted by the plaintiff after the lapse of more than 4 Page 5 of 26
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months from the date of invoice. It is seen that the Value Added Tax (VAT) credit dis-allowance is done only in the case of 7 invoices. No deductions on account of VAT dis-allowance are done in case of invoices mentioned at Sl.Nos.6, 7 and 10 as the said invoices were within 90 days of the date of invoice and hence defendant could avail VAT credit and the same was paid to the plaintiff. It is also submitted that the invoices against which VAT amounts are disallowed are of the month February and March and as per the provisions of TN VAT Act, the purchaser has to take credit "before the end of the financial year or before ninety days from the date of purchase, whichever is later" and in these cases the defendant has applied the period of "90 days" from the date of invoice as the cut of date for availing VAT credit. In the case of invoice at Sl.No.10 the defendant has applied the period as "the end of financial year" as the cut of date for availing VAT credit and though the invoice at Sl.No.10 was also after the lapse of 7 months of the date of invoice, the defendant has paid the VAT portion also to the plaintiff as the defendant could take VAT credit till the end of financial year. The defendant also made certain deductions against invoice nos. at S1.No.6 to 10 in the table being Page 6 of 26
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liquidated damages as per the terms of the contract between plaintiff and defendant due to delayed supply of certain items.
5.1. As per the respective purchase order, the delivery date for SL.No.6 to 9 was 4.2.2014 and it can be seen in page No.3 – 5 of the purchase order vide No.7100111611 dated 1.1.2014 filed by the plaintiff along with the plaint. Regarding the invoice at Sl.No.10 of the above table the delivery date was 15.4.2014 and the same can be seen in page No.3 of the respective purchase order vide No.7000015942 dated 8.3.2014, a copy of the same is filed along with the written statement. Whereas it can be seen from the table in the written statement that the plaintiff has supplied the items against the invoices at Sl.No. 6 to 10 after the delivery schedule stipulated in the said purchaser orders. As per the terms of the purchase orders "if the supplier fails to deliver the raw materials/components/equipments within the period specified in the contract, the purchaser shall deduct liquidated damages, a sum equivalent to 0.5% of the price for each week of delay or part purchase order value/undelivered portion to be reckoned from the contract delivery date Page 7 of 26
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to cargo readiness date (final inspection agency's signed date in the test certificate.)" The plaintiff issued the legal notice on 4.4.2015 and the same was received by the defendant on 8.4.2015. The legal notice was forwarded to the respective department for verification of facts. In the meantime the plaintiff filed the suit in the month of June 2015. The period of notice was too short and before the defendant could file a reply, the plaintiff filed the present suit.
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"i) Whether the respondent having failed to claim
input credit based on the original invoices, blame the plaintiff for the delay in seeking copies of invoices?"
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as per the provisions of the TN VAT Act. His further submission is that as per the provisions of Section 19 (10)(b) of the TN VAT Act, if the original tax invoice is lost, input tax credit shall be allowed only on the basis of duplicate or carbon copy of such tax invoice obtained from the selling dealer and therefore, the plea of the defendant that they could not claim input tax credit within 90 days from the date of original invoice for the goods supplied to them due to the alleged belated submission of three copies of invoice with original signature by the plaintiff is against the provisions of the TN VAT Act and Rules. He would further submit that as per the provisions of Rule (6) of the TN VAT Act Rules, that every registered dealer shall issue bill or invoice for each sale in triplicate showing the particulars of goods and quantity sold with its value, one copy of which must be retained for check by the official of the Commercial Taxes Department and accordingly the plaintiff had preferred the invoices in triplicate and the original was given to the defendant's consignee address marked as Ex.A3 to Ex.A7 and Ex.A9 to Ex.A13 and the triplicate was retained for check by officials of the Commercial Tax Department. He would further submit that in the Page 10 of 26
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purchased orders of the defendant marked as Ex.A2 and Ex.A7, it was only asked for three copies of invoices with original signature to be submitted. Where as, the input tax credit would be claimed only based on the original tax invoice. Therefore, the three copies of invoice with original signature asked by the defendant in the purchase orders is not for the purpose of claiming the input tax credit, but, the same were asked to give only to make payment to the plaintiff and it at all the said three copies of invoice with original signature were submitted belatedly, they could not held liable for the belated payment and they may not be held liable to pay interest for the said belated period not otherwise. It is also submitted that the defendant had not pleaded that they met with liquidate damages due to belated supply of goods by the plaintiff and that in the invoices produced before the court, it has been mentioned in the terms and conditions that interest at the rate of 24% per annum would be charged on all the bills if not paid by the due dates, since it is admittedly a commercial transaction between the parties. While so, the courts below failed to appreciate the above facts in a proper perspective.
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absence of claiming alleged credit input tax based on the original invoice sent to the consignee address, there is no breach of contract on the part of the plaintiff. In support of his contentions, he relied on the decision of the Hon'ble Supreme Court in the case of M/s. Kailash Nath Associates vs. Delhi Development Authority & another reported in 2015(4) SCC 136. Hence, he prayed for setting aside the dis-allowed portion of the judgment and decree passed by the courts below.
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claimed for in the said seven invoices. He would further submit that as per Section 19(11) of the TN VAT Act, input tax credit needs to be taken within the same month of the transaction of taxable purchase and if this cannot be done, credit shall be claimed before the end of the financial year or before 90 days from the date of purchase whichever is later. He would further submit that Section 19 of the TN VAT Act was challenged as unconstitutional before the Hon'ble Supreme Court and the same was held constitutionally valid in the the judgment rendered in the case of ALD Automative Pvt. Ltd vs. The Commercial Tax Officer & others reported in (2019) 13 SCC 225 . Hence the defendant is entitled to deduct liquidated damages at the rate of 5% to the maximum of 15% for the delayed and undelivered portion of the articles. He would further submit that P.W.1 has admitted in his evidence that the invoices were submitted belatedly. He would further submit that the legislature has intentionally prescribed a time frame for the availment of input tax credit that accrues before the end of the financial year or within 90 days from the date of purchase, whichever is later. Section 19 of the relevant stature serves as a pre-condition for the availment of Input Tax Credit. Section Page 13 of 26
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19(11) of the TN VAT Act cannot be invalidated on the grounds of being unreasonable or discriminatory. He would further contend that Input Tax Credit is a form of concession which is provided by the Act. It cannot be claimed as a matter of right, but only in terms of the provisions of the statute. Therefore, the conditions mentioned in Section 19(5)(c) of TN VAT Act, had to be fulfilled by the dealer and sub-section (2) of the Section 19 was constitutionally valid. The provision was aimed at achieving a specific and justified purpose and could not be treated as discriminatory. He would further submit that the courts have held that Section 19(11) as a valid piece of legislation and cannot be struck down as being either unreasonable or discriminatory and in violation of Articles 265 and 360(A) of the Constitution of India. In support of his contentions he has relied upon the following judgments.
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iii. M/s. TVS Motor Company Limited vs. The State of Tamil Nadu and others reported in (2018) 13 SCR 96.
Hence, he prayed for dismissal of the present appeal.
11.Heard on both sides and records perused.
courts below have arrived to a conclusion that in view of the belated supply of invoice, VAT credit could not be claimed by the defendant and hence the plaintiff is not entitled for claiming VAT amount from the defendant. It is not in dispute that the goods were supplied to the defendant on credit basis based on various purchase orders and the plaintiff raised invoices for payment thereto. According to the plaintiff, after giving credit to the part payments made by the defendant a sum of Rs.3,21,650/- is due and payable to the defendant to the plaintiff. In spite of several requests and letters communicated to the defendant, the defendant failed to pay the outstanding amounts to the plaintiff. Hence, a legal notice (Ex.A15) was sent on 04.04.2015, which was received by the
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defendant on 08.04.2015. The defendant neither made payment nor replied for the said legal notice. Hence, the plaintiff filed the above suit for recovery of money. The claim of the plaintiff was resisted by the defendant stating that as per Section 19(11) of TN VAT Act, input tax credit needs to be taken within the same month of transaction of taxable purchase, if the same is not possible, credit shall be claimed before the end of the financial year or before 90 days from the date of purchase whichever is later. While so, the invoice in Serial No. 1 to 5 were sent by the plaintiff after a lapse of four months from the date of invoice. VAT credit dis-allowance is done only in the case of seven invoices. No deductions on account of VAT dis-allowance are done in case of invoices mentioned in Serial Numbers 6, 7 and 10 as the said invoices were within 90 days of the date of invoice and hence the defendant could avail VAT credit and the same was paid to the plaintiff. It is further stated that the invoices against which VAT amounts are disallowed are of the month February and March and as per the provisions of TN VAT Act, 2006, purchaser has to take credit "before the end of the financial year or before ninety day from the date of purchase whichever is later" and in these Page 16 of 26
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cases the Defendant has applied the period '90 days' from the date of invoice as the cut of date for availing VAT credit. In the case of invoice at serial number 10, the defendant has applied the period as "the end of financial year" as the cut of date for availing VAT credit and though the invoice at Serial number 10 was also after the lapse of seven months of the date of invoice, the defendant has paid the VAT portion also to the plaintiff as the defendant could take VAT credit till the end of financial year. The defendant also made certain deductions against the invoice numbers at Serial Number 6 to 10 being liquidated damages as per the terms of the contract between the plaintiff and the defendant due to delayed supply of certain items. As per the purchase order, the delivery date of Serial Number 6 to 9 was on 04.02.2014 and it could be seen in purchase order dated 01.01.2014 filed by the plaintiff. With regard to Sl. No.10, the delivery date was 15.04.2014 and the same is mentioned in the Purchase order dated 08.03.2014 which is filed on the side of the defendant. From the above, it is made clear that the plaintiff has supplied the items against the invoices at serial numbers 6 to 10, after the stipulated delivery schedule in the purchase orders. The terms of the Page 17 of 26
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purchase orders were that "if the supplier fails to deliver the goods within the period specified in the contract, the purchaser shall deduct liquidated damages, a sum equivalent to 0.5% of the price mentioned for each week of delay or part purchase order value/undelivered portion to be reckoned from the contract delivery date to cargo readiness date final inspection agency's signed date in the test certificate".
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invoice serially numbered containing the prescribed particulars and failure to comply with the mandatory requirements attracts penalty." In the present case, the plaintiff has admitted the delay in submitting the invoice and delay in supply of certain items attracting liquidated damages in view of the contract entered into between the plaintiff and the defendant. According to the defendant, the defendant has only disallowed VAT credit portion due to late submission of invoice and had made certain demands against the delayed supply as liquidated damages and apart from this there is no shortage of payment as alleged by the plaintiff. Where as, the plaintiff claims that there is shortage of payment against invoice, but, failed to establish the same. It has to be seen due to belated submission of invoice by the plaintiff, the defendant was not able to obtain VAT credit within the stipulated period. Section 19(11) of TN VAT Act provides that "if any registered dealer fails to claim input tax credit in respect of transaction of taxable purchase in any month, he shall make claim before the end of the financial year or before 90 days whichever is later". This Court in a bunch of writ petitions challenging the assessment order/show cause notices denying the credit taken in the Page 19 of 26
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revised returns involving Section 19(11) of TN VAT Act, held that Section 19(11) actually relaxes the rigor of Rule 7 under which the registered dealer is required to furnish correct and complete details of Input Tax Credit on or before 20th of succeeding month. In addition to filing of revised return under Rule 7(9), Section 19(11) enables the dealer to make the Input Tax Credit before the end of the financial year or before ninety days whichever is later. Section 19(11) not only effectuates the provision of the Act, but is also more in the nature of the beneficial to registered dealer. Therefore, the benefit of credit under the Act is in the nature of a concession given which could be availed only in the manner and in the circumstances mentioned in Section 19. Therefore, the Legislature has given one more benefit which also is in the nature of a concession in respect of registered dealer who failed to claim tax credit in any month and they have been given time to make the claim till the end of the financial year or before 90 days from the date of purchase, whichever is later. Therefore, the word "shall" used in Section 19(11) of the VAT Act is held to be mandatory and not directory. Therefore, from the above observations, it is made clear that the word "shall" in Section Page 20 of 26
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19(11) of TN VAT Act is held to be mandatory and not directory. In the bunch of writ petitions filed before this Court in the case of Usa Agencies vs. Commercial Tax Officer reported in 2013 MLJ 6 142, it is held that the word "shall" used in Section 19(11) of the TN VAT Act, is held to be mandatory and not directory. The relevant portions are extracted hereunder.
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such time frame for availing input tax credit is well within the legislative competence of the State.
13.1. Again in W.P. No.2972/2009 (Sri Laxmi Narasimma vs. The Assistant Commissioner) and in W.P. No.10062/2009 (Bhavani vs. The Commercial Tax), this Court has held that Section 19(11) of TN VAT Act cannot be struck down as being either unreasonable or discriminatory.
13.2. In the judgment relied on the side of the respondent in the case of M/s.TVS Motor Company Limited vs. The State of Tamil Nadu and others it is held that Section 19(5)(c) is constitutionally valid; that this provision was aimed at achieving a specific and justified purpose to Page 23 of 26
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protect the revenue against clandestine transaction resulting in invasion of tax and could not be treated as discriminatory; that sale by a dealer who is registered in the State of Tamil Nadu which is effected outside the state of Tamil Nadu will qualify for ITC only when the said sale is made to a registered dealer; that insofar sales to unregistered dealers, that too, situated outside the state of Tamil Nadu, the State would not have any mechanism to find out the genuineness of the sales; that in essence, the State is put in the condition that ITC would admissible when form 'C' is given, which can be given only in those cases where sale is to a registered dealer and that prescribing such a condition in order to ensure that there is no evasion, has a rationale purpose and objective (Tamil Nadu Value Added Tax Rules, 2007 - Rule 19(9) (a)).
13.3. Therefore, the belated supply of invoice resulted in the defendant ineligible from claiming VAT credit as per Section 19(11) of TN VAT Act. Hence the Courts below were right in decreeing the suit in part, which warrants any interference by this Court. Therefore, I do not see any question of law much less a substantial question of law in order Page 24 of 26
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to enable me to entertain this appeal.
ii. The judgment and decree dated 26.02.2019 passed in A.S. No.426 of 2018, on the file of the XVII Additional City Civil Court, Chennai, confirming the Judgment and decree dated 08.12.2016 passed in O.S.No.3094 of 2015, on the file of the V Assistant City Civil Court, Chennai, is upheld.
10.10.2025
Index: Yes/No Internet: Yes/No Speaking/Non-Speaking order bga
To
1. The XVII Additional Judge, City Civil Court, Chennai. 2. The V Assistant Judge, City Civil Court, Chennai. 3. The Section Officer, VR Section, High Court, Madras.
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K.GOVINDARAJAN THILAKAVADI,J bga
Pre delivery Judgment in S.A.No.1035 of 2019
10.10.2025
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3 issues framed by the court
Whether belated submission of invoices justified the defendant's deduction of disallowed input tax credit under Section 19(11) TN VAT Act?
Whether deductions for liquidated damages due to delayed supply entitled courts to withhold part of the plaintiff's claim?
Whether any substantial question of law exists to justify entertaining the second appeal?
Colour shows how this judgement treated each authority
Usa Agencies vs. Commercial Tax OfficerRelied on¶95
Usa Agencies vs. Commercial Tax Officer reported in 2013 MLJ 6 142
Sri Laxmi Narasimma vs. The Assistant CommissionerRelied on¶107
W.P. No.2972 of 2009 (Sri Laxmi Narasimma vs. The Assistant Commissioner)
Bhavani vs. The Commercial TaxRelied on¶107
W.P. No.10062 of 2009 (Bhavani vs. The Commercial Tax)
TVS Motor Company Limited vs. The State of Tamil NaduExplained¶108
M/s.TVS Motor Company Limited vs. The State of Tamil Nadu and others
5 provisions across 2 enactments
M/s. Rishabh Enterprises (rep. by Partner Mr.Rakesh Daga)
M/s. Bharat Heavy Electricals Limited (rep. by Managing Director)
K.Govindarajan Thilakavadi
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
