Karnataka VAT: Burden Of Proving Correctness Of Input Tax Credit Remains Upon Dealer Claiming Same- SC Restores AO’s Order
The Supreme Court recently restored the order passed by the Assessing Officer (AO) observing that the burden of proving the correctness of the Input Tax Credit (ITC) remains upon the dealer claiming the same under the Karnataka Value Added Tax Act, 2003.
The Court observed that such a burden of proof cannot get shifted on the revenue and that mere production of the invoices or the payment made by cheques is not enough and cannot be said to be discharging the burden of proof cast under section 70 of the KVAT Act.
The two-Judge Bench of Justice M.R. Shah and Justice C.T. Ravikumar held, “Merely because the dealer claiming such ITC claims that he is a bona fide purchaser is not enough and sufficient. The burden of proving the correctness of ITC remains upon the dealer claiming such ITC. Such a burden of proof cannot get shifted on the revenue.”
The Bench noted that the AO doubted the genuineness of the transaction by giving cogent reasons based on the evidence and material on record.
AAG Nikhil Goel appeared for the appellant/State while Advocate Swarnendu Chatterjee appeared for the respondent/company.
Brief Facts –
The Karnataka High Court dismissed the revision applications preferred by the revenue and allowed the ITC claimed by the respective purchasing dealers. A purchasing dealer purchased readymade garments from other dealers for the purposes of further sale. The purchasing dealer claimed the ITC on such a sale to the extent of Rs. 4,18,818/-.
The AO disallowed the ITC claim and doubted the sale and the payment of tax on such sale of which the ITC was claimed. An appeal was filed by the purchasing dealer but the Appellate Authority dismissed the same. However, the Karnataka Appellate Tribunal reversed the orders passed by the AO and the first Appellate Authority.
The Supreme Court after hearing the contentions of the counsel asserted, “If the purchasing dealer/s fails/fail to establish and prove the said important aspect of physical movement of the goods alleged to have been purchased by it/them from the concerned dealers and on which the ITC have been claimed, the Assessing Officer is absolutely justified in rejecting such ITC claim.”
The Court said that the purchasing dealers failed to discharge the burden cast upon them under the KVAT Act.
“… unless and until the purchasing dealer discharges the burden cast under Section 70 of the KVAT Act, 2003 and proves the genuineness of the transaction/purchase and sale by producing the aforesaid materials, such purchasing dealer shall not be entitled to Input Tax Credit. … Merely because the tax invoice as per Rule 27 and Rule 29 might have been produced, that by itself cannot be said to be proving the actual physical movement of the goods, which is required to be proved, as observed hereinabove”, noted the Court.
The Court observed that the Assessing Officer was absolutely justified in denying the ITC, which was confirmed by the first Appellate Authority.
“Both, the second Appellate Authority as well as the High Court have materially erred in allowing the ITC despite the concerned purchasing dealers failed to prove the genuineness of the transactions and failed to discharge the burden of proof as per section 70 of the KVAT Act, 2003”, said the Court.
The Court, therefore, asserted that the orders of the High Court and Appellate Authority allowing the ITC are unsustainable and deserve to be quashed and set aside.
Accordingly, the Court allowed the appeal and restored the order of the Assessing Officer.
Cause Title- The State of Karnataka v. M/s Ecom Gill Coffee Trading Private Limited