Supreme Court: While exercising its civil appellate jurisdiction, the division bench of M.R. Shah* and C.T. Ravikumar J.J., held that a dealer claiming Input Tax Credit on purchase ought to prove and establish actual physical movement of goods and genuineness of transaction. It noted that in order to establish the same, the dealer should furnish the name and address of the selling dealer, details of the vehicle which delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods, tax invoices and payment particulars etc. under Section 70 of the Karnataka Value Added Tax Act, 2003 (‘KVAT, 2003’). It also noted that if the purchase dealer failed to prove the physical movement of the goods on which Input Tax Credit was claimed, the Assessing Authority would be justified in rejecting such ITC claims.
Factual Matrix
In the matter at hand, the State of Karnataka challenged the impugned order passed the Karnataka High Court which had dismissed the revision application preferred by the revenue- State of Karnataka and allowed the Input Tax Credit (‘ITC’) claimed by the purchasing dealers/respondent.
The respondent purchased green coffee beans from other dealers for the purpose of further sale in exports and in the domestic market. Finding some irregularities in Input Tax Rebate claimed by it for the Assessment Year 2010-2011, the Assessing Officer issued notice under section 39 of the KVAT Act, 2003. The authority found that the respondent had claimed ITC from 27 sellers out of which 6 were found to be de-registered; 3 had effected sales to the respondent but did not file taxes and 6 had outrightly denied turnover nor paid taxes. Therefore, the ITC came to be disallowed to the extent of Rs. 10.52 lacs by the Assessing Officer. The first Appellate Authority confirmed the findings of the Assessing Officer. However, the Karnataka Appellate Tribunal allowed the second appeal on the ground that the respondent had purchased the coffee from the registered dealer under genuine tax invoices and consequently allowed the ITC claim. The revision application filed by the revenue authorities before the High Court came to be dismissed, hence the present appeal.
Issue
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Whether the second Appellate Authority as well as the High Court were justified in allowing the Input Tax Credit?
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Interpretation of Section 70 of the Karnataka Value Added Tax Act, 2003 (‘KVAT, 2003’)
Court Analysis
The Court noted that the provision of Section 70 of KVAT, 2003 clearly stipulated that the burden of proving that the ITC claim was correct, laid upon the purchasing dealer claiming such ITC. Merely because the dealer claiming such ITC claims that he is a bona fide purchaser is not enough and sufficient.
“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 casted under section 70 of the KVAT Act, 2003. The dealer claiming ITC has to prove beyond doubt the actual transaction which can be proved by furnishing the name and address of the selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods, tax invoices and payment particulars etc.” observed the Bench.
The Court navigating through the intention of the Section 70 of KVAT Act, 2003 , noted that the ITC can be claimed only on the genuine transactions of the sale and purchase and if a dealer knowingly issues or produces a false tax invoice, credit or debit note, declaration, certificate or other document with a view to support or make any claim that a transaction of sale or purchase effected by him or any other dealer, is not liable to be taxed, or liable to take at a lower rate, or that a deduction of input tax is available, such a dealer is liable to pay the penalty. Therefore, if the purchasing dealer fails to establish and prove the said important aspect of physical movement of the goods alleged to have been purchased by it 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 stated that in the present case, the respective purchasing dealer has produced either the invoices or payment by cheques to claim ITC. The Assessing Officer has doubted the genuineness of the transactions by giving cogent reasons on the basis of the evidence and material on record. In some of the cases, the registration of the selling dealers have been cancelled or even the sale by the concerned dealers has been disputed and/or denied by the concerned dealer.
The Court observed that despite the findings of fact recorded by the Assessing Officer on the genuineness of the transactions, while refusing to allow the ITC, which came to be confirmed by the first Appellate Authority, the second Appellate Authority as well as the Karnataka High Court have upset the concurrent findings on irrelevant considerations that producing invoices or payments through cheques are sufficient to claim ITC which, as observed hereinabove, is erroneous.
With this observation, the Court set aside the impugned judgment passed by the Karnataka High Court and the second Appellate Authority allowing the ITC, as unsustainable.
[State of Karnataka v Ecom Gill Coffee Trading Private Limited, 2023 SCC OnLine SC 248, 13-03-2023]
Judgment authored by Justice M.R. Shah.
Advocates who appeared in this case:
For the appellant- Additional Attorney General Nikhil Goel and Advocate on Record Shubhranshu Padhi, Advocate Vishal Bansal, Advocate Rajeshwari Shankar, Advocate Niroop Sukrithy, Advocate Mohd. Ovais and Advocate Adithya Koshy Roy;
For the Respondent- Advocate on Record Pai Amit, Advocate on Record Swarnendu Chatterjee, Advocate Deepakshi Garg, Advocate Yashwardhan Singh, Advocate Megha Saha, Advocate Thirumalesh M., Advocate Pankhuri Bhardwaj, Advocate Rahat Bansal, Advocate Abhiyudaya Vats, Advocate Sonali Suryawanshi, Advocate on Record Raghavendra S. Srivatsa, Advocate Venkita Subramoniom T.R., Advocate Likhi Chand Bhonsle, Advocate Komal Mundhra, Advocate K.J. Kamath, Advocate on Record Bhargava V. Desai, Advocate Veena Kamath, Advocate Lekha Dhilip, Advocate Rahul Gupta and Advocate Ankita Chopra.
