Karnataka Value Added Tax Act, 2003 – s.70 Karnataka Value Added Tax Rules, 2005 – rr. 27 and 29 – Burden of proof u/s. 70 – Input Tax Credit – Claim of – Respondents (purchasing dealers) claimed the Input Tax Credit (ITC) on the purchases made from the respective dealers – Assessing Officer, doubted the genuineness of the transactions and the purchases made from the respective dealers and denied the ITC – Findings of Assessing Officer confirmed by the first Appellate Authority – Second Appellate Authority and the High Court have allowed the ITC, by observing that as the purchasing dealers produced the invoices issued by the respective dealers and that in some of the cases, they also made the payment through cheques, the Assessing Officer was not justified in denying the ITC – On appeal, held: The burden of proving that the ITC claim is correct lies upon the purchasing dealer claiming such ITC – For claiming ITC, genuineness of the transaction and actual physical movement of the goods are the sine qua non – Mere production of the invoices and/or payment by cheque is not sufficient and cannot be said to be proving the burden as per s.70 – Respondents failed to prove the genuineness of the transactions and failed to discharge the burden of proof as per s. 70 – In absence of any cogent material like 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. and the actual physical movement of the goods by producing the cogent materials, the Assessing Officer was absolutely justified in denying the ITC – 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 – Judgments passed by the High Court and the second Appellate Authority allowing the ITC quashed and set aside – The orders passed by the Assessing Officer, confirmed by the first Appellate Authority are restored. Allowing the appeals, the Court
HELD: 1. The provisions of Section 70, in its plain terms clearly stipulate that the burden of proving that the ITC claim is correct lies upon the purchasing dealer claiming such ITC. Burden of proof that the ITC claim is correct is squarely upon the assessee who has to discharge the said burden. 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. 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 Karnataka Value Added Tax 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. The aforesaid information would be in addition to tax invoices, particulars of payment etc. In fact, if a dealer claims Input Tax Credit on purchases, such dealer/purchaser shall have to prove and establish the actual physical movement of goods, genuineness of transactions by furnishing the details referred above and mere production of tax invoices would not be sufficient to claim ITC. In fact, the genuineness of the transaction has to be proved as the burden to prove the genuineness of transaction as per section
70 of the KVAT Act, 2003 would be upon the purchasing dealer. At the cost of repetition, it is observed and held that mere production of the invoices and/or payment by cheque is not sufficient and cannot be said to be proving the burden as per section 70 of the Act, 2003. 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. [Paras 9.1, 10][656-F-H; 657-A-C, G]
2. Now so far as the reliance placed upon Rules 27 and 29 of the Karnataka Value Added Tax Rules, 2005 and the submission on behalf of the purchasing dealers that under the provisions of the Rules 2005, more particularly under Rules 27 & 29, the only requirement is to issue the tax invoice and to produce the same and there is no other requirement is concerned, the aforesaid has no substance. Rule 27 cast an obligation on the dealers to issue tax invoice and the particulars of the tax invoice are provided under Rule 29. 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. [Para 13][658-G-H; 659A]
3. In absence of any further cogent material like 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. and the actual physical movement of the goods by producing the cogent materials, 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. The impugned judgment(s) and order(s) passed by the High Court and the second Appellate Authority allowing the ITC are unsustainable and deserve to be quashed and set aside and are hereby quashed and set aside. The orders passed by the Assessing Officer denying the ITC to the concerned purchasing dealers, confirmed by the first Appellate Authority are hereby restored. [Para 15][659-F-H; 660-A-B]
M/s. Bhagadia Brothers Vs. Additional Commissioner of Commercial Taxes STA No. 4 of 2018 dated
29.01.2020; Madhav Steel Corporation Vs. State of Gujarat Tax Appeal No. 742 of 2013; Shreeji Impex Vs. State of Gujarat Tax Appeal No. 330 of 2014, 2014 SCC OnLine Guj 8074; Corporation Bank Vs.
Saraswati Abharansala (2009) 19 VST 84 (SC); The Additional Commissioner of commercial Taxes Zone – II and Ors. Vs. M/s. Transworld Star Manjushree Civil Appeal Nos. 216-217 of 2023 @ SLP (Civil) No. 63376338 of 2022; On Quest Merchandising India Pvt. Ltd. v. Government of NCT of Delhi (Writ Petition (Civil) No. 6093/2017, decided on 26.10.2017 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
This page is for informational and research purposes only and does not constitute legal advice. Consult a qualified advocate for advice specific to your situation.