Purchasing dealers claiming ITC must prove genuine transactions and actual physical movement beyond invoices or payment details under Section 70 of KVAT Act, 2003.

JUDGMENT :

M.R. SHAH, J.

1. As common question of law and facts arise in this group of appeals and the issue is with respect to interpretation of Section 70 of the Karnataka Value Added Tax Act, 2003 (hereinafter referred to as the ‘KVAT Act, 2003’), all these appeals are decided and disposed of together, by this common judgment and order.

2. For the sake of convenience, Civil Appeal No. 231 of 2023 arising from the impugned judgment and order dated 26.02.2021 passed by the High Court of Karnataka at Bengaluru in S.T.R.P. No. 82 of 2018 is treated as the lead matter, as in some matters, the said decision has been relied upon.

3. By the impugned judgment(s) and order(s) passed by the High Court, the High Court has dismissed the revision applications preferred by the revenue – State of Karnataka and as such has allowed the Input Tax Credit (hereinafter referred to as the ‘ITC’) claimed by the respective purchasing dealers. The impugned judgment(s) and order(s) passed by the High Court are the subject matter of present appeals.

Civil Appeal No. 231/2023 (The State of Karnataka v. M/s Tallam Apparels)

4. The facts leading to the present appeal in nutshell are as under:

That the respondent herein – M/s Tallam Apparels (hereinafter referred to as the ‘purchasing dealer’) purchased readymade garments from other dealers for the purposes of further sale. The purchasing dealer claimed the ITC on such sale to the extent of Rs. 4,18,818/-. Vide order dated 26.12.2014, the Assessing Officer disallowed the ITC claim for the Assessment Year 2012-2013 on the ground that the dealers from whom M/s Tallam Apparels have purchased the readymade garments have either got their registration cancelled or have filed ‘NIL’ returns. Thus, the Assessing Officer 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. The Appellate Authority dismissed the same by holding that the burden under section 70 of the KVAT Act, 2003 has not been discharged. However, the Karnataka Appellate Tribunal reversed the orders passed by the Assessing Officer as well as the first Appellate Authority on the ground that the purchasing dealer should not suffer due to default of seller. The revision application before the High Court has been dismissed by the impugned judgment and order.

4.1. In other cases, the Tribunal as well as the High Court have allowed the ITC in favour of the purchasing dealers solely/mainly on the ground that the sale price was paid to the seller by an account payee cheque and that copies of invoices were produced.

4.2 Insofar as the case of M/s Ecom Gill Coffee Trading Private Limited being Civil Appeal No. 230 of 2023 is concerned, M/s Ecom – purchasing dealer purchased green coffee bean from other dealers for the purposes of further sale in exports and in domestic market. Upon finding some irregularities in Input Tax Rebate claimed by the purchasing dealer for Assessment Year 2010-2011, the Assessing Officer issued notice under section 39 of the KVAT Act, 2003 seeking furnishing of accounts, books, tax invoices etc. Re-assessment order came to be passed. It was found that the purchasing dealer had claimed ITC from mainly 27 sellers and out of aforesaid 27 sellers, six were found to be de-registered; three had effected sales to the respondent but did not file taxes and six have outrightly denied turnover nor paid taxes. Therefore, ITC came to be disallowed to the extent of Rs. 10.52 lacs. The first Appellate Authority confirmed the findings of the Assessing Officer. However, the Tribunal allowed the second appeal on the ground that the purchasing dealer purchased the coffee from the registered dealer under genuine tax invoices and consequently allowed the ITC claimed. The revision application before the High Court has been dismissed, relying upon its earlier decision in the case of M/s Tallam Apparels (supra).

5. Shri Nikhil Goel, learned AAG has appeared on behalf of the State of Karnata