1. Dispute over the denial of Input Tax Credit under Section 70 of the Karnataka Value Added Tax Act, 2003, following suspected non-genuine sale transactions. (Para 4 )
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2023 Supreme(SC) 204
SUPREME COURT OF INDIA
M.R. Shah, C.T. Ravikumar, JJ.
The State of Karnataka – Appellant
Versus
M/s Ecom Gill Coffee Trading Private Limited – Respondent
CIVIL APPEAL NO. 230 OF 2023 (Arising from SLP(Civil) No. 2572/2022) WITH CIVIL APPEAL NO. 231 OF 2023 (Arising from SLP(Civil) No. 2690/2022) CIVIL APPEAL NO. 232 OF 2023 (Arising from SLP(Civil) No. 3915/2022) CIVIL APPEAL NOS.216-217 OF 2023 (Arising from SLP(Civil) Nos. 6337-6338/2022)
Decided On : 13-03-2023
Advocates appeared:
For the Appellant(s) : Mr. Shubhranshu Padhi, AOR Mr. Vishal Banshal, Adv. Mrs. Rajeshwari Shankar, Adv. Mr. Niroop Sukrithi, Adv. Mr. Md. Ovais, Adv.
For the Respondent(s): Mr. Swarnendu Chatterjee, AOR Mr. Pai Amit, AOR Ms. Pankhuri Bhardwaj, Adv. Mr. Rahat Bansal, Adv. Ms. Sonali Suryavanshi, Adv. Mr. Abhiyudaya Vats, Adv. Mr. K J Kamath, Adv. Mr. Bhargava V. Desai, AOR Mrs. Veena Kamath, Adv. Ms. Lekha, Adv. Ms. Devina Bhandari, Adv.
For the Appellant(s) : Mr. Shubhranshu Padhi, AOR Mr. Vishal Banshal, Adv. Mrs. Rajeshwari Shankar, Adv. Mr. Niroop Sukrithi, Adv. Mr. Md. Ovais, Adv.
For the Respondent(s): Mr. Swarnendu Chatterjee, AOR Mr. Pai Amit, AOR Ms. Pankhuri Bhardwaj, Adv. Mr. Rahat Bansal, Adv. Ms. Sonali Suryavanshi, Adv. Mr. Abhiyudaya Vats, Adv. Mr. K J Kamath, Adv. Mr. Bhargava V. Desai, AOR Mrs. Veena Kamath, Adv. Ms. Lekha, Adv. Ms. Devina Bhandari, Adv.
Important Points
Purchasing dealers claiming ITC must prove genuine transactions and actual physical movement beyond invoices or payment details under Section 70 of KVAT Act, 2003.
Subject
Taxation Law - Value Added Tax
Act Referred
KARNATAKA VALUE ADDED TAX ACT: S.70, S.39
KARNATAKA VALUE ADDED TAX RULES: R.27, R.29
KARNATAKA VALUE ADDED TAX RULES: R.27, R.29
Headnote
KVAT Act, 2003 - Interpretation of Section 70 - Section 70 The court discussed the interpretation of Section 70 of the Karnataka Value Added Tax Act, 2003. The section places the burden of proving that any transaction of a dealer is not liable to tax or any claim to deduction of input tax is correct on the dealer. It also imposes penalties for knowingly issuing false documents to support tax claims. The court emphasized that the burden of proving the correctness of Input Tax Credit (ITC) lies with the purchasing dealer and mere production of invoices or payment by cheques is not sufficient to discharge this burden. The court highlighted that actual physical movement of goods and genuineness of transactions must be proved by furnishing specific details beyond invoices and payment particulars.
Fact of the Case:
The State challenged the High Court's decision allowing Input Tax Credit (ITC) claimed by purchasing dealers under Section 70 of KVAT Act, 2003.Finding of the Court:
The court held that the burden to prove ITC correctness lies with purchasing dealers who must establish genuine transactions and actual physical movement of goods beyond producing invoices or payment details.Issues:
Whether the High Court was justified in allowing ITC despite purchasing dealers failing to prove genuineness and discharge their burden under Section 70.Ratio Decidendi:
Mere production of invoices or payment by cheques is insufficient to prove ITC eligibility; purchasing dealers must demonstrate actual physical movement and genuineness beyond these documents.Final Decision:
The High Court's decision allowing ITC was quashed, restoring the Assessing Officer's denial, as purchasing dealers failed to discharge their burden under Section 70.Legal Category Hierarchy
Table of Contents
2. Whether production of tax invoices and payment by cheque suffices to discharge the burden of proof for Input Tax Credit or actual movement of goods must be proved. (Para 6 , 7 )
3. The court observed that mere production of invoices and cheque payments does not prove the genuineness of transactions or the actual physical movement of goods. (Para 9 , 10 , 11 , 12 , 13 , 14 )
4. Under Section 70 of the KVAT Act, the burden lies on the dealer to prove the genuineness of transactions and actual physical movement of goods to claim ITC. (Para 10 )
5. Appeals allowed; impugned judgments set aside and orders denying Input Tax Credit restored. (Para 15 , 16 )
6. Who bears the burden of proof for claiming Input Tax Credit under Section 70 of the KVAT Act, 2003?
The burden of proving that a claim for deduction of input tax is correct lies squarely upon the dealer claiming such credit. (Para 9 )
7. Is the production of tax invoices and payment by cheque sufficient to discharge the burden of proof for claiming ITC?
No, mere production of invoices or payment by cheque is insufficient. The dealer must prove the actual transaction and physical movement of goods to establish genuineness. (Para 10 , 11 , 12 )
8. What evidence is required to establish the actual physical movement of goods for ITC claims?
Evidence includes the name and address of the selling dealer, vehicle delivery details, payment of freight charges, and acknowledgments of taking delivery of goods. (Para 10 , 11 , 12 )
9. Can ITC be denied if the selling dealer is de-registered or fails to pay tax?
Yes, if the purchasing dealer fails to prove the genuineness of the transaction and physical movement of goods, the Assessing Officer is justified in rejecting the ITC claim. (Para 10 , 11 )
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 Karna
