The burden of proof for input tax credit lies with the Assessee, necessitating substantive evidence of genuine transactions and tax compliance.

ORAL ORDER

(PER: HON'BLE MR JUSTICE KRISHNA S DIXIT)

This Revision Petition by the Revenue filed u/s. 65 of the Karnataka Value Added Tax Act , 2003 calls in question the order dated 31.07.2017 whereby the Karnataka Appellate Tribunal having allowed Assessee’s STA Nos. 542 to 573 of 2010 and negatived Revenue’s STA Cross Appeal Nos. 845 to 876 of 2016. The net effect of this common order is that the Assessee is entitled to claim the benefit of input tax, the levy of penalty & interest having been upset.

2. The Petition was admitted by a Co-ordinate Bench of this Court vide order dated 28.05.2024 on the following questions of law:

“(1) Whether the Tribunal was right in allowing the Respondent's Appeal and setting aside the disallowance of input tax credit claimed by the Respondent on purchases effected from dealers who had failed to discharge their tax liability on such sales?

(2) Whether the Tribunal was right in allowing the Respondent's Appeal and setting aside the disallowance of input tax credit claimed by the Respondent, despite the fact that the Respondent had utterly failed to discharge his burden of proving the correctness and genuineness of such claim?

(3) Whether the Tribunal was right in rejecting the State's Cross Appeal and affirming the order of the first appellate authority in so far as it set aside the levy of penalty under Section 70 (2)(a) of the KVAT Act?”

3. The above questions arose in the following fact matrix of the case:

3.1 The Respondent-Assessee is a dealer registered under the provisions of the 2003 Act. He runs the business in computer consumables & electrical goods like copper/GI strips, sheets, patties, plates, wires etc. The respondent claims to have purchased goods from a number of local and interstate traders. The respondent has filed its returns in Form VAT 100. The relevant tax periods occur between May 2005 and September 2008. The genesis of the lis is in the Re-assessment Order dated 06.06.2009 made by the Deputy Commissioner of Commercial Taxes under Section 39 (1) of the KVAT Act.

This order inter alia, has the following specific findings:

a) that the purchases made by the respondent were based on oral purchase orders;

b) that a review of books of computerised accounts, bank statements & bills do not satisfy the Assessing Officer;

c) that the documents lack a proper description of goods such as weight, size, thickness and measurements that are usual; the transactions are without weight slips, freight vouchers/bills.

d) in many cases the records were without vehicle numbers and in some the Registration Numbers furnished related to two wheelers/ three wheelers. Thus the very physical movement and consequently the delivery/receipt of goods became very doubtful;

e) some of the dealers show similar addresses, if not same, in the invoices, and on investigation, no establishments were found to be operating from these addresses; and f) that the Respondent Assessee was unable to bring any of the registered dealers or their representatives before the Deputy Commissioner despite having undertaken to do so in writing.

3.2 Underlying the above findings is the fact that the selling dealers enumerated in the Reassessment Order have not deposited the tax component claimed to have been made good by the Respondent Assessee on its subject purchase of goods.

4. Learned AGA appearing for the Revenue articulately submits that the very approach of the Tribunal to the matter runs counter to the inner voice of Apex Court decision in STATE OF KARNATAKA vs. M/S ECOM GILL COFFEE TRADING PRIVATE LIMITED , [2023 SCC OnLine SC 248]; even the rules relating to burden of proof were defectively employed by the Tribunal, but for the said approach the subject a