Input tax credit and wilful evasion under VAT upheld where invoices were found non-genuine and sellers were untraceable

Under the A.P. VAT Act, the extended limitation period for wilful evasion applied even though the notice did not expressly cite Section 21(5), because the notice and assessment order together clearly alleged bogus input tax credit, false invoices, and suppression of purchases, giving a fair opportunity to answer. No breach of natural justice arose from not producing the selling dealers for cross-examination where they were untraceable and the petitioner's documents were suspect. Input tax credit was denied because possession of invoices alone does not establish a genuine taxable sale, and the assessing authority could examine whether the transactions were sham. The HC also declined writ interference, holding that it would not re-appreciate evidence supporting the assessment.

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Issues: (i) Whether the extended period of limitation under Section 21(5) of the A.P. VAT Act, 2005 could be invoked though the notice did not specifically cite that provision; (ii) whether failure to summon the selling dealers for cross-examination violated principles of natural justice; (iii) whether mere production of tax invoices entitled the dealer to input tax credit and barred enquiry into the genuineness of the underlying sales; and (iv) whether the assessment order could be interfered with in writ jurisdiction on the ground that the evidence was insufficient or wrongly appreciated.

Issue (i): Whether the extended period of limitation under Section 21(5) of the A.P. VAT Act, 2005 could be invoked though the notice did not specifically cite that provision.

Analysis: The notice and the assessment order together disclosed allegations that the petitioner had claimed bogus input tax credit on false invoices and had suppressed inter-State purchases with the object of evading tax. Section 21(5) applies where there is wilful evasion of tax. The Court held that specific citation of the provision in the notice was not decisive if the contents of the notice and the assessment findings clearly made out wilful evasion and gave the assessee a fair opportunity to answer the case.

Conclusion: The assessment for the relevant period was held to be within limitation under Section 21(5), in favour of Revenue.

Issue (ii): Whether failure to summon the selling dealers for cross-examination violated principles of natural justice.

Analysis: The Court distinguished cases where statements or materials from identified persons were relied on behind the assessee's back. Here, the reports showed that several alleged dealers were not functioning at the stated places and their whereabouts were not known. The rules governing VAT assessment required a reasonable opportunity to object, but did not create an automatic right to cross-examine every alleged seller, particularly where the dealers were not available for examination and the petitioner's own documents were found to be suspect.

Conclusion: No violation of natural justice was found, in favour of Revenue.

Issue (iii): Whether mere production of tax invoices entitled the dealer to input tax credit and barred enquiry into the genuineness of the underlying sales.

Analysis: The Court held that input tax credit under Section 13 is not granted merely on possession of an invoice. A valid tax invoice must be issued by a VAT dealer and must reflect an actual taxable sale. The assessing authority is entitled to enquire whether the selling dealer actually sold and delivered the goods, whether the invoices were genuine, and whether the transactions were sham or paper transactions. On the facts, the invoices were found to have been issued by third parties, some dealers were not carrying on business, and the vehicle/transit data supported the conclusion that the petitioner had suppressed inter-State purchases.

Conclusion: The petitioner was not entitled to input tax credit on the disputed transactions, in favour of Revenue.

Issue (iv): Whether the assessment order could be interfered with in writ jurisdiction on the ground that the evidence was insufficient or wrongly appreciated.

Analysis: The Court reiterated that under Article 226 it does not sit in appeal over findings of fact. Where the assessment is supported by material and the conclusions are not perverse or based on no evidence, the Court will not re-appreciate evidence or substitute its own view. The material relating to false invoices, untraceable dealers, payment routing, and transit-pass data furnished a rational basis for the findings of suppression and wilful evasion.

Conclusion: No ground for writ interference was made out, in favour of Revenue.

Final Conclusion: The assessment was sustained as a valid best-judgment assessment based on wilful evasion, and the writ petition was dismissed.

Ratio Decidendi: In VAT assessments, input tax credit can be denied where the evidence shows that the invoices are not genuine and the transactions are paper transactions, and the extended limitation for wilful evasion applies if the notice and order, read as a whole, disclose such evasion even without express citation of the subsection.

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