2018 (6) TMI 974 - HC - VAT and Sales Tax

High Court affirms penalty under Karnataka VAT Act for false invoices; burden on dealer to prove transactions

The High Court upheld the penalty imposed under Section 70[2][a] of the Karnataka Value Added Tax Act, 2003, against M/s. Bhavani Enterprises for ... Restoration of Penalty u/s 70[2][a] of the KVAT Act, 2003 - input tax credit availed by the Appellant-Assessee on the basis of fake and false invoices of the selling dealers who actually did not exist - Held that:- No question of law arises in the present appeal for consideration by this Court and essentially it is a finding of fact arrived at by the Assessing Authority as well as the Revisional Authority in the present case that the Appellant- Assessee claimed input tax credit on the basis of invoices issued by the non existent dealers. Thus, burden of proving that the claim of input tax credit is correct, is squarely upon the Assessee who never discharged the said burden in the present case. The first Appellate Authority was absolutely wrong in setting aside the penalty assuming such burden of proof to be on the Revenue. The Revisional Authority, was therefore, perfectly justified and within his jurisdiction to restore the order of penalty in these circumstances. It remains a finding of fact, not giving rise to any question of law for our consideration under Section 66 of the Act and we do not find any perversity in the order passed by the Revisional Authority in the present case - appeal dismissed - decided against appellant-assessee. Issues Involved:1. Imposition of penalty under Section 70[2][a] of the Karnataka Value Added Tax Act, 2003.2. Validity of input tax credit claimed based on invoices from non-existent dealers.3. Burden of proof for the correctness of input tax credit claims.4. Interpretation of 'knowingly' producing false invoices under Section 70[2] of the Act.Detailed Analysis:1. Imposition of Penalty under Section 70[2][a] of the Karnataka Value Added Tax Act, 2003:The Assessee, M/s. Bhavani Enterprises, challenged the penalty imposed by the Assessing Authority and restored by the Revisional Authority. The penalty was initially set aside by the first Appellate Authority but reinstated by the Revisional Authority following the precedent set in the case of Microqual Techno Private Limited Vs. Additional Commissioner of Commercial Taxes. The Revisional Authority justified the penalty on the grounds that the Assessee used fake invoices from non-existent dealers to claim input tax credit.2. Validity of Input Tax Credit Claimed Based on Invoices from Non-Existent Dealers:The core issue revolved around whether the Assessee knowingly produced false tax invoices to claim input tax credit. The Revisional Authority and the High Court found that the Assessee’s suppliers did not exist at the addresses provided, and the invoices were fraudulent. The investigation revealed that the dealers were not conducting any business at the reported locations, which invalidated the input tax credit claims.3. Burden of Proof for the Correctness of Input Tax Credit Claims:The High Court emphasized that the burden of proving the correctness of input tax claims lies with the dealer, as stipulated in Section 70 of the Act. The Assessee failed to discharge this burden, and the argument that the burden should shift to the Revenue was rejected. The Court held that the Assessee must prove that the transactions and the invoices were genuine to claim input tax credit.4. Interpretation of 'Knowingly' Producing False Invoices under Section 70[2] of the Act:The Court interpreted the term 'knowingly' as used in Section 70[2] to mean that the dealer must be aware that the invoices are false. The Court found that the Assessee could not have been unaware of the non-existence of the suppliers, thus knowingly producing false invoices. The findings from the cross-examination of involved parties supported this conclusion, reinforcing the imposition of the penalty.Conclusion:The High Court dismissed the appeal, upholding the penalty imposed under Section 70[2][a] of the Karnataka Value Added Tax Act, 2003. The Court found no merit in the Assessee's arguments and confirmed that the Assessee knowingly used false invoices to claim input tax credit, failing to discharge the burden of proof required by law. The decision aligned with the precedent set in the Microqual Techno Private Limited case, ensuring consistency in the application of the law regarding fraudulent tax claims.