Court overturns denial of input tax credit under VAT Act, emphasizes burden of proof

The court set aside the reassessment order and demand notice disallowing input tax credit under the Karnataka Value Added Tax Act, 2003. The matter was remanded to the Assessing Officer for reconsideration in light of the court's observations. The court emphasized that denial of input tax credit solely based on the selling dealer's actions was unjustified, highlighting the burden of proof on the assessee and the need for proper justification in denying credit. The denial related to the purchase of old machinery was also found unsupported. Compliance was directed to be expedited, and the writ petition was disposed of accordingly.

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Issues:
Challenge to reassessment order and demand notice disallowing input tax credit under Karnataka Value Added Tax Act, 2003.

Analysis:
The petitioner, a partnership concern engaged in manufacturing and reprocessing of Steel Bars and Job Work, challenged the reassessment order related to tax periods from April 2014 to March 2015. The respondent Authority disallowed input tax credit mainly due to the selling dealer not depositing the collected taxes. The petitioner contended that denial of input tax credit solely based on the selling dealer's actions is unjustified, citing a previous court ruling.

The petitioner argued that as long as the transaction is genuine and a bona fide claim for input tax credit is made, denial of credit solely due to the selling dealer's actions is unwarranted. The Additional Government Advocate, however, referred to a Division Bench ruling placing the burden of proof on the assessee. It was highlighted that in the absence of evidence of tax payment to the selling dealer, denial of input tax credit could be justified.

The court noted that the Assessing Authority denied input tax credit based on the selling dealer's failure to file monthly returns and deposit taxes. Despite the genuineness of the petitioner's purchases, the decision to deny input tax credit solely on the selling dealer's actions was deemed improper. Citing previous judgments, the court emphasized that burden of proof lies on the assessee but denial of credit based solely on selling dealer's actions is not justifiable.

The court referred to a case where similar bogus selling dealers were involved in producing false invoices for input tax credit. It was stressed that the assessee must prove the correctness of the input tax credit claim, and the denial based solely on the selling dealer's actions needed reconsideration by the Assessing Authority. The court also found the denial of input tax credit related to the purchase of old machinery unsupported by satisfactory reasons.

Consequently, the court set aside the assessment order and demand notice, remanding the matter to the Assessing Officer for reconsideration in light of the observations made. The rights and contentions of the parties were left open, and compliance was directed to be expedited. The writ petition was disposed of accordingly.

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