2025 (2) TMI 472 - HC - VAT / Sales Tax

Karnataka HC denies input tax credit for unproven transactions involving copper materials transported by two-wheelers

Karnataka HC upheld disallowance of input tax credit claimed by respondent on purchases from dealers who failed to discharge tax liability. Court found ... 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 - 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 - levy of penalty under Section 70(2)(a) of the KVAT Act - HELD THAT:- The Revenue officials have power to investigate and for that, they can summon any person as witness or otherwise cannot be gainfully disputed. The Assessment Officer having undertaken the investigation has formed an opinion as to there being a clandestine case of Bill Trading with the connivance. Once such an opinion is available in the very Assessment Order, it was open to the Assessee to dispel/dilute the same by producing evidentiary material. In fact, he had undertaken in writing to bring the representative of dealers to depose in his favour - No explanation is offered why he did not avail that facility. To this needs to be added one militant fact that the selling dealers enumerated in the Reassessment Order have not deposited the tax component claimed to have been paid by the Respondent Assessee on its purchase of goods. The goods in question were copper/GI strips, sheets, patties, plates & wires. How such heavy things could have been transported in two-wheelers & three wheelers, remains to be a mystery wrapped in enigma. The reasoning of the Tribunal that in only one instance of transports, Kinetic Honda two-wheeler was used and other vehicles were autos/trucks, does not make much sense. If a dealer does not offer explanation as to why he militantly lied even in respect of one single vehicle, that would cast shadow on the truthfulness of his other statements. We hasten to add that we are not invoking the maxim falses in uno, falses omnibus i.e., proof of falsity in one thing raises a strong presumption of falsity in everything - There is force in the submission of learned AGA that the version of officials of the Tax Department, founded on evidentiary material as to the unscrupulous transactions cannot be lightly interfered for askance. Therefore, the Tribunal is not justified in upsetting the findings recorded by the Assessing Authority. Even the First Appellate Authority committed an error in upsetting the levy of penalty inasmuch as, there was absolutely no material warranting the same. Penalty - HELD THAT:- The Tribunal was swayed away by the documents such as purchase –sale invoices, statement of accounts, purchase & sale register extract coupled with copies of cheques, it missed a very two important factors i.e., the requirement of proof of movement of goods, especially when the Revenue had pleaded that the tax component had not reached the Public Exchequer. Lastly, it needs to be stated that there are no basis on which the First Appellate Authority could quash the Penalty Order u/s.70 (2) of the Act. Conclusion - i) The burden of proof lies with the dealer claiming input tax credit and that mere production of invoices or payment by cheques is not sufficient to discharge this burden. ii) The Tribunal is not justified in upsetting the findings recorded by the Assessing Authority. Even the First Appellate Authority committed an error in upsetting the levy of penalty inasmuch as, there was absolutely no material warranting the same. The impugned order of the Tribunal is set at naught in its entirety - appeal of revenue allowed. The issues presented and considered in the Karnataka High Court judgment are as follows: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 from dealers who failed to discharge their tax liability.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 failure to prove the correctness and genuineness of such claim.3. Whether the Tribunal was right in rejecting the State's Cross Appeal and affirming the order that set aside the levy of penalty under Section 70(2)(a) of the KVAT Act.The Court analyzed the case considering the burden of proof on the Assessee under the Karnataka Value Added Tax Act, 2003. The Court found that the Tribunal's approach was defective and went against the burden of proof provisions. The Court emphasized the importance of transparency, self-assessment, and timely filing of returns in the VAT regime. The Court also referred to the burden of proof under the GST regime to support its interpretation.The Court highlighted that the burden of proof lies with the dealer claiming input tax credit and that mere production of invoices or payment by cheques is not sufficient to discharge this burden. The Court cited the case of STATE OF KARNATAKA vs. M/S ECOM GILL COFFEE TRADING PRIVATE LIMITED to support its reasoning. The Court criticized the Tribunal for placing the burden of proof on the Revenue and not adequately considering the evidence presented by the Assessee.The Court further discussed specific findings in the case, such as the lack of proper documentation, doubts regarding the physical movement of goods, and discrepancies in the records. The Court emphasized the importance of proving the actual physical movement of goods and the genuineness of transactions to claim input tax credit.In its conclusions, the Court ruled in favor of the Revenue, setting aside the Tribunal's order and dismissing the Assessee's appeals. The Court also favored the Revenue's cross-appeals and reinstated the orders of the Assessing Authority. The Court directed the jurisdictional authorities to implement and enforce the judgment promptly.The significant holdings of the judgment include the Court's interpretation of the burden of proof under the tax laws, the importance of providing evidence to support claims for input tax credit, and the Court's decision to rule in favor of the Revenue based on the evidence presented in the case.