2026 (3) TMI 473 - HC - VAT / Sales Tax

Burden of Proof in Input Tax Credit requiring specified transaction particulars; remand directed to reassess under Supreme Court guidance.

Assessing Authority is directed to reexamine input tax credit (ITC) claims for purchases from deregistered or noncompliant sellers in conformity with the ... Disallowance of input tax credit claimed on purchases - de-registered dealers, unregistered dealers, short filers, and also ‘NIL’ filers - failed to disclose and discharge their tax liability on sales - burden of proof as required under Section 70 on purchaser claiming input tax credit - genuineness of transaction and actual physical movement of goods as prerequisite for claiming ITC - proof of physical movement of goods - departmental portal entries. Burden of proof on purchaser claiming input tax credit - Remand to the Assessing Authority to re-examine the claim for input tax credit in light of the law laid down by the Hon'ble Supreme Court in Ecom Gill Coffee Trading Private Limited[2023 (3) TMI 533 - SUPREME COURT]. - HELD THAT: - The Court noted that the KAT had remitted the matters after recording that invoices bore valid TINs, departmental portal reflected the suppliers as registered and e UPass had been generated, but observed that the KAT's conclusions must be read subject to the Supreme Court's exposition of Section 70 of the KVAT Act. The Supreme Court has held that the burden to prove correctness of an ITC claim lies on the purchasing dealer and that mere production of tax invoices and bank payments is not, by itself, sufficient; the purchaser must establish genuineness by proving, inter alia, name and address of the selling dealer, details evidencing actual physical movement of goods (such as vehicle details, freight/payment of freight, acknowledgements of delivery), and other corroborative particulars. In view of that binding guidance, the High Court directed that the Assessing Authority complete the remand proceedings applying the criteria and approach set out in Ecom Gill, while affording the parties opportunity to produce additional material; the Court expressly refrained from expressing any opinion on the merits. [Paras 11, 12, 13, 14, 15] The KAT orders are modified insofar as the matters are remitted to the Assessing Authority to conclude the remand proceedings in accordance with the law laid down in Ecom Gill Coffee Trading Private Limited; parties may produce further material and the Assessing Authority shall afford opportunity and decide afresh. Final Conclusion: The Sales Tax Revision Petitions are allowed in part: the KAT orders are modified to the extent that the Assessing Authority is directed to conclude the remand proceedings in accordance with the Supreme Court's decision in Ecom Gill Coffee Trading Private Limited; parties are permitted to place additional material and no opinion is expressed on the merits; no order as to costs. Issues: (i) Whether the Tribunal was correct in allowing the dealer's appeal and setting aside the disallowance of input tax credit claimed on purchases from dealers who were deregistered or failed to discharge their tax liability; (ii) Whether the Tribunal was correct in allowing the dealer's appeal despite the dealer's alleged failure to discharge the burden under Section 70 of the KVAT Act to prove correctness and genuineness of the ITC claim.Issue (i): Whether the Tribunal was right in allowing the respondent's appeal and setting aside the disallowance of input tax credit claimed on purchases from dealers who were deregistered and failed to disclose and discharge their tax liability on such sales.Analysis: The Tribunal allowed the ITC claim on the basis that invoices bore valid TINs, e-UPass entries existed on the departmental portal, and payments were made through banking channels, concluding that the initial burden of proof had been discharged by the purchasing dealer and that the authorities must disprove entitlement. Subsequent binding authority of the Hon'ble Supreme Court (Ecom Gill Coffee Trading Private Limited) has clarified the requirements under Section 70 of the KVAT Act, including that mere invoices or cheque payments are insufficient and that additional particulars (name and address of selling dealer, vehicle and delivery details, freight/payment particulars, acknowledgement of delivery and evidence of physical movement of goods) may be necessary to establish genuineness of transactions.Conclusion: Against the assessee.Issue (ii): Whether the Tribunal was right in allowing the respondent's appeal despite the respondent's failure to discharge the burden under Section 70 of the KVAT Act of proving the correctness and genuineness of the ITC claim.Analysis: Section 70 places the burden of proving correctness of an ITC claim on the purchasing dealer. The Supreme Court's interpretation prescribes the nature and extent of evidence required to discharge that burden. The High Court directed that the remand proceedings be completed by the Assessing Authority in accordance with the law laid down by the Supreme Court, allowing the respondent an opportunity to produce additional cogent material during reconsideration.Conclusion: Against the assessee.Final Conclusion: The revision petitions are allowed in part; the Tribunal's orders are modified to the extent that the remand proceedings shall be concluded by the Assessing Authority in accordance with the law laid down in Ecom Gill Coffee Trading Private Limited, with liberty to the dealers to produce additional material and with no opinion expressed on merits.