The Joint Commissioner Of Commercial Taxes (Appeals-5) vs. M/S Anr Enterprises
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Cause title — parties, addresses and appearances
ORAL ORDER
(PER: HON'BLE MR. JUSTICE K.V. ARAVIND)
Heard Sri Adithya Vikram Bhat, learned Additional Government Advocate for the petitioners-Authorities; Sri Y.C. Shivakumar, learned counsel for the respondent in STRP No.55/2022; Sri Jaya Kumar S.R., learned counsel for the respondent in STRP No.15/2024; Sri Atul Krishna Rao Alur, learned counsel for the respondent in STRP No.16/2024, and Sri B. Raja Subrahmanya Bhat, learned counsel for the respondent in STRP No.18/2024. 2. These STRPs raise a common question. Since the learned counsel appearing for the parties have advanced common arguments, all these appeals are disposed of by this common judgment.
These batch of petitions are filed by the Revenue against the order in STAs passed by the Karnataka Appellate Tribunal, Bengaluru (for short, ‘the KAT’) as tabulated below; HC-KAR NC: 2026:KHC:6181-DB AND 2 OTHERS
Sl. No. STRP Filed Against STA Date of STA Order 1. 55/2022 246/2019 22.03.2021 2. 59/2022 909/2016 10.11.2021 3. 15/2024 2977 to 2987/2013 15.02.2023 4. 16/2024 18/2021 30.09.2022 5. 18/2024 93/2022 28.02.2023
For convenience, facts in STRP No.55/2022 are referred.
The brief facts of the case are that the respondent is a registered dealer engaged in the manufacture of precision sheet metal components and sub-assemblies and is an ancillary unit of M/s. Honda Motorcycle India Pvt. Ltd. The Deputy Commissioner of Commercial Taxes (Audit) [Assessing Authority (AA)], in the reassessment proceedings for the year 2014–15, disallowed the input tax credit on purchases made from de-registered dealers, unregistered dealers, short filers, and also ‘NIL’ filers.
1 Aggrieved by the said order, the respondent preferred an appeal before the Joint Commissioner of Commercial Taxes (Appeals)-4 [First Appellate Authority (FAA)]. The FAA directed allowance of input tax credit on HC-KAR NC: 2026:KHC:6181-DB AND 2 OTHERS
purchases made from de-registered dealers up to the date of their de-registration and also allowed the input tax credit on purchases made from ‘NIL’ filers and from those who had short-declared their turnover.
2 The AA, in compliance with the directions issued by the FAA, passed an order dated 09.08.2019 re-computing the tax liability. In the said proceedings, the purchases made from de-registered dealers were disallowed on the ground that the genuineness of such purchases was not established. Accordingly, the FAA passed an order dated 24.07.2019. 4.3 Being further aggrieved, the respondent preferred an appeal before KAT. Under the impugned order, the KAT held that the burden of proof lies on the dealer claiming input tax credit. In discharging such burden, the dealer claiming input tax credit is required to establish the genuineness of the transactions, the identity of the selling dealers, and payment of tax on the purchases made by the selling dealers.
4 The KAT held that the respondent-dealer had discharged the initial burden and that it was for the authorities HC-KAR NC: 2026:KHC:6181-DB AND 2 OTHERS
to disprove the respondent’s entitlement to input tax credit. While recording the said finding, the KAT observed that the alleged de-registered/non-existing dealers continued to be reflected as dealers on the portal of the petitioner-department, that the TIN numbers were found to be in existence, that invoices were issued using such TIN numbers, that e-UPass were generated from the portal, and that payments were made through banking channels. After recording the aforesaid findings, the KAT remitted the matter to the AA to pass fresh orders in the light of the observations made by the KAT.
The following substantial questions of law are admitted in all the petitions: "(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 effected from dealers who were deregistered and failed to disclose and discharge their tax liability on such sales? (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 fact that the Respondent had utterly failed to discharge his burden under Section 70 of the KVAT Act of proving the correctness and genuineness of such claim?" HC-KAR NC: 2026:KHC:6181-DB AND 2 OTHERS
Sri Adithya Vikram Bhat, learned Additional Government Advocate appearing for the petitioners–State, submits that the KAT has erroneously placed the burden on the State/Revenue Authorities to establish the genuineness of the transactions, whereas the provisions of the Act cast such burden on the dealer claiming input tax credit. The learned AGA submits that the mere existence of invoices and payment of the sale consideration through banking channels is not sufficient where the transactions are bogus or non-existent.
1 The learned Additional Government Advocate further submits that the material on record, as considered by the AA and the FAA, clearly indicates that the transactions entered into by the respondent were with de-registered dealers and that the respondent is not entitled to input tax credit, as the tax collected by the selling dealers was not deposited with the Government. It is, therefore, submitted that since the findings recorded by the AA and the FAA are based on the evidence on record and are in conformity with the provisions of the Karnataka Value Added Tax Act, 2003 (for short, ‘the KVAT HC-KAR NC: 2026:KHC:6181-DB AND 2 OTHERS
Act’), the order of remand passed by the KAT, directing allowance of input tax credit, is unwarranted.
2 In support of his submissions, the learned AGA places reliance on the judgment of the Hon’ble Supreme Court in State of Karnataka v. Ecom Gill Coffee Trading Private Limited [(2023) 111 GSTR 1] to contend that the mere existence of invoices and payment through banking channels is not sufficient where the transaction itself is doubtful. The learned AGA submits that the Hon’ble Supreme Court, while interpreting Section 70 of the KVAT Act, has laid down the manner in which the burden of proof is to be discharged and has prescribed the requisites for establishing the genuineness of the transactions. It is, therefore, submitted that even if the order of remand is to be sustained, the same ought to be considered strictly in accordance with the law laid down in Ecom Gill Coffee Trading Private Limited (supra) and not for the reasons assigned by the Tribunal.
Sri Y.C. Shivakumar, learned counsel appearing for the respondent in STRP No.55/2022; Sri Jaya Kumar S.R., learned counsel appearing for the respondent in STRP HC-KAR NC: 2026:KHC:6181-DB AND 2 OTHERS
No.15/2024; Sri Atul Krishna Rao Alur, learned counsel appearing for the respondent in STRP No.16/2024; and Sri B. Raja Subrahmanya Bhat, learned counsel appearing for the respondent in STRP No.18/2024, in unison, submit that the transactions were effected with the dealers based on their status as reflected in the departmental portal.
1 It is submitted that when invoices are issued bearing valid TIN numbers and accompanied by e-UPass, there was no reason for the respondent to doubt the status of the selling dealers as registered dealers. It is further submitted that the status of the selling dealers continued to be reflected as registered in the portal at the relevant point of time.
2 Learned counsel further submits that e-UPass can be generated through the portal only by an existing dealer and, once such e-UPass is issued, there is neither any mechanism nor any reason available to the purchasing dealer to disbelieve the status of the selling dealer as a registered dealer. It is also submitted that there is no statutory mechanism provided to independently verify the status of the selling dealer beyond the information available on the portal. It is contended that if the HC-KAR NC: 2026:KHC:6181-DB AND 2 OTHERS
selling dealers had in fact been de-registered, their TIN numbers ought not to have remained active and no e-UPass ought to have been generated using such TIN numbers.
3 Learned counsel for the respondents placed reliance on the judgment of the Hon’ble Supreme Court in The Commissioner of Trade and Taxes, Delhi v. M/s. Shanti Kiran India (P) Ltd., in Civil Appeal Nos. 2042–2047 of 2015, decided on 09.10.2015, to contend that once invoices are issued, there is no further burden on the dealer to discharge in order to claim input tax credit.
We have considered the submissions advanced by the learned counsel for the parties and have perused the appeal papers.
In the reassessment proceedings, the A.A. disallowed the claim of input tax credit on the ground that the respondent failed to discharge the burden of proof as required under Section 70 of the KVAT Act. It was held that the purchases were made from unregistered or de-registered dealers and that the tax collected by such dealers had not been HC-KAR NC: 2026:KHC:6181-DB AND 2 OTHERS
remitted to the Government, thereby disentitling the respondent to claim input tax credit. The said order was confirmed by the FAA by applying Section 70 of the KVAT Act.
1 On further appeal, the KAT held that the burden lies on the dealer claiming input tax credit to establish the genuineness of the transactions under Section 70(1) of the KVAT Act. The Tribunal further held that it is mandatory for the dealer claiming input tax credit to establish that the transactions are genuine, that the selling dealers are identifiable, and that the selling dealers have paid tax on the purchases made by the claimant-dealer. It was further held that the documentary evidence must establish charging of tax in the tax invoice and payment of such tax by the selling dealer to the Department.
2 The Tribunal thereafter proceeded to hold that once the dealer claiming input tax credit establishes the transactions as valid, the burden of proof shifts to the authorities. It was further held that the material on record was sufficient to establish discharge of the initial burden cast upon the dealer claiming input tax credit. The Tribunal observed that the HC-KAR NC: 2026:KHC:6181-DB AND 2 OTHERS
transactions were supported by valid TIN numbers during the relevant period and that the e-filing system of the Department reflected the status of the selling dealers as “registered dealers”, with de-registration having taken place at a later stage.
3 It was further held that e-UPass are generated online, leading the purchasing dealer to believe that the selling dealer was registered. The Tribunal held that the invoices, e- UPass details, purchase registers, e-sugam details, and payment particulars cumulatively indicate that the transactions were genuine and bona fide, unless contrary material is placed on record by the State. With the aforesaid observations, the KAT remitted the matter to the A.A. to pass fresh orders.
The Hon’ble Supreme Court, in Ecom Gill Coffee Trading Private Limited (supra), has interpreted Section 70 of the KVAT Act. While doing so, the Hon’ble Supreme Court has delineated the scope of discharge of the burden of proof and the requisite particulars necessary for examining the genuineness of transactions, and has held as under; HC-KAR NC: 2026:KHC:6181-DB AND 2 OTHERS
“xxx
While considering the aforesaid issue/question, Section 70 of the Karnataka Value Added Tax Act, 2003 is required to be referred to, which reads as under:
“70. Burden of proof.- (1) For the purposes of payment or assessment of tax or any claim to input tax under this Act, the burden of proving that any transaction of a dealer is not liable to tax, or any claim to deduction of input tax is correct, shall lie on such dealer. (2) Where a dealer knowingly issues or produces a false tax invoice, credit or debit note, declaration, certificate or other document with a view to support or make any claim that a transaction of sale or purchase effected by him or any other dealer, is not liable to be taxed, or liable to tax at a lower rate, or that a deduction of input tax is available, the prescribed authority shall, on detecting such issue or production, direct the dealer issuing or producing such document to pay as penalty: (a) in the case of first such detection, three times the tax due in respect of such transaction or claim; and (b) in the case of second or subsequent detection, five times the tax due in respect of such transaction or claim. (3) Before issuing any direction for the payment of the penalty under this Section, the prescribed authority shall give to the dealer the opportunity of showing cause in writing against the imposition of such penalty.” HC-KAR NC: 2026:KHC:6181-DB AND 2 OTHERS
1 Thus, the provisions of Section 70, quoted hereinabove, in its plain terms clearly stipulate that the burden of proving that the ITC claim is correct lies upon the purchasing dealer claiming such ITC. Burden of proof that the ITC claim is correct is squarely upon the assessee who has to discharge the said burden. Merely because the dealer claiming such ITC claims that he is a bona fide purchaser is not enough and sufficient. The burden of proving the correctness of ITC remains upon the dealer claiming such ITC. Such a burden of proof cannot get shifted on the revenue. Mere production of the invoices or the payment made by cheques is not enough and cannot be said to be discharging the burden of proof cast under section 70 of the KVAT Act, 2003. The dealer claiming ITC has to prove beyond doubt the actual transaction which can be proved by furnishing the name and address of the selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods, tax invoices and payment particulars etc. The aforesaid information would be in addition to tax invoices, particulars of payment etc. In fact, if a dealer claims Input Tax Credit on purchases, such dealer/purchaser shall have to prove and establish the actual physical movement of goods, genuineness of transactions by furnishing the details referred above and mere production of tax invoices would not be sufficient to claim ITC. In fact, the genuineness of the transaction has to be proved as the burden to prove the genuineness of transaction as per section 70 of the KVAT Act, 2003 would be upon the purchasing dealer. At the cost of repetition, it is observed and held that mere production of the invoices and/or payment by cheque is not sufficient and cannot be said to be proving the burden as per section 70 of the Act, 2003. 10. Even considering the intent of section 70 of the Act, 2003, it can be seen that the ITC can be claimed only on the genuine transactions of the sale and purchase and even as per section 70(2) if a dealer knowingly issues or produces a false tax HC-KAR NC: 2026:KHC:6181-DB AND 2 OTHERS
invoice, credit or debit note, declaration, certificate or other document with a view to support or make any claim that a transaction of sale or purchase effected by him or any other dealer, is not liable to be taxed, or liable to take at a lower rate, or that a deduction of input tax is available, such a dealer is liable to pay the penalty. Therefore, as observed hereinabove, for claiming ITC, genuineness of the transaction and actual physical movement of the goods are the sine qua non and the aforesaid can be proved only by furnishing the name and address of the selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods, tax invoices and payment particulars etc. The purchasing dealers have to prove the actual physical movement of the goods, alleged to have been purchased from the respective dealers. If the purchasing dealer/s fails/fail to establish and prove the said important aspect of physical movement of the goods alleged to have been purchased by it/them from the concerned dealers and on which the ITC have been claimed, the Assessing Officer is absolutely justified in rejecting such ITC claim.
In the present case, the respective purchasing dealer/s has/have produced either the invoices or payment by cheques to claim ITC. The Assessing Officer has doubted the genuineness of the transactions by giving cogent reasons on the basis of the evidence and material on record. In some of the cases, the registration of the selling dealers have been cancelled or even the sale by the concerned dealers has been disputed and/or denied by the concerned dealer. In none of the cases, the concerned purchasing dealers have produced any further supporting material, such as, furnishing the name and address of the selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods, tax invoices and payment particulars etc. and therefore it can be said that the concerned purchasing dealers failed to discharge the burden cast upon them under Section 70 of the KVAT Act, 2003. At the cost of repetition, it is HC-KAR NC: 2026:KHC:6181-DB AND 2 OTHERS
observed and held that unless and until the purchasing dealer discharges the burden cast under Section 70 of the KVAT Act, 2003 and proves the genuineness of the transaction/purchase and sale by producing the aforesaid materials, such purchasing dealer shall not be entitled to Input Tax Credit.
Despite the findings of fact recorded by the Assessing Officer on the genuineness of the transactions, while refusing to allow the ITC, which came to be confirmed by the first Appellate Authority, the second Appellate Authority as well as the High Court have upset the concurrent findings given by the Assessing Officer as well as the first Appellate Authority, on irrelevant considerations that producing invoices or payments through cheques are sufficient to claim ITC which, as observed hereinabove, is erroneous. As observed hereinabove, over and above the invoices and the particulars of payment, the purchasing dealer has to produce further material like the name and address of the 16selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods including actual physical movement of the goods, alleged to have been purchased from the concerned dealers. xxx
In view of the above and for the reasons stated above and in absence of any further cogent material like furnishing the name and address of the selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods, tax invoices and payment particulars etc. and the actual physical movement of the goods by producing the cogent materials, the Assessing Officer was absolutely justified in denying the ITC, which was confirmed by the first Appellate Authority. Both, the second Appellate Authority as well as the High Court have materially erred in allowing the ITC despite the concerned purchasing HC-KAR NC: 2026:KHC:6181-DB AND 2 OTHERS
dealers failed to prove the genuineness of the transactions and failed to discharge the burden of proof as per section 70 of the KVAT Act, 2003."
The KAT has directed reconsideration of the matter on the ground that the invoices were issued bearing valid TIN numbers, the status of the supplying dealers continued to be reflected as registered in the departmental portal, e-UPass were generated from the portal, and payments were made through banking channels, thereby leading the dealer claiming input tax credit to believe that the supplying dealers were genuine.
The Hon’ble Supreme Court, in the judgment referred to supra, has laid down the complete mechanism and the manner in which the genuineness of transactions is to be examined in the context of Section 70 of the KVAT Act. We note that the said judgment of the Hon’ble Supreme Court was rendered subsequent to the order passed by the Tribunal. It was submitted by the Bar that, in view of the pendency of the present revision petitions, the remand proceedings are presently pending before the AA. HC-KAR NC: 2026:KHC:6181-DB AND 2 OTHERS
In view of the judgment of the Hon’ble Supreme Court, it would be sufficient if the AA is directed to complete the remand proceedings in the light of Ecom Gill Coffee Trading Private Limited (supra), and the observations made by the KAT in the impugned order shall be read subject to the law laid down by the Hon’ble Supreme Court.
It is needless to observe that the contentions of the parties are left open, and the respondent-dealers are at liberty to produce additional material during the process of reconsideration in the light of Ecom Gill Coffee Trading Private Limited (supra). The AA shall afford sufficient opportunity to the parties. We express no opinion on merits.
For the reasons recorded hereinabove, we are of the view that the substantial questions of law admitted do not warrant an answer. Accordingly, we pass the following: ORDER i) The Sales Tax Revision Petitions are allowed-in- part. HC-KAR NC: 2026:KHC:6181-DB AND 2 OTHERS
ii) The orders passed by the KAT in STA No.246/2019 dated 22.03.2021; STA No.909/2016 dated 10.11.2021; STA Nos.2977 to 2987/2013 dated 15.02.2023; STA No.18/2021 dated 30.09.2022; and STA No.93/2022 dated 28.02.2023 are modified to the extent indicated hereinabove, directing the A.A. to conclude the remand proceedings in accordance with the law laid down in Ecom Gill Coffee Trading Private Limited (supra). iii) Considering that the remand orders are of 2021 and 2023, early conclusion is warranted. iv) No order as to cost.
Pending interlocutory applications stand disposed of. (S.G.PANDIT) JUDGE (K. V. ARAVIND) JUDGE DDU/List No.: 2 Sl No.: 0
Reproduced from the public record of the Karnataka High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.