The Asst. Commissioner Of Commercial Taxes vs. M/S. Surfaces

The revision petition has been admitted by this Court to consider the following questions of law:

The respondent – assessee is a partnership firm engaged in the trading of Aluminum profiles and self-adhesive tapes etc., under the name and style of “M/s. Surfaces” and is registered under the provisions of the Act. The respondent has filed returns for the assessment periods September 2011, December 2011, February 2012, March 2012 to June 2012 and claimed input tax credit as provided under Section 10[3] of the Act. The respondent’s case was taken up for re- assessment by the prescribed authority after examining the books of accounts, returns, balance sheet, sample invoices and other related documents for the respective tax periods and re-assessment orders were passed under Section 39[1] of the Act rejecting the claim of the respondent insofar as the input tax credit on the ground that the respondent has produced the invoices relating to the selling dealers viz., M/s. Rajguru Impex and Karnataka Metal Stores who were said to be bogus dealers involved in bill trading activity and also levied interest and penalty for the alleged short payment of tax.

Being aggrieved by the said order, the respondent preferred appeal before the First Appellate Authority who confirmed the order of the Prescribed Authority dismissing the appeal. Against which, the respondent preferred appeal before the Tribunal which came to be allowed. Hence, this Revision Petition by the State.

Learned Additional Government Advocate appearing for the Revenue would submit that the Tribunal has not appreciated the material facts on record in a right perspective and has allowed the appeal sans assigning proper reasoning. The respondent has claimed input tax credit based on the invoices issued by the dealers who were engaged in the bill trading. The Enforcement report regarding the bill trading activity of the selling dealers namely, M/s. Rajguru Impex and Karnataka Metal Stores having been placed before the Prescribed Authority, the same was considered by the Prescribed Authority while rejecting the input tax claimed by the assessee. This aspect was rightly appreciated by the First Appellate Authority but the Tribunal has allowed

Learned counsel has placed reliance on the judgment of the Co-ordinate Bench decision of this Court in the case of Microqual Techno Private Limited, Bangalore V/s. The Additional Commissioner of Commercial Taxes, Zone-I, Bangalore [2011 (71) Kar.L.J. 10 (HC) (DB)] and M/s. Packwell Industries V/s. State of Karnataka [2012 SCC OnLine Kar 9136] in support of his submissions and thus contended that the Tribunal erred in not properly appreciating Section 70 of the Act inasmuch as burden of proof in allowing the appeal.

There is no representation on behalf of the respondent.

We have carefully considered the submissions of the learned Additional Government Advocate and perused the material on record.

The main ground for rejecting the input tax credit claimed by the assessee is the report said to have been furnished by the Enforcement Officer. The report of the Enforcement Officer said to have been uploaded in the departmental website alleging the bill trading activity by the selling dealers namely M/s. Rajguru Impex and Karnataka Metal Stores is the foundation for the case on hand. The authorities have not co-related the purchases made by the assessee with the alleged invoices of the selling dealers qua movement of goods. No attempt has been made by the Authorities to verify whether the said transactions based on which the input tax credit claimed was genuine or not. Merely placing reliance on the report of the Enforcement Authority, the input tax credit has been denied as no tax was paid by the selling dealer. Independent application of mind by the Prescribed Authority is sine qua non for taking decision. Further, it is well settled legal principle that the assessee claiming input tax credit is required to satisfy the authorities that he has purchased the goods from the registered selling dealers who have issued the invoices and collected the tax. The payment of tax by the registered dealer for the transactions effected in terms of the invoices issued by the registered selling dealers would entitle such registered dealer to claim the input tax credit. The Department cannot deny the input tax credit merely for the reason that the selling dealer has not deposited the tax. Action has to be initiated against the selling dealer. The attempt made by the Department in denying the input tax credit as no tax was paid by the selling dealers may not be appreciated for the reason that the entitlement of the claim of input tax credit by the registered dealer cannot be stretched to the extent of compliance made by the selling dealers in depositing the tax amount in full or part thereof as held by the Co-ordinate Bench of this Court in the case of State of Karnataka V/s. Rajesh Jain, Partner M/s. Salem Steel Trading Company, Kurubarapet Main Road Cross, Bangalore [ 2017 (89) Kar.L.J. 305 (HC) (DB)] which has been rightly followed by the Tribunal in allowing the appeal.

The arguments advanced by the learned Additional Government Advocate referring to the Microqual Techno Private Limited, Bangalore supra and M/s. Packwell Industries supra deserves to be negated in the facts and circumstances of the case where the appellant has discharged the burden of proof under Section 70 by placing necessary documents for proving the genuineness of the transaction. Moreover, the respondent has filed objections in the present appeal along with the list of E-sugams raised by the selling dealers submitting that the payments were made only through RTGS/Banking challans, transactions were recorded in the books of accounts which has not been disputed by the Revenue.

In the given circumstances, we find no perversity or irregularity in the order of the Tribunal impugned. Accordingly, we answer the substantial questions of law in favour of the assessee and against the Revenue.