The State Of Karnataka vs. M/S Marudhar Granites
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Cause title — parties, addresses and appearances
JUDGMENT ON 18.02.2021, COMING ON FOR PRONOUNCEMENT OF JUDGMENT, THIS DAY, V. SRISHANANDA. J., MADE THE FOLLOWING: ORDER State has filed this Revision Petition questioning the validity of the order passed in STA No.608/2016 dated 30.10.2017 on the file of Karnataka Appellate Tribunal, Bengaluru [hereinafter referred to as 'the KAT' for short].
Brief facts which are necessary for disposal of this Revision Petition are as under: M/s. Marudhar Granites (hereinafter referred to as ‘assessee’ for short) is a proprietary concern engaged in trading of polished granite slabs at Bengaluru, duly registered under the Karnataka Value Added Tax Act, 2003 (hereinafter referred to as ‘the Act’ for short) borne on the file of LVO-040, Bengaluru. Assessee has filed turnover
3 returns in Form No.VAT-100 for the tax period from April 2006 to March 2007. The Assistant Commissioner of Commercial Taxes Audit (Audit)-4.4, DVO-IV, Bengaluru (hereinafter referred to as ‘the AA’ for short) has audited the books of accounts and rejected the returns filed by assigning reasons during the inspection of the business premises of the appellant by the CTO (Int), South Zone, Bengaluru on 24.01.2007. He had noticed the suppression of sales to the extent of Rs.80,281/- made against loose slips & also noticed excess stock to the extent of Rs.23,80,281-00. Placing reliance on the inspection report, the AA disallowed the benefit of input tax credit in respect of the purchase of granites from M/s. Priya Traders of Dotihall and also considered probable suppressed turnover of Rs.24,10,562/- and raised demand of Rs.22,43,495/- which included penalty and interest for the months of January 2007 and March 2007. 3. Being aggrieved by the reassessment order, matter was taken before the Joint Commissioner of Commercial Taxes (Appeals)-4, Shanthinagar, Bengaluru
4 (hereinafter referred to as 'the FAA' for short) in VAT AP.No.220/2015-16 on several grounds. The FAA allowed
the appeal of the assessee in-part by order dated 10.05.2016 whereby deleted the estimated suppression of sales turnover to the extent of Rs.24,10,562/- and sales against loose slips and directed the AA to re-compute the turnover and tax liability and thereafter, permitted to issue revised demand notice.
Being not satisfied with the order passed by the FAA dated 10.05.2016, the assessee preferred an appeal before the Karnataka Appellate Tribunal (KAT for short) contending that the inspecting authority wrongly estimated the excess stock mechanically by taking into account the prevailing market rate and not taking the rate that was prevailing on the date of purchase and few other grounds. Before the KAT, parties were heard and KAT by impugned judgment allowed the appeal of the assessee and set aside the order passed by the FAA and AA dated 10.05.2016 and 31.03.2014 respectively insofar as disallowing the input tax credit and considering the excess stock as taxable turnover.
5 The State is in appeal against the said order of the Karnataka Appellate Tribunal in this revision petition.
Learned Additional Government Advocate for the petitioner -State contended that the Tribunal grossly erred in setting aside the order passed by the FAA and the AA. He further emphasized that the scheme of KVAT Act is such that only tax that has been collected by a selling dealer is eligible to avail input tax credit by the purchasing dealer and the Tribunal failed to appreciate the salient features under the scheme of KVAT Act while passing the impugned order.
He further contended that the Tribunal grossly erred in considering the provisions of Section 70 of the KVAT Act, which clearly states that the burden of proving any claim as to deduction of input tax shall lie on the dealer. But in the instant case, the assessee failed to prove that M/s. Revision Petition are culled out hereunder:
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Levy of tax.- (1) The tax shall be levied on every sale of goods in the State by a registered dealer or a dealer liable to be registered, in accordance with the provisions of this Act. (2) The tax shall also be levied, and paid by every registered dealer or a dealer liable to be registered, on the sale of taxable goods to him, for use in the course of his business ,by a person who is not registered under this Act.
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
9 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.
Penalties relating to seals, electronic tax registers and to unaccounted stocks.- (1) ….. (2) Any persons or dealer who is found to be in possession of unaccounted stocks of any taxable goods under the provisions of clause (j) of sub-section (1) of Section 52, after being given in opportunity of showing cause in writing against the imposition of a penalty, shall be liable to a penalty, which shall not be less than the amount of tax leviable or one thousand rupees whichever is higher but which shall not exceed double the amount of tax or five thousand rupees whichever is higher."
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In the back drop of statutory provision perusal of materials on record reveal that, there is no dispute that the assessee produced the true copies of de-registration certificate of M/s. Priya Traders, ledger account extract of M/s. Priya Traders, Bank account extract from April 2006 to December 2006 and 37 Tax invoices issued by M/s. Priya Traders between 2-4-2006 to 29-10-2006. 15. It is not in dispute that M/s. Priya Traders who is the supplier of the assessee was registered dealer bearing Tin No.29480456133 with effect from 1-9-2005 till 31-03-2007. Tax invoices issued by M/s. Priya Traders from 2-4-2006 to 29-10-2006 contained seals affixed by the relevant check post through which the goods were transported from Kustagi to Bengaluru, where the assessee is situated.
From perusal of these documents, it can be safely concluded that the transaction is not a bogus transaction or make believe transaction. Further, goods have been transported from Kustagi to Bengaluru as is evident from the documents produced by the assessee. Hence for the dis- allowing of input tax by the AA and the FAA is without factual
11 basis. There cannot be any dispute as to the burden cast on the assessee to establish the transaction to lay a claim for deduction of input tax by production of documents referred to supra. This Court is of the considered opinion that the assessee has discharged this burden in proving that transaction is a genuine transaction.
In the case on hand, if M/s. Priya Traders has remitted the tax to the Department, assessee cannot be penalized. Therefore, we do not find any justification in interfering with the order of the Karnataka Appellate Tribunal.
Under the scheme of the Act, there is no power vested in the authority to proceed against the assessee for non-remittance of tax by his purchaser. This aspect of the matter has been rightly considered by the Karnataka Appellate Tribunal. In fact, the Appellate Tribunal while reaching such conclusion in paragraph Nos.14 to 16 has held as under by referring to the decided cases by this Court:
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The counsel for the appellant placed reliance on the judgment of Hon'ble High Court of Karnataka in STRP No.171/2016 & STRP No.313- 316/2016 in the case of State of Karnataka Vs. Sri
12 Rajesh Jain Partner M/s Salem Steel Trading Com decided on 7-12-2016 and submitted that it is for the Department to proceed against such dealer who fails to deposit the output tax. We have carefully considered the observation made by the Hon'ble High Court, wherein under the circumstances of the respondent submitting genuine Tax Invoices, Ledger extract, part payments made by the respondent through cheques, while dismissing the STRP filed by the state uphold the order of this tribunal and made the following observations,
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We do not find that the matter can be stretched to that extent as sought to be canvassed. Once the purchaser dealer- assessee satisfactorily demonstrate that while purchasing goods, he has paid the amount of VAT to the selling dealer, the matter should end so far as is entitlement to the claim input tax credit. If the selling dealer has not deposited the amount in full or a part thereof, it would be for the revenue to proceed against the selling dealer. But thereby the benefit of input tax credit cannot be deprieved to the purchaser dealer." In our considered opinion the above observation made by the Hon'ble High Court is aptly applicable to the case in hand.
13 15. No doubt that the FAA in his order relied the judgment of the Hon'ble High Court in the case of No.1/2011, 324 to 347/2011 dated 20-07-2012. In the said decision the Hon'ble High Court observed that the burden is upon the dealer to show that the dealer from whom he purchased the goods remitted the tax to the Government.
But in our considered view the facts and circumstances of the present case and the case in M/s.Packwel Industries are totally different. In the said case the Hon'ble High Court held that the assesse is not entitled for the benefit of input tax credit as he had purchased the jungle wood and other materials either from unregistered dealers or the dealers who were de-registered by the Department. Moreover, in the said case almost all payments were made by cash. But in the present case as per certificate issued by Department, M/s. Priya Traders was registered dealer during the period in which the appellant purchased the goods. More over in this case even all the payments were made through Bank by the appellant. Therefore the judgment in the case of M/s. Packwel Industries cannot be made applicable to the present case. Therefore, in our considered opinion the findings of the AA and FAA in disallowing input tax credit in respect of the purchases made from M/s. Priya Traders is improper and the same is liable to be set aside. With 14 these observations we have answered the point under consideration accordingly."
Therefore, we do not find any infirmity of whatsoever by the Tribunal in arriving at a finding that the AA and the FAA were wrong in disallowing the input tax credit in favour of the assessee for the purchases made from M/s. Priya Traders.
In view of the foregoing discussion, no case is made out to interfere with the well reasoned order of the Karnataka Appellate Tribunal. Accordingly, the Sales Tax Revision Petition is dismissed. JUDGE JUDGE PL*
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.