2010 (8) TMI 879 - HC - VAT and Sales Tax

Whether the assessee had knowingly produced a false tax invoice to support a deduction of input tax, which is available to him under law? Held that - The assessee has not answered the queries of the assessing authorities. The material collected makes it very clear that in order to claim benefit of refund of input-tax, the assessee has produced these invoices, which do not reflect a genuine transaction. The very fact that the assessee was not able to answer any one of the fact makes it clear that he knew the truth, he knew what he was doing. Therefore, it is clear that the assessee knowingly produced invoices, which are not genuine in support of his claim of input-tax refund on the basis that he had paid input tax. It is a clear case of evasion of tax. It is not a bona fide act of the assessee. On proper appreciation of the entire material on record, the revisional authority is justified in holding that the first appellate authority committed a serious error in setting aside the penalty on the assessee. Appeal dismissed.

Issues Involved:
1. Legitimacy of input-tax credit claimed by the assessee.
2. Validity of penalty imposed on the assessee for producing false invoices.
3. Compliance with principles of natural justice in the proceedings.

Detailed Analysis:

1. Legitimacy of Input-Tax Credit Claimed by the Assessee:
The assessee, a registered dealer under the Karnataka Value Added Tax Act, 2003 (KVAT Act), claimed input-tax credit based on invoices from suppliers who were later found to be non-existent. The suppliers listed were M/s. S.L.V. Enterprises, M/s. T.D. and Company, M/s. Pooja Trading Corporation, and M/s. Ummed Sales Corporation. Investigations revealed that these suppliers were "deregistered" for non-filing of returns and the invoices were issued by benami persons. The Assistant Commissioner of Commercial Taxes disallowed the input-tax credit and levied a penalty, concluding that the invoices were fictitious and used to evade taxes.

2. Validity of Penalty Imposed on the Assessee for Producing False Invoices:
The first appellate authority confirmed the disallowance of input-tax credit but set aside the penalty, reasoning that the assessee might not have knowingly produced non-genuine invoices. However, the revisional authority, exercising suo motu power, reinstated the penalty, asserting that the assessee was aware of the fraudulent nature of the invoices. The revisional authority found that the invoices were procured through a mediator and were not genuine, thus justifying the penalty under Section 70 of the KVAT Act for producing false invoices.

3. Compliance with Principles of Natural Justice in the Proceedings:
The assessee argued that the order was opposed to principles of natural justice as the Department did not provide the adverse material or statements recorded from the suppliers. The court noted that the assessee did not request these materials during the assessment or appellate proceedings. The revisional authority found that the assessee had ample opportunity to respond to the allegations and failed to provide satisfactory answers to queries regarding the mediator and the transactions. The court concluded that there was no violation of natural justice principles.

Conclusion:
The court upheld the revisional authority's decision, affirming that the invoices were fictitious and the assessee knowingly produced them to claim input-tax credit. The penalty imposed was deemed justified, and the appeal was dismissed. The judgment emphasized that mere possession of tax invoices and payment through cheques does not validate the transactions if the underlying goods and suppliers are not genuine. The court found no merit in the assessee's claims of procedural unfairness, thus supporting the imposition of penalty for tax evasion.

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