2015 (6) TMI 624 - HC - VAT and Sales Tax

Denial of input tax credit - Purchases made from the petitioner whose registration certificate has been cancelled ab initio on the ground that the seller had involved into the billing activities only and all the transactions are held to be bogus - Held that - petitioner was not served with the copy of the order in the case of M/s Lucky Enterprises. Now, the copy of the order passed in the case of M/s Lucky Enterprises is available with the petitioner. Therefore, after giving an opportunity to the petitioner with respect to observations made in the case of M/s Lucky Enterprises insofar as the alleged transactions between the petitioner and M/s Lucky Enterprises and after giving an opportunity to the petitioner to prove the genuineness of the transaction between the et and M/s Lucky Enterprises in light of the observations made herein above, therefore, the matter is required to be remanded to the adjudicating authority to consider the claim of the petitioner for ITC on the alleged purchases made by the petitioner from M/s Lucky Enterprises. - Decided in favour of assessee.

Issues Involved:
1. Disallowance of Input Tax Credit (ITC) by first revisional authority.
2. Cancellation of registration certificate of M/s Lucky Enterprises ab initio.
3. Breach of principles of natural justice.
4. Requirement to prove actual movement of goods for ITC claims.
5. Opportunity for the petitioner to prove the genuineness of transactions.

Issue-wise Detailed Analysis:

1. Disallowance of Input Tax Credit (ITC) by first revisional authority:
The petitioner-dealer sought to quash the judgment by the Gujarat VAT Tribunal, which upheld the Deputy Commissioner of Commercial Tax's order. The Deputy Commissioner had revised the Assessing Officer's order, disallowing ITC of Rs. 6,49,561/- claimed by the petitioner on purchases from M/s Lucky Enterprises. The revision resulted in a tax demand of Rs. 1,92,511/-, interest of Rs. 2,13,418/-, and a penalty of Rs. 2,88,768/- under sections 34(7) and 34(12) of the VAT Act.

2. Cancellation of registration certificate of M/s Lucky Enterprises ab initio:
The petitioner claimed ITC based on purchases from M/s Lucky Enterprises, whose registration was cancelled ab initio from 22.2.2006 due to non-genuine transactions. The first revisional authority disallowed ITC, citing that all transactions by M/s Lucky Enterprises, including those with the petitioner, were bogus. The Tribunal confirmed this decision, leading to the present appeal.

3. Breach of principles of natural justice:
The petitioner argued that they were not served with the order canceling M/s Lucky Enterprises' registration, nor given an opportunity to counter the findings. The first revisional authority and Tribunal relied solely on the cancellation order without independent verification of the transactions between the petitioner and M/s Lucky Enterprises. The petitioner contended this was a breach of natural justice.

4. Requirement to prove actual movement of goods for ITC claims:
The court emphasized that mere production of bills, vouchers, and weigh bills is insufficient to claim ITC. The petitioner must prove the actual movement of goods from the seller to the purchaser. This requirement was underscored by the Division Bench's judgment in the case of Madhav Steel Corporation, which held that proving the genuineness of transactions and actual movement of goods is essential for ITC claims.

5. Opportunity for the petitioner to prove the genuineness of transactions:
The court noted that the petitioner was not given an opportunity to address the findings in the cancellation order of M/s Lucky Enterprises. The petitioner should be allowed to prove the genuineness of transactions and the actual movement of goods. The matter was remanded to the adjudicating authority to reconsider the ITC claim, providing the petitioner an opportunity to present their case based on the findings and observations made in the case of M/s Lucky Enterprises.

Conclusion:
The court set aside the orders of the authorities below and remanded the matter to the adjudicating authority to reconsider the ITC claim after providing the petitioner an opportunity to address the findings in the cancellation order of M/s Lucky Enterprises. The exercise must be completed within three months, and no fresh evidence will be allowed. The court clarified that it had not expressed any opinion on the merits of the petitioner's transactions with M/s Lucky Enterprises.

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