2016 (5) TMI 1190 - HC - VAT and Sales Tax

Imposition of penalty under Section 72(2) of the KVAT Act - Disallowance of input tax credit in respect of goods viz. iron and steel purchased from the registered dealers - Selling dealers were absconding and were involved in bill trading - Held that - from the various judgments, it is clear that the burden lies on the petitioner to establish that the dealers from whom the petitioner had purchased the goods have remitted the tax collected to the Government. Mere obtaining the registration number by the selling dealers would not suffice to claim input tax credit unless the petitioner has discharged the burden of proof in support of the input tax claimed. No input tax credit could be allowed on the basis of the photostat copies of tax invoices. Availing of input tax credit on photostat tax invoices/bogus invoices in the absence of selling dealer remitting the taxes to the Government and the investigations providing that they are non-existing dealers amounts to violation of the provisions of the Act and attracts levy of penalty under Section 72(2) of the Act. - Decided against the petitioner

Summary

Issues:
Challenge to reassessment orders disallowing input tax credit claimed for goods purchased from a dealer involved in bill trading and absconding, confirmation of orders by First Appellate Authority and Karnataka Appellate Tribunal, burden of proof on the assessee to establish legitimacy of transactions and tax remittance by selling dealer, reliance on relevant case laws.

Analysis:
The petitioner, a registered dealer, purchased iron and steel from a dealer involved in bill trading and absconding, claiming input tax credit amounting to ?5,24,283. The prescribed authority disallowed the credit and imposed a penalty under Section 72(2) of the KVAT Act, 2003. The First Appellate Authority and Karnataka Appellate Tribunal upheld the decision, leading to the petitioner filing revision petitions challenging the judgment.

The petitioner argued that they purchased goods from a registered dealer who issued tax invoices as per the Act's procedure. They contended that the authorities did not provide adequate opportunity to explain before passing reassessment orders. The petitioner emphasized being a registered dealer who paid taxes and that any default by the selling dealer should not affect their input tax credit claim. They relied on the decision of MILANO PLYWOOD SUPPLIERS vs STATE OF KARNATAKA (2014(80) KLJ 206).

On the other hand, the revenue, represented by the Addl. Govt. Advocate, justified the authorities' actions, stating that the selling dealer was bogus or non-existent. Despite opportunities, the petitioner failed to provide sufficient evidence, and the burden of proof lay on them as per Section 70 of the Act. The revenue argued that without proving the selling dealer's tax remittance, the input tax credit cannot be allowed.

The High Court observed that the assessing authority found the selling dealers involved in bill trading and absconding. The Tribunal, following relevant case laws, dismissed the appeals. Section 70 of the Act places the burden of proof on the assessee to establish the correctness of input tax deduction claims. Case laws highlighted that mere registration of selling dealers does not suffice; the burden of proof includes ensuring tax remittance. The Court concluded that the Tribunal's decision was justifiable, finding no legal question for consideration. Consequently, the revision petitions were dismissed.