2018 (2) TMI 1168 - HC - VAT and Sales Tax

Input tax credit - denial on the ground that the said input tax related to purchases effected from seven dealers whose returns were not traceable - It was the grievance of the petitioner that even before filing the objections to the said notice the Assessing Officer proceeded to pass a reassessment order confirming its proposal to disallow the input tax credit claimed by the petitioner. Held that - it is categorically admitted that in respect of selling dealer Nos.1 to 3 assessee is entitled to the input tax credit; as regards the selling dealer No.7 is concerned now the assessee has filed the income tax returns filed by the said dealer along with bank statements which prima facie shows that the selling dealer has remitted the collected tax from the assessee. The assessee has utilized the goods purchased from the selling dealers for the manufacture of goods and effected local and interstate sales. It is trite that the revenue can be at a loss in allowing the input tax credit to a dealer who deals with a bogus transaction for example a selling dealer who is not in existence or a deregistered dealer in such circumstances it is not in doubt that unless the purchasing dealer establishes the genuineness of the invoices issued by the selling dealer no input tax credit can be allowed but that is not the case in the present set of facts. The Assessing Officer while passing reassessment order has categorically observed that the invoices are genuine and in view of the material placed before this Court with respect to the selling dealer No.7 the matter requires reconsideration by the Assessing Officer - Even as regards the selling dealer Nos.4 to 6 no reasons are assigned by the respondent for denying the input tax credit. It is also trite that no input tax credit can be disallowed on the premise that the selling dealer is de-registered subsequent to the relevant tax periods. The factual aspects requires reconsideration - petition allowed by way of remand.

Summary

Issues:
Denial of input tax credit under the Karnataka Value Added Tax Act, 2003 for the assessment year 2005-06 based on non-traceable VAT-100 returns filed by selling dealers.

Analysis:
The petitioner, a dealer engaged in the business of manufacturing and selling steel products, claimed input tax credit for purchases made during the tax periods of April 2005 to March 2006. The Assessing Officer proposed to disallow the input tax credit of ?15,05,332 based on purchases from seven dealers whose returns were not traceable. The First Appellate Authority partly allowed the appeals, confirming the denial of input tax credit but setting aside the penalty. The Karnataka Appellate Tribunal dismissed the appeals, leading to the revision petition by the assessee.

The petitioner argued that the denial of input tax credit was not supported by any statutory provision and was against the Act's provisions. The Assessing Officer acknowledged the genuineness of tax invoices but denied the credit due to non-traceable VAT-100 returns in the Electronics Filing System (EFS). The respondent State admitted the input tax credit claim for some selling dealers but disallowed it for others without providing sufficient reasons.

The burden of proof regarding tax remittance by selling dealers was emphasized, with the respondent justifying the denial of input tax credit for certain dealers due to non-traceable returns. The Tribunal's decision was based on a previous judgment but failed to address the specific issue of non-traceable VAT-100 returns. The Court noted that genuine invoices were accounted for, and the matter required reassessment by the Assessing Officer.

Ultimately, the Court allowed the revision petition, setting aside the previous order and remanding the matter to the Assessing Officer for reconsideration. It was emphasized that denial of input tax credit solely based on non-traceable returns was not justified, especially when genuine invoices were presented, and the selling dealers' deregistration post the relevant tax period did not disentitle the input tax credit claim.

This detailed analysis of the judgment highlights the key arguments, findings, and legal interpretations involved in the case regarding the denial of input tax credit under the Karnataka Value Added Tax Act, 2003.