2020 (3) TMI 365 - HC - VAT and Sales Tax

Imposition of penalty under Section 70 2 of KVAT Act - Whether the proceedings initiated under Section 39(1) of KVAT Act is after obtaining the necessary approval from the prescribed authority, namely, the authority prescribed under Section 2(24) of KVAT Act? - HELD THAT - The authority who undertakes re-assessment provisions under Section 39(1) of KVAT Act could only be the prescribed authority and said authority is empowered to do so, which would be on the ground that it has reasons to believe that return furnished which is deemed as assessed is incorrect tax liability of the dealer. Whether the Revisional Authority was justified in initiating the proceedings under Section 64(1) of KVAT Act and setting aside the Appellate Authority order dated 24.07.2017 Annexure C passed under Section 62(6) of KVAT Act? - HELD THAT - It has been found by the Revisional Authority that seller of the appellant namely M/s. Tradex Metal Corporation had engaged in bill trading to evade the tax due to the State Government . In fact, a criminal case has also been registered against said dealer by the jurisdictional police namely, Kalasipalayam Police Station which fact is available on record and completely ignored by the 1st Appellate Authority and said issue having not been addressed to by the 1st Appellate Authority. Revisional Authority having taken note of all these aspects has arrived at a conclusion that input tax credit claimed by the assessee is not sustainable. The penalty imposable under Section 70 2 of the Act using the words knowingly issues or produces a false tax invoice does not shift the burden on the Revenue, merely because the dealer claiming such input tax credit claims that he is a bonafide purchaser and knowingly he has not produced a false and fake invoice in question. The burden of proving the correctness of input tax credit remains upon the dealer claiming such input tax credit. Such a burden of proof does not get shifted on to the Revenue - mere his production before the Assessing Authority and his cross examination recorded by the Assessing Authority does not dispel the fact that the tax invoices produced by the Assessee for claiming input tax credit emanates from the genuinely existing selling dealers. Thus, burden of proving that the claim of input tax credit is correct, is squarely upon the Assessee who never discharged the said burden in the present case. The first Appellate Authority was absolutely wrong in setting aside the penalty assuming such burden of proof to be on the Revenue. The Revisional Authority, was therefore, perfectly justified and within his jurisdiction to restore the order of penalty in these circumstances - substantial question of law No.2 in favour of revenue and against appellant/assessee. Appeal is hereby dismissed by answering the substantial question of law against appellant/assessee.

Summary

Issues Involved:

1. Whether the Deputy Commissioner of Commercial Taxes could have commenced the re-assessment proceedings under Section 39(1) of the Karnataka Value Added Tax Act, 2003 (KVAT Act)?
2. Whether the Revisional Authority was justified in initiating the proceedings under Section 64(1) of KVAT Act and setting aside the Appellate Authority order dated 24.07.2017?

Issue-wise Detailed Analysis:

1. Re-assessment Proceedings under Section 39(1) of KVAT Act:

The court examined whether the Deputy Commissioner of Commercial Taxes had the authority to initiate re-assessment proceedings under Section 39(1) of the KVAT Act. The definition of "Prescribed Authority" as per Section 2(24) of the KVAT Act was pivotal, which states that the Commissioner or an authorized officer can perform such functions. The court found that the Commissioner of Commercial Taxes had, by an order dated 17.05.2013, specifically authorized the re-assessment proceedings, including the appellant's case. The names of 219 dealers, including the appellant, were listed in the annexures to the said order. Consequently, the court concluded that the Deputy Commissioner acted within the prescribed authority, and the first substantial question of law was answered against the appellant.

2. Justification of Revisional Authority's Proceedings under Section 64(1) of KVAT Act:

The court analyzed whether the Revisional Authority was justified in setting aside the Appellate Authority's order. The appellant had claimed input tax credit based on purchases from M/s. Tradex Metal Corporation, which was later found to be a non-existent entity engaged in bill trading to facilitate fraudulent input tax credit claims. The Revisional Authority had set aside the Appellate Authority's order, restoring the re-assessment order due to the fraudulent nature of the transactions.

The court emphasized the burden of proof under Section 70 of the KVAT Act, which lies on the dealer claiming input tax credit to prove the genuineness of the transaction. The appellant failed to provide necessary details such as the name and address of the selling dealer, vehicle details, and payment particulars. The court referred to previous judgments, including the case of M/s. Microqual Techno Private Limited, which established that mere production of tax invoices is insufficient; the actual movement of goods and genuineness of the transaction must be proved.

The court found that the Revisional Authority had correctly noted that the appellant's seller was involved in issuing fake bills, and the Appellate Authority had ignored these material aspects. The Revisional Authority's decision to restore the re-assessment order was justified as the appellant did not discharge the burden of proof required under Section 70 of the KVAT Act. Consequently, the second substantial question of law was also answered in favor of the revenue.

Conclusion:

The appeal was dismissed, and the substantial questions of law were answered against the appellant. The order passed by the Revisional Authority dated 09.02.2018 under Section 64(1) of KVAT Act was confirmed, with no order as to costs.