2021 (3) TMI 189 - HC - VAT and Sales Tax

Input tax credit - Rejection of returns - sales of textile and readymade garments from the registered dealers within the State - In spite of discharge of burden cast under the statute the audit authority passed an order dated 26.12.2014 under Section 39(1) of the Act, rejecting the input tax credit claimed by the appellant - HELD THAT - In the case on hand, there is no dispute that the assessee produced the true copies of communication certificate, turnover analysis of M/s. Tallam Apparels for the year 2012-13. It is not in dispute that M/s. Tallam Apparels was registered dealer bearing Tin No.29850733495 - From perusal of these documents, it can safely be concluded that the transaction is not a bogus transaction or make believe transaction. Since M/s. Tallam Apparels is not a bogus dealer, as is evident from the documents produced by the assessee, dis-allowing of input tax is incorrect. There cannot be any dispute, that burden is cast on the assessee to establish the transaction to lay a claim for deduction of input tax by production of necessary documents. This Court is of the considered opinion that the assessee has discharged this burden by placing necessary documents. In the case on hand, if M/s. Tallam Apparels has not remitted the tax to the Department, for which assessee cannot be penalized. Therefore, we do not find any justification in interfering with the order of the Karnataka Appellate Tribunal. Under the scheme of the Act, there is no power vested in the authority to proceed against the assessee for non-remittance of tax by his purchaser. This aspect of the matter has been rightly considered by the Karnataka Appellate Tribunal in the right perspective - there are no infirmity in the impugned order recording a finding that the AA and the FAA were wrong in disallowing the input tax credit in favour of the assessee for the purchases made from M/s. Tallam Apparrels. Sales Tax Revision Petition is dismissed.

Summary

Issues: Validity of order passed by Karnataka Appellate Tribunal on input tax credit claimed by the appellant.

Analysis:
1. The petitioner, a registered dealer engaged in sales of textile and readymade garments, claimed input tax credit which was rejected by the audit authority. The appellant challenged this decision before the Joint Commissioner of Commercial Taxes and subsequently before the Karnataka Appellate Tribunal.

2. The Karnataka Appellate Tribunal allowed the appeal of the assessee, setting aside the orders of the lower authorities. The State filed a Revision Petition questioning the validity of this decision, arguing that only tax collected and discharged by a selling dealer is eligible for input tax credit, and the burden of proof lies on the dealer.

3. The Government Advocate contended that the Tribunal erred in not considering the provisions of the KVAT Act, specifically Section 70(1), which places the burden of proof on the dealer. He argued that the purchases made by the assessee were not adequately proven to be genuine, citing previous judgments in support of his position.

4. The Government Advocate further argued that the Karnataka Appellate Tribunal failed to properly discuss whether the assessee was entitled to input tax rebate, emphasizing the importance of inspection reports in determining the validity of the claim.

5. The counsel for the assessee supported the Tribunal's decision, stating that as long as purchases were made with proper documentation, the assessee can claim input tax based on the invoice value, regardless of whether the dealer paid the tax. She argued that the assessee had proven the payment through account payee cheques, fulfilling the requirements under Section 71 of the Act.

6. After considering the rival contentions and perusing the record, the Court examined the relevant provisions of the Act, including Sections 3, 70, and 77(2). It noted that the assessee had provided necessary documents to establish the genuineness of the transactions and had discharged the burden of proof.

7. The Court concluded that since the selling dealer was not bogus and the transaction was genuine, disallowing input tax credit was incorrect. It clarified that the assessee cannot be penalized if the selling dealer did not remit the tax to the Department, as there is no provision in the Act to hold the assessee accountable for the purchaser's non-remittance.

8. Ultimately, the Court upheld the Karnataka Appellate Tribunal's decision, finding no justification to interfere with the well-reasoned order. The Sales Tax Revision Petition was dismissed, affirming the Tribunal's ruling in favor of the assessee.