2021 (4) TMI 1036 - HC - VAT and Sales Tax

Disallowance of input tax credit - purchasing dealers either been deregistered or had failed to discharge their tax liability paid on such sales - failure to discharge the burden under Section 70 of the KVAT Act of proving the correctness and genuineness of the claim - HELD THAT - The Tribunal has relied upon the decision of this Court passed in THE STATE OF KARNATAKA VERSUS SRI RAJESH JAIN 2017 (1) TMI 333 - KARNATAKA HIGH COURT where it was held that Once the purchaser dealer-assessee satisfactorily demonstrates that while purchasing goods, he has paid the amount of VAT to the selling dealer, the matter should end so far as his entitlement to the claim input tax credit. The substantial questions of law involved in this petition are covered by the aforesaid decision of the Division Bench of this Court - there are no merit in this petition and the substantial questions of law are answered against the petitioner and in favour of the assessee - petition dismissed.

Summary

Issues:
1. Disallowance of input tax credit claimed by the respondent on purchases from deregistered dealers.
2. Burden of proof under Section 70 of the Karnataka Value Added Tax Act on the genuineness of the claim.

Analysis:
1. The respondent, a dealer under the Karnataka Value Added Tax Act, claimed input tax credit on purchases made during a specific tax period. However, the Assessing Authority denied the credit on the grounds that some dealers from whom the goods were purchased had been deregistered or had not paid taxes on the sales. This denial led to the imposition of interest and penalty. The respondent's appeal was dismissed by the Joint Commissioner of Commercial Taxes, but the Appellate Tribunal later allowed the appeal, stating that the input tax credit could not be denied solely because the selling dealer failed to pay taxes. The Tribunal also found that the respondent had fulfilled the burden of proof under Section 70 of the Act regarding the genuineness of the transactions. Consequently, the Tribunal set aside the interest and penalty. The petitioner challenged this decision.

2. During the proceedings, the respondent's counsel cited a previous judgment of the Court in a similar case involving substantial questions of law. The petitioner's counsel disputed this claim. Upon reviewing the Tribunal's order, the Court noted that the Tribunal had indeed relied on the earlier judgment mentioned by the respondent. Consequently, the Court held that the substantial questions of law raised in the current petition were addressed in the previous decision. As a result, the Court found no merit in the petitioner's arguments and ruled in favor of the respondent, dismissing the petition.

This judgment highlights the importance of substantiating claims for input tax credit under the Karnataka Value Added Tax Act and clarifies the burden of proof requirements under Section 70 of the Act. It emphasizes that the denial of input tax credit should not be automatic based on the actions of the selling dealer and underscores the need for the purchasing dealer to demonstrate the genuineness of transactions to claim such credits successfully.