2022 (4) TMI 645 - HC - VAT and Sales Tax

Input Tax Credit - purchase effected from the bogus dealer - main ground for rejecting the input tax credit claimed by the assessee is the report said to have been furnished by the Enforcement Officer - periods September 2011, December 2011, February 2012, March 2012 to June 2012 - HELD THAT - The report of the Enforcement Officer said to have been uploaded in the departmental website alleging the bill trading activity by the selling dealers namely M/s. Rajguru Impex and Karnataka Metal Stores is the foundation for the case on hand. The authorities have not co-related the purchases made by the assessee with the alleged invoices of the selling dealers qua movement of goods. No attempt has been made by the Authorities to verify whether the said transactions based on which the input tax credit claimed was genuine or not. Merely placing reliance on the report of the Enforcement Authority, the input tax credit has been denied as no tax was paid by the selling dealer. Independent application of mind by the Prescribed Authority is sine qua non for taking decision. Further, it is well settled legal principle that the assessee claiming input tax credit is required to satisfy the authorities that he has purchased the goods from the registered selling dealers who have issued the invoices and collected the tax. The Department cannot deny the input tax credit merely for the reason that the selling dealer has not deposited the tax. Action has to be initiated against the selling dealer. The attempt made by the Department in denying the input tax credit as no tax was paid by the selling dealers may not be appreciated for the reason that the entitlement of the claim of input tax credit by the registered dealer cannot be stretched to the extent of compliance made by the selling dealers in depositing the tax amount in full or part thereof. There are no perversity or irregularity in the order of the Tribunal impugned. Accordingly, the substantial questions of law answered in favour of the assessee and against the Revenue.

Summary

Issues:
1. Entitlement for input tax credit against purchases from alleged bogus dealers.
2. Sustainability of the impugned order passed by the Tribunal.

Analysis:

Issue 1: Entitlement for input tax credit against purchases from alleged bogus dealers

The respondent, a partnership firm engaged in trading activities, claimed input tax credit under Section 10(3) of the Karnataka Value Added Tax Act, 2003. The prescribed authority, after reassessment, rejected the claim citing purchases from alleged bogus dealers, M/s. Rajguru Impex and Karnataka Metal Stores, involved in bill trading. The First Appellate Authority upheld the decision, but the Tribunal allowed the appeal. The Revenue contended that the Tribunal erred in not considering the tax liability of the selling dealers. However, the Court emphasized that the assessee must prove purchases from registered dealers who paid taxes. The Court cited precedents, emphasizing that denial of input tax credit solely based on non-payment by selling dealers is unjustified. The Court held that the Tribunal rightly followed legal principles, dismissing the Revenue's arguments.

Issue 2: Sustainability of the impugned order passed by the Tribunal

The Revenue argued that the Tribunal did not appreciate the material facts correctly and lacked proper reasoning in allowing the appeal. However, the Court found that the Enforcement Officer's report, the basis for denying input tax credit, was not adequately correlated with the assessee's purchases. The Court stressed that the burden of proof lies with the assessee to establish genuine transactions with registered dealers. The Court rejected the Revenue's reliance on previous judgments, noting that the appellant had provided necessary documents proving transaction genuineness. As a result, the Court upheld the Tribunal's order, finding no irregularity or perversity. The Court ruled in favor of the assessee, dismissing the Revision Petition. The Court also mentioned a pending case before the Apex Court related to a similar matter, leaving the Assessing Officer to take appropriate action based on the final verdict.

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the Court's reasoning in deciding the case.