2016 (6) TMI 630 - HC - VAT and Sales Tax

Refund of excess tax credit - genuineness of credit - purchase of goods from local VAT dealers and sale of those goods partly in inter-state trade and commerce and partly as export sales - denial of credit on the ground that the selling dealers i.e. the dealers from whom the petitioner had purchased the subject goods had not effected sales of edible oil - Held that - While the purchasing VAT dealer would not be entitled to claim input tax credit without obtaining a tax invoice from the selling VAT dealer mere production of a tax invoice would not disable the assessing authority from enquiring whether the sale of goods referred to in the said tax invoice is genuine or whether the said tax invoice has been issued by a registered VAT dealer. Section 16 of the Act relates to burden of proof and under subsection (1) thereof the burden of proving that any sale or purchase effected by a dealer is eligible for input tax credit shall lie on the dealer. It is for the petitioner in reply to the show cause notice issued by the assessing authority to prove that the goods were physical delivered to him by the 6th respondent and the mode and manner in which they paid the sale price to the 6th respondent; and to satisfy the assessing authority that notwithstanding failure of the selling VAT dealer to disclose the turnover (representing the sale of goods by them to the petitioner) in their returns the goods had in fact been sold to them. Maintainability of writ petition - Held that - In the exercise of its jurisdiction under Article 226 of the Constitution of India this Court would not sit in appeal over the findings of fact recorded by the assessing authority or cause a roving enquiry as to whether or not the selling VAT dealer had deliberately suppressed the turnover in their returns after effecting sales to the petitioner herein or to examine whether or not the petitioner had taken delivery of the subject goods and had paid the sale consideration to the 6th respondent. This Court would also not substitute its views for that of the assessing authority. It is only if the impugned order suffers from an error of law apparent on the face of the record would this Court interfere. The impugned order does not suffer from any such infirmity. Writ petition fails - Dismissed.

Issues Involved:

1. Legality and jurisdiction of the assessment order.
2. Violation of principles of natural justice.
3. Entitlement to input tax credit (ITC).
4. Burden of proof for eligibility of ITC.
5. Adequacy of the petitioner's response to the show cause notice.
6. Scope of judicial review under Article 226 of the Constitution of India.

Issue-wise Detailed Analysis:

1. Legality and Jurisdiction of the Assessment Order:
The petitioner challenged the assessment order dated 27.07.2015, issued under the A.P. VAT Act, 2005, for the tax period 2011-2012 to 2012-2013, claiming it to be illegal, arbitrary, and without jurisdiction. The assessment order was based on the disallowance of the petitioner's input tax credit (ITC) claim of Rs. 6,24,701/- due to the selling dealers not effecting sales of edible oil valued at Rs. 1,24,94,015/- to the petitioner.

2. Violation of Principles of Natural Justice:
The petitioner argued that the assessment order violated principles of natural justice as they were not given sufficient time to respond to the show cause notice and were not provided with the report of the 5th respondent. The court noted that the petitioner failed to reply to the show cause notice and did not establish the genuineness of the transactions.

3. Entitlement to Input Tax Credit (ITC):
The petitioner claimed ITC based on tax invoices issued by the selling dealer, supported by way bills and proof of transportation. The court referenced previous judgments (M/s. Harsh Jewellers v. Commercial Tax Officer and The State of Andhra Pradesh v. Thungabhadra Industries Ltd.) to highlight that the failure of the selling VAT dealer to declare goods sold does not disable the purchaser from claiming ITC, provided the transactions are genuine and the goods were physically delivered.

4. Burden of Proof for Eligibility of ITC:
Under Section 16 of the Act, the burden of proving eligibility for ITC lies on the dealer. The court emphasized that the petitioner had to prove that the goods were physically delivered and that payment was made to the selling dealer. The petitioner did not provide any evidence or reply to the show cause notice to substantiate their claim.

5. Adequacy of the Petitioner's Response to the Show Cause Notice:
The court observed that the petitioner did not respond to the show cause notice and failed to establish the genuineness of the transactions. The mere possession of a tax invoice does not preclude the assessing authority from verifying the authenticity of the sale, physical delivery of goods, and the issuance of the tax invoice by a registered VAT dealer.

6. Scope of Judicial Review under Article 226 of the Constitution of India:
The court held that it would not sit in appeal over the findings of fact recorded by the assessing authority or conduct a roving inquiry into the genuineness of the transactions. Judicial intervention under Article 226 is warranted only if there is an error of law apparent on the face of the record. The court found no such error in the impugned order.

Conclusion:
The court dismissed the writ petition, concluding that the impugned assessment order did not necessitate interference under Article 226 of the Constitution of India. The petitioner's failure to respond to the show cause notice and provide evidence of genuine transactions led to the confirmation of the tax liability. The miscellaneous petitions pending were also dismissed, with no costs awarded.

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