2018 (2) TMI 373 - HC - VAT and Sales Tax

Validity of assessment order - section 39(1) of the KVAT Act, 2003 - Principles of Natural Justice - the adverse material was not confronted to the petitioner and merely on the basis of a Investigation Report, the disallowance of Input Tax Credit was made by the Assessing Authority which too was not supplied to the petitioner-assessee and he was not given an opportunity to controvert the said adverse material. Held that - There cannot be said to be any breach of principles of natural justice in the course of such assessment proceedings resulting in the disallowance of the Input Tax Credit in the hands of the petitioner-assessee, if the selling dealer himself is shown to be an non-existing dealer from entity. Mere production of papers, which could be a hand work of the petitioner-assessee himself, could not be allowed to be claimed such Input Tax Credit in the hands of the petitioner-assessee, unless on due verification and cross check, such tax paid by the selling dealer on the actual sale of such goods to the petitioner-assesse e was shown to have been deposited with the State Treasury by such selling dealer. The State cannot be expected to give credit of Input Tax Credit unless on a verification that the selling dealer is not only shown to be existing but such actual sales attracting such liability is established in the hands of the selling dealer and such tax has been deposited by the selling dealers with the State in due discharge of his obligations under the provisions of the KVAT Act, 2003 or at least he exists to undertake the discharge of such tax obligation on his part - petition is misconceived and is thus dismissed.

Summary

Issues:
Challenge to Re-Assessment Order under Karnataka Value Added Tax Act, 2003 based on breach of natural justice principles.

Analysis:
The petitioner challenged the Re-Assessment Order under the Karnataka Value Added Tax Act, 2003, alleging a breach of natural justice principles. The main contention was that adverse material regarding the disallowance of Input Tax Credit was not provided to the petitioner, specifically related to purchases from a dealer identified as a bogus entity. The Respondents contended that the selling dealer was non-existent and engaged in bill trading, leading to the disallowance of Input Tax Credit claimed by the petitioner. The Assessing Authority passed the impugned Re-Assessment Order based on these findings, raising a demand against the petitioner.

The Proposition Notice dated 08.09.2016 clearly stated the disallowance of Input Tax Credit in relation to purchases from the alleged bogus dealer. The Respondent-authority concluded that the selling dealer was bogus and did not engage in actual sales to the petitioner, justifying the disallowance of Input Tax Credit. The Respondent-Assessing Authority, after thorough investigation, determined that the selling dealer only existed on paper, emphasizing that the Input Tax Credit claimed by the petitioner could not be allowed.

The burden to prove the legitimacy of the selling dealer and the actual sales fell on the petitioner. The Court found that the Revenue Authorities adequately discharged their burden by investigating and establishing the non-existence of the selling dealer. It was emphasized that the State cannot grant Input Tax Credit without verifying the existence of the selling dealer and the actual sales. Allowing false Input Tax Credit would result in losses to public revenue, justifying the need for thorough verification processes by Revenue Authorities.

Ultimately, the Court dismissed the writ petition, deeming it misconceived and highlighting that the petitioner was not entitled to curtail the investigation process through writ jurisdiction. The judgment emphasized the importance of verifying Input Tax Credit claims to prevent revenue losses and upheld the decision to dismiss the petition without costs.