2021 (10) TMI 1072 - HC - VAT and Sales Tax

Rejection of input tax credit - Fictitious dealers - Bogus supplier - protective assessment under Section 38 5 of the Act - levy of penalty - HELD THAT - The Enforcement Officer has submitted a report to the Assessing Authority that M/s. Master Trading Company did not exist in the registered address. On further enquiry from the owner/landlord of the building, it was found that the said place was not rented to M/s. Masters Trading Company. Further, the Enforcement Officer has visited the business premises as well as the residential address declared and found that no such dealer existed in the registered place of business and in the residential address shown in the VAT-1 application for registration, for the last two years. In Salem Steel Trading Company supra, the Co-ordinate Bench of this Court has held that the claim of input tax credit cannot be withheld for the reason that the selling dealers have not paid tax to the Department when all other documentary evidence are in favour of the dealer and when goods have even moved against e -sugams. The case on hand does not satisfy the conditions of documentary evidence proved in favour of the dealer and goods having been moved against e -sugams. The judgment cited by the learned counsel for the assessee in the case of THE STATE OF KARNATAKA REPRESENTED BY THE PRINCIPAL SECRETARY TO GOVT FINANCE DEPARTMENT BANGALORE VERSUS SRI RAJESH JAIN PARTNER M/S SALEM STEEL TRADING COM 2016 (12) TMI 1869 - KARNATAKA HIGH COURT as well as BHARAT SANCHAR NIGAM LTD. (BSNL) VERSUS UNION OF INDIA 2006 (3) TMI 1 - SUPREME COURT were considered by the Tribunal along with the judgments of M/s. Pack Well Industries supra and M/s. Microqual Techno Private Limited, Bangalore supra, having analyzed the material facts vis- -vis the Rulings of the Hon'ble Apex Court and this Court the judgments, the Tribunal has rightly rejected the appeals filed by the assessee allowing the Cross Appeals filed by the Revenue. The revision petition stands dismissed.

Summary

Issues Involved:
1. Disallowance of input tax credit.
2. Existence and genuineness of the selling dealers.
3. Validity of the transportation details provided in invoices.
4. Compliance with mandatory documentation requirements.
5. Applicability of precedent judgments.

Detailed Analysis:

1. Disallowance of Input Tax Credit:
The assessee, a registered dealer under the Karnataka Value Added Tax Act, 2003 (KVAT Act) and the Central Sales Tax Act, 1956 (CST Act), engaged in trading iron and steel goods, claimed input tax credit for purchases made from M/s. Mark Trading Company and M/s. Master Trading Company during the tax periods of September to November 2010. The input tax credit claimed was disallowed by the Assessing Authority under Section 38[5] of the Act on the grounds that the selling dealers were fictitious. The Tribunal upheld this disallowance, leading to the current revision petition.

2. Existence and Genuineness of the Selling Dealers:
The Enforcement Officer's report and the Assessing Authority's investigation revealed that M/s. Master Trading Company and M/s. Mark Trading Company did not exist at their registered addresses. Statements from the building owner and other occupants confirmed that no such businesses operated at the declared premises. The Tribunal found that the dealers were non-existent and the transactions were fictitious, thus justifying the disallowance of the input tax credit.

3. Validity of the Transportation Details Provided in Invoices:
The Tribunal noted significant discrepancies in the vehicle registration numbers listed in the invoices for transporting goods. Many of the vehicles, such as auto-rickshaws, vans, jeeps, and even KSRTC buses, were not suitable for transporting iron and steel. This further supported the conclusion that the transactions were not genuine.

4. Compliance with Mandatory Documentation Requirements:
The goods were not accompanied by E-Sugams, a mandatory requirement for the movement of iron and steel as per the circular instructions issued by the Commissioner of Commercial Taxes dated 24.05.2010. Additionally, the selling dealers had registered for business in electrical goods and hardware, not iron and steel, further questioning the legitimacy of the transactions.

5. Applicability of Precedent Judgments:
The Tribunal referred to the judgments in the cases of M/s. Pack Well Industries and M/s. Microqual Techno Private Limited, where it was held that transactions with bogus dealers and the production of non-genuine invoices nullify the claim for input tax credit. The Tribunal distinguished these cases from the judgment in Salem Steel Trading Company, where input tax credit was allowed despite the selling dealers not paying tax, as the present case lacked supporting documentary evidence and compliance with E-Sugams.

Conclusion:
The Tribunal, after thorough examination of the facts and legal precedents, dismissed the appeals filed by the assessee and upheld the disallowance of input tax credit. The High Court concurred with the Tribunal's findings, stating that no questions of law arose for consideration, and dismissed the revision petition.