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TMI Blog2019 (6) TMI 941X X X X Extracts X X X X X X X X Extracts X X X X ..... chaser dealer satisfactorily demonstrates that while purchasing goods, he has paid the amount of tax to the selling dealer. If the selling dealer has not deposited the amount in full or a part thereof, it would be for the revenue to proceed against the selling dealer - Indisputably, the petitioner has purchased the goods from a registered dealer not from an unregistered dealer. Section 9 of the KVAT Act provides collection of tax by registered dealers. If there is any default on the part of such registered dealers in not remitting the tax, so collected into the Government treasury or any designated bank and furnish monthly returns as specified under Section 35 to the prescribed authority, the proceedings are required to be initiated against such registered selling dealers in accordance with the provisions of the KVAT Act. The re-assessment orders and the demand notices at Annexures A, B, C and D are set aside - proceedings are restored to the file of the respondent No.1 prescribed authority for reconsideration. Respondent No.1 prescribed authority shall re-consider the matter in accordance with law and after providing an opportunity of hearing to the petitioner shall concl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inviting the attention of this Court to the re-assessment order submitted that despite accepting that the dealer has effected purchases from the dealers who have been registered under the provisions of KVAT Act, while some of them have been subsequently de-registered, others were still filing returns during the assessment years, prescribed authority disallowed the input credit contrary to the provisions of the KVAT Act. Indeed, the prescribed authority has observed that there is no provision in the KVAT Act which restricts the input credit on purchases effected from defaulting dealers, if the input is not restricted, it would lead to loss of revenue to the State. It is the finding of the prescribed authority that when an amount collected by way of tax which is due to the State is not remitted, it leads to loss of revenue to the State s exchequer if input credit is allowed. The prescribed authority exceeded the jurisdiction in arriving at such a finding. 4. Learned counsel further argued that the degree of burden of proof contemplated under Section 70 of the KVAT Act cannot be enlarged beyond the scope of the said Section. The finding given by the prescribed authority in di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... STA No.71/2013 (D.D. 13.06.2018); 2. Microqual Techno Private Limited vs. Additional Commissioner of Commercial Taxes in STA No.1/2010 (D.D.06.08.2010). 6. I have carefully considered the submissions of the learned counsel appearing for the parties and perused the material on record. In the circumstances, there is no absolute bar to exercise the writ jurisdiction by this Court. 7. The only point that arises for consideration of this Court is: Whether remitting of tax by registered selling dealer is a condition precedent in claiming input tax credit by the purchasing dealer against a valid invoice with the tax component paid? 8. To answer the aforesaid point, it is apt to refer to relevant provisions of the KVAT Act. Section 10(2) and 10(3), 11(a)(9) of the KVAT Act reads thus:- 10. Output tax, input tax and net tax: (1) xxxxxxx (2) Subject to input tax restrictions specified in Sections 11, 12, 14, [17 and 18], input tax in relation to any registered dealer means the tax collected or payable under this Act on the sale to him of any goods for use in the course of his business, and includes the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ects of re-appreciation of the evidence such would result into question of fact. Hence, we do not find that any question of law would arise for consideration, as sought to be canvassed. 8. Mr. T.K. Vedamurthy, learned AGA attempted to contend that if the selling dealer has not deposited the amount of VAT with the Government, then the purchaser dealer would not be entitled to claim the benefit of entry tax credit and the said aspect is not examined by the Tribunal. 9. We do not find that the matter can be stretched to that extent as sought to be canvassed. Once the purchaser dealer-assesee 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. If the selling dealer has not deposited the amount in full or a part thereof, it would be for the Revenue to proceed against the selling dealer. But thereby the benefit of input tax credit cannot be deprived to the purchaser dealer. 11. In the case of Mukand Limited supra , the Division Bench of this Court has observed thus: 10. The limited ground on which we have t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2][g] of the DVAT Act reads as under: [g] to the dealers or class of dealers unless the tax paid by the purchasing dealer has actually been deposited by the selling dealer with the Government or has been lawfully adjusted against output tax liability and correctly reflected in the return filed for the respective tax period. 14. The findings are recorded by the Hon ble Court at paragraphs 39, 40 and 41 as under: 39. Applying the law explained in the above decisions, it can be safely concluded in the present case that there is a singular failure by the legislature to make a distinction between purchasing dealers who have bona fide transacted with the selling dealer by taking all precautions as required by the DVAT Act and those that have not. Therefore, there was need to restrict the denial of ITC only to the selling dealers who had failed to deposit the tax collected by them and not punish bona fide purchasing dealers. The latter cannot be expected to do the impossible. It is trite that a law that is not capable of honest compliance will fail in achieving its objective. If it seeks to visit disobedience with disproportionate consequences to a bona fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 was bogus and was procured by the dealer in collusion with the selling dealer. The department is required to allow the claim once proper declaration is furnished and in the event of its falsity, the department can proceed against the defaulter when the genuineness of the declaration is not in question. However, an exception is carved out in. The event where fraud, collusion or connivance is established between the registered purchasing dealers or the immediate preceding selling registered dealer or any of the predecessors selling registered dealer, the benefit contained in Form VAT C-4 would not be available to the registered purchasing dealer. The aforesaid interpretation would result in achieving the purpose of the rule which is to make the object of the provisions of the Act workable, i.e., realization of tax by the revenue by legitimate methods. 41. The Court respectfully concurs with the above analysis and holds that in the present case, the purchasing dealer is being asked to do the impossible, i.e. to anticipate the selling dealer who will not deposit with the Government the tax collected by him from those purchasing dealer and therefore avoid transacting with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only those dealers for whom assignment note is issued by the Hon ble Commissioner of Commercial Taxes, Karnataka. What is more, the defaulting dealers in the instant case [assessee s sellers] are very few; however, they may run into thousands in some other case. Given the limited resource and manpower, it is nearly impossible for the department to initiate action against all defaulting dealers, where multiple reassessments have to be done and it becomes difficult to keep track of all the defaulters. Hence, xxxxx In view of the above discussions, it is clear that the assessee has the knowledge that the taxes paid by him on purchases made from defaulting dealers has not been remitted to the Government. Though there is no provision in KVAT Act, 2003 which restricts input credit on purchases effected from defaulting dealers, if the input is not restricted, it would lead to loss of revenue to the State. State is not a profit making body but a system which is involved in providing amenities and protection to the citizen. For these activities, it needs money, and taxes collected by people forms major source of its income. Hence, when an amount collected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s held that the burden of proving that input tax claim is correct lies upon the dealer claiming such input tax credit. 19. In the case of Microqual Techno Private Limited supra, the Revisional Authority exercising the suo motu power of revision against the order of the First Appellate Authority which set aside the penalty imposed had recorded a finding that the invoices produced were not genuine as the same were procured through a mediator which was well within the knowledge of the assessee. In such circumstances, it was observed that in order to claim the benefit of refund of input tax, the assessee has produced fake invoices which did not reflect the genuine transaction. It is not a bona fide act of the assessee. Accordingly, the penalty levied under Section 70 of the Act was confirmed. 20. In view of admission of the genuine transaction as well as bonafide claim and in the absence of any other allegations made against the purchasing dealer in the assessment orders, merely for the reason that selling dealers have not deposited the collected tax amount or some of the selling dealers have been subsequently deregistered cannot be a ground to deny the input tax cred ..... X X X X Extracts X X X X X X X X Extracts X X X X
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