Summary
Purchasing dealers in Karnataka claimed input tax credit under the Karnataka Value Added Tax Act, 2003 on purchases from sellers later found deregistered, filing nil returns, or denying the sales; the Assessing Officers disallowed the credit, but the Tribunal and the Karnataka High Court allowed it because the purchasers had produced tax invoices and in some cases paid by cheque. The Supreme Court allowed the State's appeals: under Section 70 the burden of proving the correctness of an input tax credit claim lies squarely on the purchasing dealer and never shifts to the revenue; mere invoices or proof of payment are insufficient, and the dealer must prove the genuineness of the transaction and the actual physical movement of goods through the seller's particulars, vehicle details, freight payment and delivery acknowledgments.
Issues
- Whether a purchasing dealer discharges the burden of proof under Section 70 of the Karnataka Value Added Tax Act, 2003 for claiming input tax credit merely by producing tax invoices and proof of payment by cheque, where the genuineness of the purchases is doubted because the selling dealers were deregistered, filed nil returns or denied the sales.
Provisions considered
- Section 70, Karnataka Value Added Tax Act, 2003The burden of proving that a claim to deduction of input tax is correct lies on the dealer claiming it; a bona fide purchaser plea is not enough, and the dealer must prove beyond doubt the actual transaction and physical movement of goods by furnishing the selling dealer's name and address, vehicle details, freight payment, delivery acknowledgment, tax invoices and payment particulars. (¶¶ 9, 9.1, 10, 11, 15)
- Rules 27 and 29, Karnataka Value Added Tax Rules, 2005These Rules oblige dealers to issue tax invoices and prescribe their particulars; production of a compliant invoice proves only one document and does not by itself prove physical movement of goods or discharge the Section 70 burden. (¶ 13)
Held
- Input tax credit can be claimed only on genuine transactions, as Section 70(2) itself penalises false invoices; genuineness and actual physical movement of goods are the sine qua non. The Assessing Officers gave cogent reasons for doubting the transactions, in some cases the sellers' registrations were cancelled or the sales denied, and no purchasing dealer produced any supporting material beyond invoices and cheque payments, so the burden was not discharged. (¶¶ 10, 11, 12, 15)
- The Tribunal and High Court upset concurrent findings of fact on the irrelevant consideration that invoices or cheque payments suffice; the Delhi High Court's decision in On Quest Merchandising concerned Section 9(2)(g) of the Delhi VAT Act and not the burden of proof under Section 70, and does not assist the dealers. (¶¶ 12, 14, 15)
Result
Appeals allowed with no order as to costs; judgments of the Karnataka High Court and of the Karnataka Appellate Tribunal allowing input tax credit quashed and set aside; orders of the Assessing Officers denying the credit, as confirmed by the first appellate authority, restored.