Karnataka High Court
M/S Bagadia Brothers vs Additional Commissioner Of Commercial ... on 29 January, 2020
Author: Aravind Kumar
Bench: Aravind Kumar
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 29TH DAY OF JANUARY, 2020
PRESENT
THE HON'BLE MR. JUSTICE ARAVIND KUMAR
AND
THE HON'BLE MR. JUSTICE E.S.INDIRESH
S.T.A. NO.4 OF 2018
BETWEEN:
M/S.BAGADIA BROTHERS
NO.1076, II FLOOR, 18TH MAIN,
16TH CROSS, 5TH BLOCK,
RAJAJINAGAR,
BENGALURU - 560 010.
... APPELLANT
(BY SRI.A.SATYANARAYAN, ADVOCATE)
AND:
ADDITIONAL COMMISSIONER OF
COMMERCIAL TAXES,
ZONE-II, VTK-1,
GANDHINAGAR,
BENGALURU - 09.
... RESPONDENT
(BY SRI.VIKRAM A.HUILGOL, ADVOCATE)
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THIS STA FILED UNDER SECTION 66(1) OF THE
KARNATAKA VALUE ADDED TAX ACT, 2003 AGAINST
THE ORDER DATED 09.02.2018 PASSED IN
NO.ADCOM/ZONE-II/APP-3/SMR/CR-18/ 2017-18 ON
THE FILE OF THE ADDL. COMMISSIONER OF
COMMERCIAL TAXES, ZONE - II, 6TH FLOOR, VTK-1,
GANDHINAGAR, BENGALURU SETTING ASIDE THE
ORDER BEARING NO.VAT.AP.1284 TO 1294/15-16
DATED 24.07.2017 PASSED BY JOINT
COMMISSIONER OF COMMERCIAL TAXES, (APPEALS)-
3, BENGALURU - 27 FOR THE TAX PERIODS FROM
APRIL 2010 TO DECEMBER 2010 AND FEB AND
MARCH, 2011 ALLOWING THE APPEAL AGAINST THE
REASSESSMENT ORDER DATED 28.02.2014 BEARING
NO.DOCT (AUDIT)2.2/DVO-2/13-14 PASSED BY
DEPUTY COMMISSIONER OF COMMERCIAL TAXES,
(AUDIT)-2.2, DVO-2, VTK-2, NGHC, KORAMANGALA,
BENGALURU.
THIS APPEAL COMING ON FOR FURTHER
HEARING THIS DAY, ARAVIND KUMAR J., DELIVERED
THE FOLLOWING:
JUDGMENT
This appeal has been admitted on 29.06.2018. However, we noticed that question of law has not been formulated and as such, we have formulated the following Substantial Question of Law for determination: 3
1. Whether the Deputy Commissioner of Commercial Taxes could have commenced the re-assessment proceedings under Section 39(1) of the Karnataka Value Added Tax Act, 2003 (for short ' KVAT Act')?
OR Whether the proceedings initiated under Section 39(1) of KVAT Act is after obtaining the necessary approval from the prescribed authority, namely, the authority prescribed under Section 2(24) of KVAT Act?
2. Whether the Revisional Authority was justified in initiating the proceedings under Section 64(1) of KVAT Act and setting aside the Appellate Authority order dated 24.07.2017 Annexure - C passed under Section 62(6) of KVAT Act?
2. The brief background which has led to filing of this appeal are as under:
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Appellant/assessee is a registered dealer under the provisions of KVAT Act and is engaged in the business of Silicon CR sheets and electrical steel coils for the tax period 2010-2011 (FY), an order under Section 39(1) of KVAT Act came to be passed on 28.02.2014 whereunder the input tax credit availed for the purchases claimed to have been effected by appellant from M/s.Tradex Metal Corporation was disallowed. Being aggrieved by said order, assessee filed an appeal before the Joint Commissioner of Commercial Taxes (Appeals) - 3, Bengaluru, which authority who by order dated 24.07.2017 Annexure - C allowed the appeal granting the relief as indicated at the said order.
3. The above said order of 1st Appellate Authority was sought to be revised by Additional Commissioner of Commercial Taxes under Section 64(1) of KVAT Act. Hence, notice under Section 64(1) of KVAT 5 Act came to be issued to appellant herein on 08.12.2017 whereunder it was proposed to set aside the order dated 24.07.2017 passed by 1st Appellate Authority and to restore the order dated 28.02.2014. In response to said notice, written objections was filed on 22.01.2018 by appellant/assessee; and by order dated 09.02.2018 Annexure - A, the Revisional Authority set aside the 1st Appellate Authority order dated 24.07.2017 and restored the re-assessment order passed on 28.02.2014 for the reason that seller of the appellant, namely, M/s.Tradex Metal Corporation was inspected by the authorities and it was found that said dealer was not doing business in the address given in the registration application. It was also opined by the Revisional Authority that M/s.Tradex Metal Corporation was only a bill trader who had issued fake bills to facilitate others dealers like the appellant to claim input tax credit. In fact, department has registered a complaint before the 6 jurisdictional police, Kalasipalayam Police Station which has been registered in FIR No.0041 on 20.02.2012. During the course of investigation, it was noticed that out of 53 bogus cases, the said dealer i.e., M/s. Tradex Metal Corporation was also one such business enterprises which had indulged in bill trading by issuing and receiving fake bills to facilitate other dealers to claim input tax credit and output tax credit has not been paid. On these grounds, Revisional Authority as already noticed hereinabove, set aside the order of 1st Appellate Authority and restored the re-assessment order dated 28.02.2014 passed under Section 39(1) of KVAT Act.
4) Re : Question No.1 : The authority who undertakes re-assessment provisions under Section 39(1) of KVAT Act could only be the prescribed authority and said authority is empowered to do so, which would 7 be on the ground that it has reasons to believe that return furnished which is deemed as assessed is incorrect tax liability of the dealer. The definition of Prescribed Authority is traceable to Section 2(24) of KVAT Act, which reads:
2(24) "Prescribed authority" means an officer of the Commercial Taxes Department, authorized by the Government or the Commissioner to perform such functions as may be assigned to him;
A plain reading of above definition would indicate that Commissioner is authorized to perform the functions as may be assigned to him and he would be the prescribed authority as indicated under Section 39(1) of KVAT Act. In this regard, the contention of Sri.A.Satyanarayan, learned counsel appearing for appellant, namely that there was no sanction will have to be examined, namely, whether prescribed authority has undertaken the re-assessment proceedings? Or prescribed authority had not granted sanction to 8 Deputy Commissioner of Commercial Taxes to undertake the re-assessment proceedings. In the background of original records which is made available by learned HCGP, we will have to answer holding that said contention is without any foundation and is liable to be rejected for the simple reason that in the order dated 17.05.2013 passed by Commissioner of Commercial Taxes i.e., prescribed authority, it is specifically stated that re-assessment proceedings are to be taken by authorities indicated therein, which is appended to the said order as Annexures containing the names of 219 dealers which also include petitioner against whom permission has been accorded to carryout re-assessment proceedings by the respective authorities, which is found at sl.nos.26 and 27 of the said Annexures. As such, we are of the considered view that first substantial question of law framed hereinabove 9 deserves to be answered against the appellant and in favour of the respondent-revenue.
5) Re : Question No.2 : In the instant case, the assessee has claimed input tax credit on the strength of having purchased goods from M/s.Tradex Metal Corporation, Bengaluru and during the course of re-
assessment proceedings, same was disallowed on the ground that M/s.Tradex Metal Corporation, Bengaluru had not remitted the said tax to the department.
6. The contention of Sri.A.Sathyanarayana, learned counsel appearing for appellant/assessee is that in the event of department arriving at a conclusion that purchaser of the dealer has not paid the tax (output tax), it is always open for the department to proceed against such person/dealer to recover tax from such person/dealer and not against the dealer who is claiming input tax credit. Hence, it is contended that 1st 10 Appellate Authority has rightly arrived at a conclusion that appellant herein was entitled for input tax credit. He would also draw the attention of this Court to the order dated 24.07.2017 passed by Appellate Authority Annexure - C to buttress his argument that benefit of input tax credit cannot be deprived to the purchasing dealer, if the selling dealer has not deposited the amount in full or in part thereof and only course left open to the revenue is to proceed against the selling dealer, by relying upon the judgment of this Court in the case of Sri.Rajesh Jain, Partner Salem Steel Trading Company, Bangalore V/s State of Karnataka disposed of on 07.12.2016 in STRP No.171/2016 and STRP No.313-316/2016.
7. The 1st Appellate Authority vide paragraph 7 of its order has noticed in the said judgment which would be of relevance and importance to note that it has been held by the co-ordinate bench of this Court to the 11 effect that "once the purchaser dealer-assessee satisfactorily demonstrates that while purchasing the goods, he has paid amount of VAT to the selling dealer, the matter should end so far as his entitlement to claim input tax credit". This principle would be applicable in case of genuine transaction or where there is no allegation of fraud having been perpetrated on the revenue, inasmuch as fraud vitiates all proceedings. In the instant case, seller/dealer of the appellant is only a bill trader and said dealer has issued fake bills to facilitate other dealers to claim input tax credit. At this juncture, it would be apt and appropriate to note Section 70 of KVAT Act which reads:
"70. Burden of proof-
(1) For the purposes of payment or assessment of tax or any claim to input tax under this Act, the burden of proving that any transaction of a dealer is not liable to tax, or any claim to deduction of input tax is correct, shall lie on such dealer.12
(2) Where a dealer knowingly issues or produces a false tax invoice, credit or debit note, declaration, certificate or other document with a view to support or make any claim that a transaction of sale or purchase effected by him or any other dealer, is not liable to be taxed, or liable to tax at a lower rate, or that a deduction of input tax is available, the prescribed authority shall, on detecting such issue or production, direct the dealer issuing or producing such document to pay as penalty:
(a) in the case of first such detection, three times the tax due in respect of such transaction or claim;
(b) in the case of second or subsequent detection, five times the tax due in respect of such transaction or claim. (3) Before issuing any direction for the payment of the penalty under this Section, the prescribed authority shall give to the dealer the opportunity of showing cause in writing against the imposition of such penalty."
8. In the event of dealer claiming input tax credit fails to furnish the name and address, contact number of the selling dealer, vehicle which has delivered the goods, payment of freight charges, 13 acknowledgement for taking delivery of goods and payment particulars etc., then such dealer would not be qualified for benefit of input tax credit. This information would be in addition to tax invoices, payment particulars etc., as held by the co-ordinate bench of this Court in the case of M/s.Microqual Techno Private Limited V/s Additional Commercial of Commercial Taxes, Zone1, Bangalore reported in (2012) 52 VST 362 (Karn). In fact, if a dealer claims input tax credit on purchase, such dealer/purchaser of the goods should prove and establish the actual movement of goods, genuineness of transaction by furnishing details referred above and mere production of tax invoices would not be sufficient to claim input tax credit. In fact, the genuineness of the transaction has to be proved. Thus, as held in M/s. Microqual Techno Private Limited referred herein supra, the assessee should satisfy that the transaction is valid and genuine transaction so as to 14 qualify itself to claim the benefit of input tax credit. If this initial test is passed by the dealer, then necessarily burden shifts on the revenue to disprove this fact. However, at the threshold, burden that is cast on the dealer-assessee is not discharged then question of calling upon the revenue to prove the same would not arise, particularly in the light of language employed in Section 70 of KVAT Act. In other words, burden of proof "is on the assessee dealer" that any transaction on the basis of which input tax credit is claimed, would lie on such dealer only.
9. In this background, Revisional Authority noticed that the Appellate Authority during the course of its order dated 24.07.2017 had noticed these material aspects which were discernible from the re-assessment order and the records available with him and as such, preposition notice under Section 64(1) of KVAT Act 15 came to be issued specifying the details thereof on the basis of which said proceedings has been initiated to restore the re-assessment order by setting aside the order of 1st Appellate Authority.
10. Having perused the records and considering the reply submitted by assessee, it has been found by the Revisional Authority that seller of the appellant namely M/s. Tradex Metal Corporation had engaged in bill trading "to evade the tax due to the State Government". In fact, a criminal case has also been registered against said dealer by the jurisdictional police namely, Kalasipalayam Police Station which fact is available on record and completely ignored by the 1st Appellate Authority and said issue having not been addressed to by the 1st Appellate Authority. Revisional Authority having taken note of all these aspects has arrived at a conclusion that input tax credit claimed by 16 the assessee is not sustainable. The co-ordinate bench of this Court in the case of M/s.Bhavani Enterprises V/s Additional Commissioner of Commercial Taxes in STA No.71/2013 disposed of on 13.06.2018, while examining the issue regarding the burden of proof, has held:
"9. Having heard the learned Counsel for the parties, we are of the opinion that no question of law arises in the present appeal for consideration by this Court and essentially it is a finding of fact arrived at by the Assessing Authority as well as the Revisional Authority in the present case that the Appellant-Assessee claimed input tax credit on the basis of invoices issued by the non existent dealers. We do not find any force in the submission made by learned Counsel for the Appellant-Assessee and as held by the first Appellate Authority that the burden of proof gets shifted on the Revenue to establish that the circumstances exist for imposition of penalty under Section 70[2] of the Act. The provisions of Section 70 quoted below in its plain terms clearly stipulates that the burden of proving that input tax claim is correct lies upon the dealer claiming such input tax credit.17
"70. Burden of proof.- (1) For the purposes of payment or assessment of tax or any claim to input tax under this Act, the burden of proving that any transaction of a dealer is not liable to tax, or any claim to deduction of input tax is correct, shall lie on such dealer.
(2) Where a dealer knowingly issues or produces a false tax invoice, credit or debit note, declaration, certificate or other document with a view to support or make any claim that a transaction of sale or purchase effected by him or any other dealer, is not liable to be taxed, or liable to tax at a lower rate, or that a deduction of input tax is available, the prescribed authority shall, on detecting such issue or production, direct the dealer issuing or producing such document to pay as penalty:
(a) in the case of first such detection, three times the tax due in respect of such transaction or claim; and
(b) in the case of second or subsequent detection, five times the tax due in respect of such transaction or claim. (3) Before issuing any direction for the payment of the penalty under this Section, the prescribed authority shall give to the dealer the opportunity of showing cause in writing against the imposition of such penalty."
10. The penalty imposable under Section 70[2] of the Act using the words 'knowingly issues or produces a false tax invoice' does not shift the burden on the Revenue, merely because the dealer claiming such input tax 18 credit claims that he is a bonafide purchaser and knowingly he has not produced a false and fake invoice in question. The burden of proving the correctness of input tax credit remains upon the dealer claiming such input tax credit. Such a burden of proof does not get shifted on to the Revenue. Even the findings of fact arrived at by the Assessing Authority after process of cross examination of one of the persons, Mr. Chhatar Singh Kathotia indicates that he obtained the registrations in the name of other firms at the instance of a third party Mr. Goutham Chand and he never claimed himself to be genuine Selling Dealers actually selling goods in question to the Appellant-Assessee. Therefore, mere his production before the Assessing Authority and his cross examination recorded by the Assessing Authority does not dispel the fact that the tax invoices produced by the Assessee for claiming input tax credit emanates from the genuinely existing selling dealers.
11. Thus, burden of proving that the claim of input tax credit is correct, is squarely upon the Assessee who never discharged the said burden in the present case. The first Appellate Authority was absolutely wrong in setting aside the penalty assuming such burden of proof to be on the Revenue. The Revisional Authority, was therefore, perfectly justified and within his jurisdiction to restore the order of penalty in these circumstances. We also find that at least two of the dealers from whom input tax credit invoices were claimed in the present case were for consideration before this Court in Microqual's case also [supra], namely, M/s. S.L.V. Enterprises and M/s. T.D. and Company. Therefore, the same or similar bogus selling 19 dealers registered without actual dealers existing appears to be forming the chain of producing false and fake invoices, on the basis of which, such input tax credit was claimed by the purchasing dealers.
11. In the light of factual finding arrived under re-assessment order dated 28.02.2014 which had been set aside by the 1st Appellate Authority without scrutiny or foundational facts being disturbed, resulted in Revisional Authority upsetting the said finding recorded by the 1st Appellate Authority since burden which was upon the appellant, as prescribed under Section 70 of KVAT Act, having not been discharged, Revisional Authority was fully justified in allowing the revision and setting aside the order of the 1st Appellate Authority. Hence, we answer substantial question of law No.2 in favour of revenue and against appellant/assessee.
For the reasons aforestated, we proceed to pass the following:
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ORDER
1. Appeal is hereby dismissed by answering the substantial question of law against appellant/assessee.
2. Order passed by Revisional Authority dated 09.02.2018 under Section 64(1) of KVAT Act, Annexure - A is confirmed.
3. No order as to costs.
SD/-
JUDGE SD/-
JUDGE UN