Karnataka High Court
M/S Metgud Tiles A Partnership Firm vs The State Of Karnataka on 10 June, 2024
Author: Pradeep Singh Yerur
Bench: Pradeep Singh Yerur
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NC: 2024:KHC-D:7718
WP No. 105344 of 2023
IN THE HIGH COURT OF KARNATAKA
DHARWAD BENCH
DATED THIS THE 10TH DAY OF JUNE, 2024
BEFORE
THE HON'BLE MR JUSTICE PRADEEP SINGH YERUR
WRIT PETITION NO.105344 OF 2023 (T-RES)
BETWEEN:
M/S. METGUD TILES
PLOT NO.189, DEVALAPUR ROAD,
OPP. SAI MANDIR, BAILHONGAL,
KARNATAKA-591102.
R/BY PARTNER
SRI. SUNIL SHIVAYOGI METGUD
S/O SRI. SHIVAYOGI METGUD,
AGED ABOUT 58 YEARS,
#537, BELGAUM ROAD,
VIJAY COTTON OIL MILL,
BAILHONGAL, KARNATAKA-591102.
... PETITIONER
(BY SRI GANESH VISHWNATH SHANDAGE AND
SMT. PRATIMA S. SHIPURKAR, ADVOCATES.)
AND:
1. THE STATE OF KARNATAKA,
Digitally signed by
ASHPAK
R/BY CHIEF SECRETARY TO GOVT.,
KASHIMSA
ASHPAK
KASHIMSA
MALAGALADINNI
MALAGALADINNI
Location: HIGH
COURT OF
KARNATAKA
VIDHANA SOUDHA, BENGALURU-560009.
DHARWAD
BENCH
Date: 2024.07.22
12:32:12 +0530
2. THE UNION OF INDIA,
REPRESENTED HEREIN BY THE SECREATRY,
DEPARTMENT OF REVENUE,
MINISTRY OF FINANCE,
GOVERNMENT OF INDIA,
NORTH BLOCK, NEW DELHI-110001.
3. THE CHAIRMAN,
CENTRAL BOARD OF INDIRECT
TAXES & CUSTOMS,
GOVERNMENT OF INDIA,
MINISTRY OF FINANCE,
DEPARTMENT OF REVENUE,
NEW DELHI-110001.
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WP No. 105344 of 2023
4. THE COMMISSIONER OF COMMERCIAL TAXES,
COMMERCIAL TAX DEPARTMENT,
GOVERNMENT OF KARNATAKA,
COMMERCIAL TAX OFFICE-1,
FIRST MAIN ROAD, GANDHINAGAR,
BENGALURU-560009.
5. THE JOINT COMMISSIONER OF
COMMERCIAL TAXES (APPEALS),
COMMERCIAL TAX DEPARTMENT,
GOVERNMENT OF KARNATAKA,
SUMUOULYA SOUDHA, 5TH FLOOR,
CLUB ROAD, BELAGAVI-590001.
6. THE JOINT COMMISSIONER OF
COMMERCIAL TAXES (ADMIN),
COMMERCIAL TAX DEPARTMENT,
GOVERNMENT OF KARNATAKA,
SUMOULYA SOUDHA, 1ST FLOOR,
CLUB ROAD, BELAGAVI-590001.
7. THE COMMERCIAL TAX OFFICER (AUDIT-3),
COMMERCIAL TAX DEPARTMENT,
GOVERNMENT OF KARNATAKA,
SUMOULYA SOUDHA, 2ND FLOOR,
CLUB ROAD, BELAGAVI-590001.
... RESPONDENTS
(BY SRI SHIVAPRABHU S. HIREMATH, AGA FOR R1, R4-R7;
SRI AVINASH ANGADI, ADVOCATE FOR R2 & R3;
SRI SHIVARAJ S. BALLOLI, ADVOCATE FOR R3)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227
OF THE CONSTITUTION OF INDIA, PRAYING TO:
A) ISSUE A WRIT OF CERTIORARI, OR SUCH OTHER WRIT,
ORDER OR DIRECTION IN THE NATURE OF A WRIT OF CERTIORARI,
QUASHING THE IMPUGNED ORDER-IN-APPEAL BEARING NO.GST-
15/22-23 DATED 23.05.2023 PASSED BY RESPONDENT NO.5 UNDER
SECTION 107(11) OF KARNATAKA GOODS AND SERVICES ACT, 2017
(ANNEXURE-P).
B) ISSUE A WRIT OF CERTIORARI, OR SUCH OTHER WRIT,
ORDER OR DIRECTION IN THE NATURE OF A WRIT OF CERTIORARI,
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WP No. 105344 of 2023
QUASHING BOTH THE IMPUGNED DEMAND LETTER-1 CTO/(AUDIT)-
3/BGV/2023-24/B-314 DATED 15.07.2023 (ANNEXURE-Q) AND
IMPUGNED ENDORSEMENT LETTER-2 CTO/(AUDIT)-3/BGV/
ENDORSEMENT/2023-24/B-379 DATED 10.08.2023 (ANNEXURE-S),
OF RESPONDENT NO.7 AS BEING ILLEGAL, ARBITRARY, EXTRA-
LEGISLATIVE AND CONTRARY TO ORDER IN ORDER-09/2019-
CENTRAL TAX DATED 03.12.2023 ISSUED BY RESPONDENT NO.3
(ANNEXURE-W), INSTRUCTIONS IN CIRCULAR 132/2/2020 DATED
18.03.2020 ISSUED BY RESPONDENT NO.3 (ANNEXURE-X) AND
CIRCULAR GST-01/2020 DATED 27.04.2020 DATED 27.04.2020
ISSUED BY RESPONDENT NO.4 (ANNEXURE-A1) AND ETC.
THIS PETITION COMING ON FOR PRELIMINARY HEARING THIS
DAY, THE COURT MADE THE FOLLOWING:
ORDER (ORAL)
Heard learned counsel for the petitioner and learned AGA for the respondents No.1, 4 and 7, learned counsel Sri Avinash Angadi, appearing for respondents No.2 and 3 as well as Sri Shivaraj S. Balloli appearing for respondent No.3.
2. This petition is filed by the petitioner questioning the validity of the impugned order in Appeal bearing No.GST- 15/22-23, dated 23.05.2023 passed by respondent No.5 under Section 107(11) of the Karnataka Goods and Services Act, 2017. The petitioner is also seeking an order to quash the impugned demand letter-1 CTO/ (AUDIT)-3/BGV/2023- 24/B-314, dated 15.07.2023 (Annexure-O) and impugned endorsement letter-2 CTO/(AUDIT)-3/BGV/ENDORSEMENT/ -4- NC: 2024:KHC-D:7718 WP No. 105344 of 2023 2023-24/B-379, dated 10.08.2023 (Annexure-S) of respondent No.7 as being illegal, arbitrary, extra-legislative and contrary to the order in Order No.09/2019-Central Tax, dated 03.12.2019 issued by respondent No.3 (Annexure-W), instructions in Circular No.132/2/2020, dated 18.03.2020 issued by respondent No.3 (Annexure-X) and Circular GST- 01/2020, dated 27.04.2020 issued by respondent No.4 (Annexure-A1).
3. Petitioner is a partnership firm carrying on business of trading in the granite slabs and blocks at Bailhongal, Karnataka State. Petitioner is a registered person under GST Law possessing GST Identification No.GSTIN as 29AAOFM2421R1ZM. Petitioner is said to have purchased certain goods from the supplier, therefore, under Section 16(1) of the Central Goods and Services Tax Act, 2017 and Karnataka Goods and Services Tax Act, 2017 (for short, 'the Act') it entitles a 'registered person' to take credit of the input tax charged on any supply of goods or services to him. To take credit of input tax charged on any supply of goods or services to him, therefore petitioner being a partnership firm -5- NC: 2024:KHC-D:7718 WP No. 105344 of 2023 Trader in granites, slabs and blocks has during the financial year 2017-18 that is (from July-2017 to March-2018) availed credits under Section 16(1) of the Act of GST paid on the purchase made of goods during the financial year 2017-18. In the case of petitioner's, there is also a condition that for availing input tax credit of GST paid, the taxpayer who wishes to avail credit, should file GSTR-3B returns under Section 39 of the GST Act. This being the state of affairs, respondent No.7 based on the audit assessment received from respondent No.4 in exercise of powers under Section 65 of the KGST Act under the supervision of respondent No.6, had undertaken the audit of books of accounts of petitioner for the financial year 2017-18. During the course of such audit, it was found purchase details of GSTR-2A and GSTR- 3B respondent No.7 found two suppliers namely M/s.S.R.M.Granite vide GSTIN:29ABVFS6296E1Z9 and M/s.A.S.Granites vide GSTIN:29AINPA6943P1Z1 (defaulted suppliers) who had supplied goods to the petitioner when the petitioner availed input tax credit. In view of the said faulted suppliers did not file their respective GST returns namely -6- NC: 2024:KHC-D:7718 WP No. 105344 of 2023 GSTR-1 and GSTR-3B for 2017-18 and consequently did not remit the applicable output taxes to the Government. Therefore, respondent No.7 in the audit observation made in form ADT-2 had invoked Section 16(2)(c) of the Act and directed the mandatory conditions to be fulfilled to be eligible to avail the input tax credit under Section 16(1) of the Act. The total proposed demand of the tax along with interest and penalty on account of tax payment delinquencies by the said faulted suppliers as observed in the audit observation in form ADT-2 issued to petitioner was to an extent of Rs.4,27,086/- under the CGST Act and Rs.4,27,086/- under the KGST Act with total combined demand of Rs.8,54,172/-. In view of the audit observations and the discovery with regard to faulted suppliers, after investigation, a demand for recovery proceedings came to be initiated against the faulted suppliers seeking demand or recovery for a person to whom law holds accountable the amount that was due to the revenue.
4. It is the case of petitioner that in accordance to the provisions of the Act, absolutely no recovery or investigation steps were initiated or taken against the faulted -7- NC: 2024:KHC-D:7718 WP No. 105344 of 2023 suppliers. Prior to initiating the current demand proceedings for reversal of Input Tax Credit against the petitioner and so also no material evidence was produced to demonstrate that the investigation, demand or recovery actions were initiated against the faulted suppliers.
5. Learned counsel for the petitioner further relies on the press release dated 04.05.2018 issued by the GST Council, which states that only in exceptional situations when the supplier is missing or he closed his business has become insolvent, the authority respondent No.7 could precipitate the matter directly for demand and recovery of the amount from the purchaser namely the petitioner herein.
6. It is the vehement contention of learned counsel for the petitioner that without initiating any process as stated herein above, to trace the supplier or any material with regard to the supplier having defaulted, missing or has become insolvent or closed his business, a demand has been made against the petitioner herein which has been affirmed and the same is questioned by the petitioner before this Court.
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7. Learned counsel for the petitioner in support of his arguments relies upon the following Judgments as mentioned herein below:
(i) In the case of Assistant Commissioner of State Tax vs. Suncraft Energy (P) Ltd., (2023) 157 taxmann.com 352 (SC).
(ii) In the case of Lokenath Construction Private Limited vs. Tax/Revenue Government of West Bengal and others MAT No.2459/2023, dated 02.05.2024 of High Court of Judicature at Calcutta.
(iii) In the case of Commissioner of Central Excise, Bangalore vs. Brindavan Beverages (P.) Ltd., 2007 taxmann.com 728.
(iv) In the case of Henna Medicals vs. State Tax Officer, (2023) 155 taxmann.com 29 (Kerala).
8. Per contra, the learned Addl. Government Advocate Sri Shivaprabhu Hiremath, representing the State contends that, the writ petition filed by the petitioner is liable to be dismissed for the reason that the petitioner has claimed excess ITC in GSTR-3B more than available in GSTR-2A and that some of the dealers have not filed the -9- NC: 2024:KHC-D:7718 WP No. 105344 of 2023 returns in GSTR-3B or GSTR-1, which is the tax liability to be discharged to the Government. Hence, the excess claim of ITC was noticed and thereafter the audit was conducted. After verification it was realized that there is an excess claim of ITC of Rs.8,82,857-60 and on perusal of the records it was seen that the selling dealers have filed returns and uploaded GSTR-2A with the department and the following dealers as mentioned in the statement of objections have not filed GSTR-1 and GSTR-3B. Therefore they have not discharged the tax liability to the department. They are SRM Granites and A.S.Granites, which are mentioned in paragraph No.5 of the statement of objections filed by the State.
9. Further, it is contended by learned Addl. Government Advocate that as per section 16(2)(c)(d) of the Act if the supplier does not file the returns for the related period and not discharged the taxes to the Government, the Assessing Authority can restrict the ITC claimed by recipient in contravention to section 16(2)(c)(d) of the Act and the same could be demanded from the recipient. Therefore, the department has demanded the recipient by passing the order
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NC: 2024:KHC-D:7718 WP No. 105344 of 2023 under section 73(9) of the Act, and he sustains the order passed by the respondents.
10. It is further contended by the learned Addl. Government Advocate for the respondents that when any person claims to be eligible for Input Tax Credit (ITC) under the Act, it is the burden on him under section 155 read with section 16 of the GST Act, to show and the same would lie on such person to show that he is entitled for the Input Tax Credit. Learned Addl. Government Advocate for the respondents also contends that the press release issued by the Central Board of GST Council on 04.05.2018 may not be applicable to the petitioner as a general rule as it comes with exceptions and it will have to be based on the facts and circumstances of each of the case. He further contends that in case of default in payment of tax by the seller, recovery shall be made from the seller. However, reversal of credit from buyer shall also be an option available with the revenue authorities to address exceptional situations like missing dealer, closure of business by the supplier or supplier not having adequate assets, etc.,.
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11. In the present case on hand, it is contended that the petitioner has issued four invoices as detailed in the Table-I, but it is noticed that E-Sugam facility was utilized based on the vehicle numbers provided. The details of the vehicle were checked by the RTO website and out of the four vehicles, the details of three vehicles are not available in the RTO website, which clearly indicates that both the petitioner and the suppliers have used fictitious vehicle numbers for generating E-Sugam. Therefore, learned Addl. Government Advocate for the respondents contends that the contentions put forth by the learned counsel for petitioner cannot be accepted and the argument also would not hold water in view of the judgment of the Hon'ble Apex Court in the case of The State of Karnataka vs. M/s. Ecom Gill Coffee Trading Private Limited in Civil Appeal No.230 of 2023 (arising from SLP (Civil) No.2572/2022) dated 13.03.2023. Hence, respondent No.7 has rightfully issued notice under section 16(2)(c) of the KGST/CGST Act, 2017 and there is nothing arbitrary or illegal in the impugned
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NC: 2024:KHC-D:7718 WP No. 105344 of 2023 order passed by the respondent. Hence he seeks for dismissal of the petition.
12. Learned Addl. Government Advocate has relied upon the following judgments in support of his case.
1. M/S Malik Traders vs. State of U.P. and 2 Others, reported in Neutral Citation No.2023:AHC:201260;
2. M/S Shiv Trading vs. State of U.P. and 2 Others, reported in Neutral Citation No.2023:AHC:223893
13. The learned counsel for respondent No.3 has relied upon the following judgments.
1. Supreme Court of India decision in the case of The State of Karnataka vs. Ecom Gill Coffee Trading Private Limited, reported in Neutral Citation:2023(72) G.S.T.L. 134;
2. High Court of Allahabad decision in the case of Malik Traders vs. State of U.P. and Others, reported in Neutral Citation No.(2023) 100 GST 286 (Allahabad);
3. High Court of Allahabad decision in the case of The Commissioner, Commercial Tax vs. Ramway Foods Ltd., reported in Neutral Citation:2023/AHC/169366;
4. High Court of Patna decision in the case of Aastha Enterprises Vs. The State of Bihar and
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NC: 2024:KHC-D:7718 WP No. 105344 of 2023 Ors., reported in Neutral Citation:(2023)99 GST 655.
14. I have heard learned counsel for the petitioner and learned counsel for the respondents. I have carefully gone through the impugned order passed by the authority i.e., respondent No.7 and the judgments relied by the learned counsels appearing for both the parties. It is not in dispute that the petitioner had purchased certain goods from the supplier and he has now availed the Input Tax Credit (ITC) facility which is an availment he can make under section 41 of the GST Act 2017, which has been made by the petitioner and upon making such an availment, audit has been conducted by the Assessment Officer and on verification of records, not being satisfied with the supplier having paid the taxes under section 39 of the Act, issued demand notice to the petitioner. It is relevant to extract section 16 of the Central Goods and Services Tax Act, 2017, which reads as under:
Eligibility and condition for taking input tax credit.
16. (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section
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NC: 2024:KHC-D:7718 WP No. 105344 of 2023 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.
(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,-
(a) XXX (aa) XXX
(b) XXX
(i) XXX
(ii) XXX (ba) XXX
(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and
(d) xxx.
15. It is also relevant to extract section 155 of the Act of 2017, which reads as under:
155. Where any person claims that he is eligible for input tax credit under this Act, the burden of proving such claim shall lie on such person.
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16. It is seen that aggrieved by the assessment order, an appeal came to be preferred by the petitioner, the appellate authority has dismissed the appeal of the petitioner and affirmed the order of the Assessment Officer respondent No.7. The respondent after verifying the records and books of accounts noticed the mismatch and the claim of ITC in the form of GSTR-3B and GSTR-2A and accordingly passed an order under section 73(9) of the KGST Act/CGST Act, 2017. Vehement contention has been put forth by the learned counsel for the petitioner that the assessment and the audit made by the respondent authorities are arbitrary, illegal and no opportunity has been given to the petitioner and therefore the invocation of the provisions of section 16(2)(c) of the Act would not be applicable to the facts of the present case of the petitioner and therefore the impugned order is liable to be set aside and quashed.
17. Learned counsel has relied upon the judgment of the Division Bench of the Calcutta High Court in the case of Suncraft Energy Private Limited and another vs. the Assistant Commissioner, State Tax, Ballygunge Charge
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NC: 2024:KHC-D:7718 WP No. 105344 of 2023 and others, dated 02.08.2023, in MAT 1218 of 2023, more specifically relying on paragraph Nos.8, 9 and 10. Learned counsel has also relied upon the judgment in the case of Lokenath Construction Private Limited vs. Tax/Revenue, Government of West Bengal and Others, dated 02.05.2024 in MAT 2459 of 2023, he relies on paragraph Nos.8 and 9 in support of his case.
18. The sum and substance of the entire argument of learned counsel for the petitioner is that the adjudicating authority without resorting to any action against the supplier who was the selling dealer, has ignored the tax invoices produced, ignored the payment of tax and has gone against the purchaser, which is illegal, arbitrary, and the same is liable to be quashed. He further contends that the recipient purchaser has made good the tax. He has made good the tax of the supplier against the transaction of the supplier and now is seeking the Input Tax Credit. Whereas it is a case of the department, i.e., revenue, that the so called tax which has been made good by the petitioner purchaser against the transaction has not been remitted to the State Exchequer.
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NC: 2024:KHC-D:7718 WP No. 105344 of 2023 Secondly, such tax is not paid, returns also not filed, so also the supplier has not filed the returns as contemplated under the Act and while conducting the audit, the revenue has also unearthed that the vehicle in which the goods were supplied so quoted by the petitioner, has also not been registered before the RTA, i.e., the Road Transport Authority.
19. Therefore, the fundamental principles would be that before the revenue initiates action against the purchaser, like the petitioner, it is incumbent upon the revenue to cause an inquiry with the supplier and if he is available, recover the tax which is not paid, and thereafter only penalize the appellant, if he is otherwise liable. The judgments referred to by the learned counsel for the petitioner are also in the same line wherein it is held by the Hon'ble Division Bench of the Calcutta High Court that without causing inquiry with the supplier penalizing the purchaser is arbitrary, illegal and without jurisdiction.
20. Now the question before this Court is whether the revenue has initiated action against the purchaser petitioner without making any audit clarification with regard to there
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NC: 2024:KHC-D:7718 WP No. 105344 of 2023 being any filing of returns by the supplier, filing of tax by the supplier and the whereabouts and the details of the vehicles in which the goods were supplied by the supplier to the purchaser.
21. In a similar situation the Hon'ble Apex Court while dealing with the provisions of section 70 of the Karnataka Value Added Tax Act, which is akin to the KGST and CGST Act as in the case of the State of Karnataka vs. Ecom Gill Coffee Trading Private Limited (supra), has decided the matter. The Hon'ble Apex Court in the said case was dealing with the matter wherein this Court had allowed the Input Tax Credit, dismissed the revision application preferred by the State of Karnataka, allowed the Input Tax Credit of the purchasing dealer and the matter ended up before the Hon'ble Apex Court. It was relied that the High Court had allowed the ITC in favour of the purchasing dealer solely on the ground that the sale price was paid to the seller by an account payee cheque and the copies of invoices were produced. But upon finding some irregularities in the input tax rebate claimed by the purchaser dealer for the said
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NC: 2024:KHC-D:7718 WP No. 105344 of 2023 assessment year, therein the Assessing Officer issued notice under section 39 of the Karnataka Value Added Tax Act, 2003, upon furnishing of books of accounts and thereafter, after reassessment, it was found that the purchasing dealer had claimed ITC from mainly 27 sellers. Out of said 27 sellers, 06 were found to be deregistered, 03 had affected sales to the respondent, but did not file taxes, and 06 had out rightly denied turnover and not paid taxes, etc., which is forthcoming in paragraph No.4.2 of the judgment in Ecom Gill (supra).
22. In paragraph No.9, 9.1, 10, 11 and 15 of the judgment of Ecom Gill (supra), the Hon'ble Apex Court held as under:
9. While considering the aforesaid issue/question, Section 70 of the Karnataka Value Added Tax Act, 2003 is required to be referred to, which reads as under:
"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
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NC: 2024:KHC-D:7718 WP No. 105344 of 2023 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."
9.1 Thus, the provisions of Section 70, quoted hereinabove, in its plain terms clearly stipulate that the burden of proving that the ITC claim is correct lies upon the purchasing dealer claiming such ITC. Burden of proof that the ITC claim is correct is squarely upon the assessee who has to discharge the said burden. Merely because the dealer claiming such ITC claims that he is a bona fide purchaser is not enough and sufficient. The burden of proving the correctness of ITC remains upon the dealer claiming such ITC. Such a
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NC: 2024:KHC-D:7718 WP No. 105344 of 2023 burden of proof cannot get shifted on the revenue. Mere production of the invoices or the payment made by cheques is not enough and cannot be said to be discharging the burden of proof cast under section 70 of the KVAT Act, 2003. The dealer claiming ITC has to prove beyond doubt the actual transaction which can be proved by furnishing the name and address of the selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods, tax invoices and payment particulars etc. The aforesaid information would be in addition to tax invoices, particulars of payment etc. In fact, if a dealer claims Input Tax Credit on purchases, such dealer/purchaser shall have to prove and establish the actual physical movement of goods, genuineness of transactions by furnishing the details referred above and mere production of tax invoices would not be sufficient to claim ITC. In fact, the genuineness of the transaction has to be proved as the burden to prove the genuineness of transaction as per section 70 of the KVAT Act, 2003 would be upon the purchasing dealer. At the cost of repetition, it is observed and held that mere production of the invoices and/or payment by cheque is not sufficient and cannot be said to be proving the burden as per section 70 of the Act, 2003.
10. Even considering the intent of section 70 of the Act, 2003, it can be seen that the ITC can be claimed only on the genuine transactions of the sale and purchase and even as per section 70(2) if 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 take at a lower rate, or that a deduction of input tax is
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NC: 2024:KHC-D:7718 WP No. 105344 of 2023 available, such a dealer is liable to pay the penalty. Therefore, as observed hereinabove, for claiming ITC, genuineness of the transaction and actual physical movement of the goods are the sine qua non and the aforesaid can be proved only by furnishing the name and address of the selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods, tax invoices and payment particulars etc. The purchasing dealers have to prove the actual physical movement of the goods, alleged to have been purchased from the respective dealers. If the purchasing dealer/s fails/fail to establish and prove the said important aspect of physical movement of the goods alleged to have been purchased by it/them from the concerned dealers and on which the ITC have been claimed, the Assessing Officer is absolutely justified in rejecting such ITC claim.
11. In the present case, the respective purchasing dealer/s has/have produced either the invoices or payment by cheques to claim ITC. The Assessing Officer has doubted the genuineness of the transactions by giving cogent reasons on the basis of the evidence and material on record. In some of the cases, the registration of the selling dealers have been cancelled or even the sale by the concerned dealers has been disputed and/or denied by the concerned dealer. In none of the cases, the concerned purchasing dealers have produced any further supporting material, such as, furnishing the name and address of the selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods, tax invoices and payment particulars etc. and therefore it can be said that the concerned purchasing dealers failed to discharge the burden cast upon them under Section 70 of the KVAT Act,
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NC: 2024:KHC-D:7718 WP No. 105344 of 2023 2003. At the cost of repetition, it is observed and held that unless and until the purchasing dealer discharges the burden cast under Section 70 of the KVAT Act, 2003 and proves the genuineness of the transaction/purchase and sale by producing the aforesaid materials, such purchasing dealer shall not be entitled to Input Tax Credit.
12. xxx.xxx.xxx.......
13. xxx.xxx.xxx.......
14. xxx.xxx.xxx.......
15. In view of the above and for the reasons stated above and in absence of any further cogent material like furnishing the name and address of the selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods, tax invoices and payment particulars etc. and the actual physical movement of the goods by producing the cogent materials, the Assessing Officer was absolutely justified in denying the ITC, which was confirmed by the first Appellate Authority. Both, the second Appellate Authority as well as the High Court have materially erred in allowing the ITC despite the concerned purchasing dealers failed to prove the genuineness of the transactions and failed to discharge the burden of proof as per section 70 of the KVAT Act, 2003. The impugned judgment(s) and order(s) passed by the High Court and the second Appellate Authority allowing the ITC are unsustainable and deserve to be quashed and set aside and are hereby quashed and set aside. The orders passed by the Assessing Officer denying the ITC to the concerned purchasing dealers, confirmed by the first Appellate Authority are hereby restored.
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23. In the present case, in similar circumstances, after it was found by the revenue that there were certain violations/anomalies by the supplier and the dealer with regard to payment of tax returns audit was conducted. By virtue of the judgment in the case of Ecom Gill (supra), it is held that the purchasing dealers have to prove the actual physical movement of the goods unless they have been purchased from their respective dealers and if the respective purchasing dealer fails to establish and prove the important aspect of physical movement of the goods alleged to have been purchased from the concerned dealers on which the ITC has been claimed, the Assessing Officer is absolutely justified in rejecting such ITC claims, though in the present case the petitioner has produced documents to show that there is existence of the supplier and he is continuing his business by virtue of a separate GST number and has also now produced along with a memo photograph showing some of the godowns belonging to the supplier.
24. The fact remains that the goods that was moved and purchased from the supplier to the purchaser, the
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NC: 2024:KHC-D:7718 WP No. 105344 of 2023 vehicles in which it was moved have not been traced and those appear to be fraudulent and not registered before the Regional Transport Authority. Therefore, the provisions of section 16 (2) (c) (d) is squarely applicable to the case on hand. Whether the tax charge in respect of supplier actually has been paid to the Government, either in cash or through utilization of Input Tax Credit admissible in respect of the said supply would have to be proved by the purchaser as contemplated under section 155 of the Act, which says where any person claims that he is eligible for Input Tax Credit under this Act, the burden of proving such claim shall lie upon such person.
25. Hence, in view of the above discussions and having gone through the judgments of the Division Bench of the High Court of Calcutta, which has not dealt with the judgment of Ecom Gill (supra) as it was not placed before the Court, the matter was decided, but the Hon'ble Apex Court in the case of Ecom Gill (supra) has clearly laid down as to on whom the onus would lie. Onus of proof is on whom and so also it is not necessary for the revenue to prove
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NC: 2024:KHC-D:7718 WP No. 105344 of 2023 against the supplier if the claim against the purchaser in case of where the tax has not been paid, the returns has not been filed and the supplier is not traced and after making inquiry with regard to the movement of goods which also has not been proved to have been supplied, the Assessment Officer has passed the order which on appeal has been rejected by the appellate authority. Therefore, in view of the judgment of the Hon'le Apex Court, I do not find any illegality or arbitrariness in the order passed by the appellate authority i.e., respondent No.5 in passing the impugned order.
26. Though the learned counsel for the petitioner contends that he has supplied and produced all materials to show that he is a bonafide purchaser having paid the taxes to the supplier, he was served notice under Section 74 of the Act, whereas he would come under Section 73(1) of the Act for determination of tax not paid or short paid or erroneously refunded or Input Tax Credit wrongly availed or utilized for any reason other than fraud or willful misstatement or suppression of facts, I am afraid, the said contentions put forth by the learned counsel for the petitioner cannot be
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NC: 2024:KHC-D:7718 WP No. 105344 of 2023 accepted even if he is a bonafide purchaser from the supplier. The law contemplates that the supplier ought to have filed the returns and paid the tax and if he has stopped payment of tax, the revenue is at liberty and by law entitled to recover from the purchaser, initiate proceedings against the purchaser in accordance with law and the ITC claimed by the petitioner ought to have paid to the Government by the supplier for having paid the tax to the revenue. Hence the same has been rightly rejected by the Assessing Officer which is confirmed by the appellate authority. Therefore, I do not find any anomaly, illegality or discrepancy in the order passed by the appellate authority confirming the order of the respondent No.7.
27. Learned counsel for the revenue has relied upon the judgment in the case of Malik Traders vs. State of UP and Others reported in 2023/AHC/201260, which also dealt with the proceedings under 74 of UP GST Act for wrong availment of input tax credit which is confirmed by the Assessment Officer in the first appeal. In this case also, the Ecom Gill Coffee Trading Private Limited case was referred to
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NC: 2024:KHC-D:7718 WP No. 105344 of 2023 by the Hon'ble Apex Court and relying on the same, the petition filed by the petitioner who was the purchaser therein came to be dismissed relying upon the judgment in the case of Ecom Gill Coffee Trading Private Limited which is the other one.
28. Subsequently another judgment is relied of the High Court of Allahabad in M/s. Shiv Trading vs. State of UP and Others, wherein in similar circumstances the petition filed by the petitioner therein came to be dismissed with regard to Input Tax Credit and the appeal was also rejected by the appellate authority which was again questioned before the High Court of Allahabad and in the said case, relying upon the case of Malik Traders stated supra and the Hon'ble Apex Court judgment in the case of Ecom Gill Coffee Trading Private Limited, the petition of the purchaser who was claiming ITC came to be dismissed. Therefore, all these judgments relied by the revenue are squarely applicable to the case on hand.
29. Under the circumstances, when the law has already been laid down by the Hon'ble Apex Court in the
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NC: 2024:KHC-D:7718 WP No. 105344 of 2023 case of Ecom Gill Coffee Trading Private Limited stated herein above, the order that is questioned herein is not tainted with any malice, arbitrariness, illegality or capriciousness.
30. Under the circumstances, the writ petition lacks merit for consideration. Accordingly, I pass the following:
ORDER That writ petition is dismissed.
Sd/-
JUDGE CKK-para 1 to 7.
MRK-para 8 to 23.
SH-para 24 to end.
CT:BCK List No.: 1 Sl No.: 27