The Supreme Court of India has clarified that under Section 70 of the Karnataka Value Added Tax Act, 2003, dealers who claim Input Tax Credit ( ITC ) on their purchases must provide evidence of actual physical movement of goods and prove the genuineness of the transaction.
The dealer must furnish the name and address of the selling dealer, details of the vehicle that delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods, Tax Invoices, payment particulars, and other relevant information to establish the same.
If the purchase dealer fails to provide evidence of physical movement of goods on which ITC is claimed, the Assessing Authority is justified in rejecting the ITC claims, according to a bench comprising Justice MR Shah and Justice CT Ravikumar.
The clarification came after the court considered the case of M/s. Ecom Gill Coffee Trading Private Limited, which purchased green coffee beans from other dealers for export and domestic sale purposes. The Assessing Officer discovered irregularities in the Input Tax Rebate claimed by Ecom for the assessment year 2010-11 and issued a notice under Section 39 of the Karnataka Value Added Tax Act, 2003.
Upon investigation, it was discovered that ITC was claimed from 27 sellers, of which six had deregistered, three had sold to Ecom but did not file taxes, and six had denied turnover and did not pay tax. The Assessing Officer disallowed the ITC, which was confirmed by the First Appellate Authority.
However, the Karnataka Appellate Tribunal allowed the appeal, and the ITC claim was consequently granted. The revenue authorities filed a revision application before the Karnataka High Court, but it was dismissed.
The Supreme Court clarified that Section 70 of the Karnataka Value Added Tax Act, 2003, places the burden of proving that a transaction is not taxable or the correctness of the ITC claim on the dealer, and this burden cannot be shifted to revenue authorities.
The dealer must prove beyond reasonable doubt that the transaction occurred, and merely producing invoices or payment receipts is insufficient. In addition to tax invoices and payment particulars, the dealer must provide information such as the name and address of the selling dealer, details of the vehicle that delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods, and other relevant information.
In this case, the dealers failed to provide cogent material such as the name and address of the selling dealer, details of the vehicle that delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods, tax invoices, payment particulars, and evidence of actual physical movement of goods.
The two-judge bench of Justice M R Shah and Justice C T Ravikumar thus held that, “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 denial of the Input Tax Credit claim was thereby restored by the Supreme Court.
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