KVAT Act | Dealer Claiming Input Tax Credit Must Prove Transaction Beyond Reasonable Doubt : Supreme Court

A Bench comprising Justice MR Shah and Justice CT Ravikumar noted if the purchase dealer fails to prove the physical movement of the goods on which Input Tax Credit (ITC) is claimed, the Assessing Authority would be justified in rejecting such ITC claims.

Factual Background

M/s. Ecom Gill Coffee Trading Private Limited (respondent) purchased green coffee beans from other dealers for the purpose of further sale in exports and in the domestic market. Finding some irregularities in the Input Tax Rebate claimed by it for the assessment year 2010-11, the Assessing Officer issued a notice under Section 39 of the Karnataka Value Added Tax Act, 2003. The authority found that Ecom had claimed ITC from 27 sellers, out of which 6 had de-registered, 3 had affected sales to Ecom but did not file taxes and 6 had denied turnover nor paid tax. The ITC was disallowed by the Assessing Officer. The first Appellate Authority confirmed the findings, however the Karnataka Appellate Tribunal allowed the appeal and consequently the ITC claim. The revision application filed by the revenue authorities before the Karnataka High Court came to be dismissed.

Analysis by the Supreme Court

The Court noted that the short issue before it was, “whether, in the facts and circumstances of the case, the second Appellate Authority as well as the High Court were justified in allowing the Input Tax Credit”. It relied on Section 70 of the Karnataka Value Added Tax Act, 2003, which contemplates that the burden of proving that a transaction is not liable to be taxed or correctness of claim of deduction of input tax (ITC claim in this case) is on the dealer (assessee). The Court observed that such a burden cannot be shifted to the revenue authorities. The dealer claiming ITC is to prove beyond reasonable doubt the actual transaction.

“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 the facts of the present cases, the Court noted that the dealers had failed to furnish cogent material like the 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 and therefore the Assessing Officers were justice in denying the ITC claims, which were later allowed by the Tribunal and was affirmed by the High Court.

Case details

State of Karnataka v. M/s. Ecom Gill Coffee Trading Private Limited| 2023 LiveLaw (SC) 187 |Civil Appeal No. 230 of 2023| 13th March, 2023| Justice MR Shah and Justice CT Ravikumar

Karnataka Value Added Tax 2003- Section 70- 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 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- Para 9.1

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