The High Court
Case Details
- 1 - NC: 2025:KHC:1570-DB STRP No. 25 of 2018 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 16TH DAY OF JANUARY, 2025 R PRESENT THE HON'BLE MR JUSTICE KRISHNA S DIXIT AND THE HON'BLE MR JUSTICE G BASAVARAJA SALES TAX REVISION PETITION NO. 25 OF 2018 BETWEEN: THE STATE OF KARNATAKA REPRESENTED BY THE SECRETARY FINANCE DEPARTMENT, VIDHANA SOUDHA, BENGALURU-560 001. (BY SRI. ADITYA VIKRAM BHAT.,AGA) AND: …PETITIONER M/S DINESH ASSOCIATES, NO.663, MALLAPPA NEW MARKET, CHIKKAPETE, BANGALORE-560 053. REPRESENTED BY K J KAMATH, ADVOCATES …RESPONDENT (V.C.O DATED 25/05/2024 NOTICE TO RESPONDENT IS HELD SUFFICIENT) THIS STRP FILED UNDER SEC.65(1) OF THE KARNATAKA VALUE ADDED TAX ACT., 2003 AGAINST THE JUDGMENT DATED 31.07.2017 PASSED IN STA.NO.542 TO 573/2010 ON THE FILE OF THE KARNATAKA APPELLATE TRIBUNAL AT BENGALURU, ALLOWING THE APPEALS AND SETTING ASIDE THE ORDER DATED 25.09.2009 PASSED BY JCCT APPEALS BENGALURU PASSED IN VAT.AP.NOS. 473 TO 505/2009-10 PARTLY ALLOWING THE APPEALS AND UPHOLDING THE RE-ASSESSMENT ORDER DATED 06.06.2009 PASSED UNDER SEC.39(1), PENALTY ORDER UNDER SEC. 72(2) AND DELETING THE PENALTY LEVEID UNDER SEC.70(2) OF THE KVAT ACT, 2003, PASSED BY Digitally signed by SHARADA VANI B Location: HIGH COURT OF KARNATAKA - 2 - NC: 2025:KHC:1570-DB STRP No. 25 of 2018 THE DCCT (DEBT MANAGEMENT) DVO-I BENGALURU, RESPECTIVELY FOR THE TAX PERIODS OF MAY 2005 TO SEPTEMBER 2008 . THIS STRP COMING ON FOR HEARING, THIS DAY, ORDER WAS MADE THEREIN AS UNDER: CORAM: HON'BLE MR JUSTICE KRISHNA S DIXIT and HON'BLE MR JUSTICE G BASAVARAJA ORAL ORDER (PER: HON'BLE MR JUSTICE KRISHNA S DIXIT) This Revision Petition by the Revenue filed u/s. 65 of the Karnataka Value Added Tax Act, 2003 calls in question the order dated 31.07.2017 whereby the Karnataka Appellate Tribunal having allowed Assessee’s STA Nos. 542 to 573 of 2010 and negatived Revenue’s STA Cross Appeal Nos. 845 to 876 of 2016. The net effect of this common order is that the Assessee is entitled to claim the benefit of input tax, the levy of penalty & interest having been upset. 2. The Petition was admitted by a Co-ordinate Bench of this Court vide order dated 28.05.2024 on the following questions of law: - 3 - NC: 2025:KHC:1570-DB STRP No. 25 of 2018 “(1) Whether the Tribunal was right in allowing the Respondent's Appeal and setting aside the disallowance of input tax credit claimed by the Respondent on purchases effected from dealers who had failed to discharge their tax liability on such sales? (2) Whether the Tribunal was right in allowing the Respondent's Appeal and setting aside the disallowance of input tax credit claimed by the Respondent, the Respondent had utterly failed to discharge his burden of proving correctness and genuineness of such claim? despite that fact the the
Legal Reasoning
(3) Whether the Tribunal was right in rejecting the State's Cross Appeal and affirming the order of the first appellate authority in so far as it set aside the levy of penalty under Section 70(2)(a) of the KVAT Act?” 3. The above questions arose in the following fact matrix of the case: 3.1 The Respondent-Assessee is a dealer registered under the provisions of the 2003 Act. He runs the business in computer consumables & electrical goods like copper/GI strips, sheets, patties, plates, wires etc. The respondent claims to have purchased goods from a number of local and interstate traders. The respondent has filed its returns in Form VAT 100. The relevant tax periods occur between May 2005 and September 2008. The genesis of the lis is in the Re-assessment Order dated 06.06.2009 made by the Deputy Commissioner of - 4 - NC: 2025:KHC:1570-DB STRP No. 25 of 2018 Commercial Taxes under Section 39 (1) of the KVAT Act. This order inter alia, has the following specific findings: a) that the purchases made by the respondent were based on oral purchase orders; b) that a review of books of computerised accounts, bank statements & bills do not satisfy the Assessing Officer; c) that the documents lack a proper description of goods such as weight, size, thickness and measurements that are usual; the transactions are without weight slips, freight vouchers/bills. d) in many cases the records were without vehicle numbers and in some the Registration Numbers furnished related to two wheelers/ three wheelers. Thus the very physical movement and consequently the delivery/receipt of goods became very doubtful; e) some of the dealers show similar addresses, if not same, in the invoices, and on investigation, no establishments were found to be operating from these addresses; and f) that the Respondent Assessee was unable to bring any of the registered dealers or their representatives before the Deputy Commissioner despite having undertaken to do so in writing. 3.2 Underlying the above findings is the fact that the selling dealers enumerated in the Reassessment Order have not deposited the tax component claimed to have been made good by the Respondent Assessee on its subject purchase of goods. - 5 - NC: 2025:KHC:1570-DB STRP No. 25 of 2018 4. Learned AGA appearing for the Revenue articulately submits that the very approach of the Tribunal to the matter runs counter to the inner voice of Apex Court decision in STATE OF KARNATAKA vs. M/S ECOM GILL COFFEE TRADING PRIVATE LIMITED1; even the rules relating to burden of proof were defectively employed by the Tribunal, but for the said approach the subject appeals would have been negatived; when the Assessing Authority and the Appellate Authority having duly considered had disallowed the claim for Input Tax Credit for the purchases in question, the Tribunal had absolutely no justification whatsoever for interference. In any way, according to him, the levy of penalty is incidental to the order denying input tax credit and therefore, if the impugned order of the Tribunal is set at naught, the order levying penalty would also revive. So contending, he seeks indulgence of this court. Despite service of notice, the Respondent – Assessee has chosen to remain absent & unrepresented. 1 2023 SCC OnLine SC 248 - 6 - NC: 2025:KHC:1570-DB STRP No. 25 of 2018 However, that would not come in the way of Appeal is being decided on its merits and in accordance with law. 5. Having heard the learned AGA appearing for the Revenue and having perused the Petition papers, we are inclined to grant indulgence in the matter as under and for the following reasons: 5.1 The first contention of the learned AGA appearing for the Revenue that the very approach of the Tribunal to the Appeals of the Assessee and cross-Appeals of the Department is juridically defective stands adumbrated and reasons for this are not far to seek: A reading of the Statements of Objects and Reasons of the Act makes it clear why the burden of proof is cast upon the Assessee u/s.70. While the VAT regime was introduced to give relief from the cascading effects of tax (ie., tax on tax) on goods, the enforcement of the Act relied heavily on transparency, self-assessment & declaration, timely & specific invoicing, and truthful & timely filing of returns. Further, structure designed to give full credit or set-off for tax already paid in the chain of value addition or in earlier points of sale would only work if that component of the tax (i.e., the input tax) reaches the coffers of the State- Revenue. Therefore, in the limited cases where the State – - 7 - NC: 2025:KHC:1570-DB STRP No. 25 of 2018 Revenue does take up claims of ITC for scrutiny, the statute expects that the dealer claiming the ITC should prove the genuineness of the claim, by placing cogent evidentiary material. We note here that even under GST regime extant since 01.07.2017, Section 155 of the CGST Act, 2017 continues to cast such a burden of proof on the person claiming ITC. This we are saying as a piece of Comparative Law operating in the Federal structure. 5.2 The Tribunal has very lightly taken the burden of proof lying on the shoulders of the dealer as if it was adjudging ordinary civil dispute wherein proof by preponderance of probability conventionally operates. However, in fiscal legislations that is not the correct approach contemplated u/s. 70 of the 2003 Act. It is relevant to advert to the observations of Apex Court in M/s. ECOM GILL COFFEE supra more particularly paragraph No.23 which reads as under: “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. … Such a 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 - 8 - NC: 2025:KHC:1570-DB STRP No. 25 of 2018 freight 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 charges, the goods, payment of 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. … 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.” 5.3 The Tribunal at Page No.14 of its order has observed that the Revenue has got power u/s.87 of the Act to secure the dealers as witnesses to answer the queries and the Assessee can cross-examine them. This amounts to placing the burden of proof on the Revenue when it should rest on the shoulders of the Assessee and this militates against the ratio in M/s. ECOM GILL COFFEE supra. We hasten to add that such a power does lie with the Revenue is true; however, that does not place the burden on the Revenue. At internal Page No.15 it has observed: “…Further on this ground alone the collusion between the Appellant and the selling dealer has been alleged for the first time without pleading - 9 - NC: 2025:KHC:1570-DB STRP No. 25 of 2018 and proving the same by the respondents. The observations of the AA and FAA in their respective orders that the dealers in question are fake dealers indulged in the bill trading as the per department in other cases for different tax period cannot be the sole ground to consider them as such in the present transaction with the appellant. …” investigation conducted by the The Revenue officials have power to investigate and for that, they can summon any person as witness or otherwise cannot be gainfully disputed. The Assessment Officer having undertaken the investigation has formed an opinion as to there being a clandestine case of Bill Trading with the connivance. Once such an opinion is available in the very Assessment Order, it was open to the Assessee to dispel/dilute the same by producing evidentiary material. In fact, he had undertaken in writing to bring the representative of dealers to depose in his favour. But never a single step he took in that direction. It is not that despite calling, the representatives did not turn up. Assuming that they did not, nothing prevented the Assessee to go for subpoena. No explanation is offered why he did not avail that facility. To this needs to be added one militant fact that the selling dealers enumerated in the Reassessment Order have not deposited the tax component claimed to have been paid by the Respondent Assessee on its purchase of goods. - 10 - NC: 2025:KHC:1570-DB STRP No. 25 of 2018 5.4 The Tribunal at internal Page No.15 has faltered the finding of the Assessing Authority and first Appellate Authority that the goods vehicle numbers mentioned in the Bills relate two-wheelers, three-wheelers & transport autos and therefore, there was no actual movement of goods in question. This finding of the Authorities was recorded after the thorough investigation and on the basis of cogent evidentiary material including ‘B’ Register Extract of the vehicles secured from the jurisdictional RTO. The goods in question were copper/GI strips, sheets, patties, plates & wires. How such heavy things could have been transported in two-wheelers & three- wheelers, remains to be a mystery wrapped in enigma. The reasoning of the Tribunal that in only one instance of transports, Kinetic Honda two-wheeler was used and other vehicles were autos/trucks, does not make much sense. If a dealer does not offer explanation as to why he militantly lied even in respect of one single vehicle, that would cast shadow on the truthfulness of his other statements. We hasten to add that we are not invoking the maxim falses in uno, falses omnibus i.e., proof of falsity in one thing raises a strong presumption of falsity in everything. This apart, the goods in question regard being had to their nature, size, weight & value, could be transported in transport autos, again remains a question staring at the Assessee. One cannot be oblivious to the - 11 - NC: 2025:KHC:1570-DB STRP No. 25 of 2018 fact that a very small section of dealers could be
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unscrupulous, might be in varying degrees. Mr. There is force in the submission of learned AGA that the version of officials of the Tax Department, founded on evidentiary material as to the unscrupulous transactions cannot be lightly interfered for askance. Therefore, the Tribunal is not justified in upsetting the findings recorded by the Assessing Authority. Even the First Appellate Authority committed an error in upsetting the levy of penalty inasmuch as, there was absolutely no material warranting the same. 5.5 Learned AGA is more than justified in contending that the Tribunal is unjustified in recording a finding that the Assessee has made payments to the registered selling dealers by cheques. Absolutely, no material is produced by the Assessee to vouch his version that the said cheques have been encashed. The factum of encashment could have been very easily established by producing an authenticated Bank Statement of Account or by showing the entries in the Pass Book. Absolutely, no explanation is offered by the Assessee as to why he did not do that. On what basis Tribunal assumes that the payment has been made by cheques again remains a mystery, to say the least. The specific contention of the Revenue that no payment is made to the Public Exchequer should have alerted the Tribunal and such a fact makes the burden on - 12 - NC: 2025:KHC:1570-DB STRP No. 25 of 2018 the shoulders of the Assessee heavier. We are constrained to observe that the Tribunal was swayed away by the documents such as purchase –sale invoices, statement of accounts, purchase & sale register extract coupled with copies of cheques, it missed a very two important factors i.e., the requirement of proof of movement of goods, especially when the Revenue had pleaded that the tax component had not reached the Public Exchequer. Lastly, it needs to be stated that we also do not see any basis on which the First Appellate Authority could quash the Penalty Order u/s.70 (2) of the Act. For the foregoing reasons, we answer all the questions of law on which this Petition has been admitted for hearing, in favour of the Revenue. In the above circumstances, this Petition succeeds as under: i) ii) the impugned order of the Tribunal is set at naught in its entirety; the appeals filed by the Assessee are dismissed and cross appeals filed by the Revenue are favoured. iii) As a consequence of (ii) above, the order of the Assessing Authority is revived in its entirety; - 13 - NC: 2025:KHC:1570-DB STRP No. 25 of 2018 further, First Appellate Authority’s order to the extent it had upset the levy of penalty is set aside. iv) The jurisdictional authorities to implement & enforce our judgement on a warfooting. Costs made easy. Sd/- (KRISHNA S DIXIT) JUDGE Sd/- (G BASAVARAJA) JUDGE Snb/Bsv/Cbc List No.: 1 Sl No.: 37