The State of Karnataka Versus M/s Ecom Gill Coffee Trading Private Limited
The State of Karnataka Versus M/s Ecom Gill Coffee Trading Private Limited
Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 230 OF 2023
(Arising from SLP(Civil) No. 2572/2022)
The State of Karnataka …Appellant
Versus
M/s Ecom Gill Coffee Trading Private Limited …Respondent
WITH
CIVIL APPEAL NO. 231 OF 2023
(Arising from SLP(Civil) No. 2690/2022)
CIVIL APPEAL NO. 232 OF 2023
(Arising from SLP(Civil) No. 3915/2022)
CIVIL APPEAL NOS.216-217 OF 2023
(Arising from SLP(Civil) Nos. 6337-6338/2022)
J U D G M E N T
M.R. SHAH, J.
1. As common question of law and facts arise in this group of appeals
and the issue is with respect to interpretation of Section 70 of the
Karnataka Value Added Tax Act, 2003 (hereinafter referred to as the
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‘KVAT Act, 2003’), all these appeals are decided and disposed of
together, by this common judgment and order.
2. For the sake of convenience, Civil Appeal No. 231 of 2023 arising
from the impugned judgment and order dated 26.02.2021 passed by the
High Court of Karnataka at Bengaluru in S.T.R.P. No. 82 of 2018 is
treated as the lead matter, as in some matters, the said decision has
been relied upon.
3. By the impugned judgment(s) and order(s) passed by the High
Court, the High Court has dismissed the revision applications preferred
by the revenue – State of Karnataka and as such has allowed the Input
Tax Credit (hereinafter referred to as the ‘ITC’) claimed by the respective
purchasing dealers. The impugned judgment(s) and order(s) passed by
the High Court are the subject matter of present appeals.
Civil Appeal No. 231/2023 (The State of Karnataka v. M/s Tallam
Apparels)
4. The facts leading to the present appeal in nutshell are as under:
That the respondent herein – M/s Tallam Apparels (hereinafter
referred to as the ‘purchasing dealer’) purchased readymade garments
from other dealers for the purposes of further sale. The purchasing
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dealer claimed the ITC on such sale to the extent of Rs. 4,18,818/-.
Vide order dated 26.12.2014, the Assessing Officer disallowed the ITC
claim for the Assessment Year 2012-2013 on the ground that the dealers
from whom M/s Tallam Apparels have purchased the readymade
garments have either got their registration cancelled or have filed ‘NIL’
returns. Thus, the Assessing Officer doubted the sale and the payment
of tax on such sale of which the ITC was claimed. An Appeal was filed
by the purchasing dealer. The Appellate Authority dismissed the same
by holding that the burden under section 70 of the KVAT Act, 2003 has
not been discharged. However, the Karnataka Appellate Tribunal
reversed the orders passed by the Assessing Officer as well as the first
Appellate Authority on the ground that the purchasing dealer should not
suffer due to default of seller. The revision application before the High
Court has been dismissed by the impugned judgment and order.
4.1. In other cases, the Tribunal as well as the High Court have allowed
the ITC in favour of the purchasing dealers solely/mainly on the ground
that the sale price was paid to the seller by an account payee cheque
and that copies of invoices were produced.
4.2 Insofar as the case of M/s Ecom Gill Coffee Trading Private
Limited being Civil Appeal No. 230 of 2023 is concerned, M/s Ecom –
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purchasing dealer purchased green coffee bean from other dealers for
the purposes of further sale in exports and in domestic market. Upon
finding some irregularities in Input Tax Rebate claimed by the
purchasing dealer for Assessment Year 2010-2011, the Assessing
Officer issued notice under section 39 of the KVAT Act, 2003 seeking
furnishing of accounts, books, tax invoices etc. Re-assessment order
came to be passed. It was found that the purchasing dealer had claimed
ITC from mainly 27 sellers and out of aforesaid 27 sellers , six were
found to be de-registered; three had effected sales to the respondent but
did not file taxes and six have outrightly denied turnover nor paid taxes.
Therefore, ITC came to be disallowed to the extent of Rs. 10.52 lacs.
The first Appellate Authority confirmed the findings of the Assessing
Officer. However, the Tribunal allowed the second appeal on the ground
that the purchasing dealer purchased the coffee from the registered
dealer under genuine tax invoices and consequently allowed the ITC
claimed. The revision application before the High Court has been
dismissed, relying upon its earlier decision in the case of M/s Tallam
Apparels (supra).
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5. Shri Nikhil Goel, learned AAG has appeared on behalf of the State
of Karnataka and the respective learned counsel have appeared on
behalf of the respective purchasing dealers.
6. Shri Nikhil Goel, learned AAG appearing on behalf of the State has
vehemently submitted that in the facts and circumstances of the case,
the High Court has materially erred in dismissing the revision
applications and confirming the respective orders passed by the
Appellate Authorities in allowing the Input Tax Credit in favour of the
respective purchasing dealers.
6.1 It is vehemently submitted that the High Court has not properly
appreciated that when the Assessing Officer doubted the genuineness of
the transactions/sales and when it was found that the sale transactions
were only paper transactions and even in some of the cases, the
registration of the sellers were cancelled and nothing was on record that
any tax was paid by the seller, the purchasing dealers shall not be
entitled to the Input Tax Credit.
6.2 It is vehemently submitted by Shri Nikhil Goel, learned AAG
appearing on behalf of the State that the High Court ought to have
appreciated that as such a duty is cast upon the purchasing dealers to
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prove the transactions/financial transfers, which in the present case, the
purchasing dealers failed to discharge. It is submitted that for the
purposes of Section 70 of the KVAT Act, 2003, the burden required to be
discharged is slightly higher than showing financial transfers and should
show actual movement of goods. It is submitted that mere production of
invoices or even payment to the seller by cheque cannot be said to be
sufficient and may not be said to discharging the burden to claim Input
Tax Credit, to be discharged under Section 70 of the KVAT Act, 2003. It
is submitted that actual movement of goods is required to be established
and proved, over and above the invoices, payment by cheques and
actual payment and even the demand of tax by the seller.
6.3 Shri Goel, learned AAG has heavily relied upon the decision of the
Karnataka High Court in the case of M/s. Bhagadia Brothers Vs.
Additional Commissioner of Commercial Taxes, STA No. 4 of 2018
dated 29.01.2020, against which the special leave petition has been
dismissed as well as the decision of the Gujarat High Court in the case
of Madhav Steel Corporation Vs. State of Gujarat, Tax Appeal No.
742 of 2013 and other allied tax appeals against which also the special
leave petition has been dismissed, however, keeping the question of law
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open and has also relied upon another decision of the Gujarat High
Court in the case of Shreeji Impex Vs. State of Gujarat, Tax Appeal
No. 330 of 2014, 2014 SCC OnLine Guj 8074, in support of his above
submissions.
6.4 It is further submitted by Shri Nikhil Goel, learned AAG appearing
on behalf of the State that the High Court has failed to appreciate that
the revenue cannot recover from the seller who is not registered or who
has filed ‘NIL’ returns, thereby denying sale. It is further submitted that
the High Court has materially erred in observing and holding that once
the purchases are made by the purchasing dealer by account payee
cheque, the purchasing dealer is deemed to have discharged his
burden. It is submitted that the High Court has also materially erred in
observing that if the seller of the goods from whom the dealer has
purchased does not deposit such tax, the dealer (purchasing dealer)
cannot be held liable for that. It is submitted that as such the purchasing
dealer is entitled to the Input Tax Credit on the tax paid by the seller
and/or on the tax paid. It is submitted that therefore, for the purposes of
Input Tax Credit, the purchasing dealer has to prove the actual payment
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of tax and actual transfer of goods and mere paper transaction is not
sufficient.
6.5 Making above submissions and relying upon the above decisions,
it is prayed to allow the present appeals.
7. While opposing the present appeals, learned counsel appearing on
behalf of the respective assessees/dealers, who claimed the Input Tax
Credit have vehemently submitted that in the present case, as such, the
purchasing dealers have discharged the burden of proof cast under
Section 70 of the KVAT Act, 2003 and proved the genuineness of the
transactions by producing the genuine invoices and even the payment
made through cheques. It is submitted that therefore once the dealer
has discharged the burden cast under Section 70 of the KVAT Act,2003,
the purchasing dealer is entitled to the Input Tax Credit and if at all it is
found that a tax is not paid by the seller, the same can be recovered
from the seller. However, so far as the purchasing dealer is concerned,
they are entitled to the ITC, once having discharged the burden under
Section 70 of the KVAT Act, 2003.
7.1 It is further submitted by learned counsel appearing on behalf of
the respective dealers that in fact they have discharged the burden of
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proof cast under Section 70 of the KVAT Act, 2003 by producing the
valid invoices and making the payment online to the supplier. It is
submitted that registration of the dealer and online payments were never
disputed. It is further submitted that apart from Section 70 of the KVAT
Act, 2003, the Karnataka Value Added Tax Rules, 2005, namely Rules
27 and 29 provide for the details and obligations upon the dealer to
issue the tax invoice and also the particulars of the tax invoices. It is
submitted that neither the KVAT Act nor the Rules provide for any other
document or any other obligation, which are statutorily required for the
purposes of establishing the claim for seeking refund towards Input Tax
Credit.
7.2 It is submitted that therefore the decision of the adjudicating
authority was beyond the Act and Rules. It is further submitted by the
learned counsel appearing on behalf of the respective assessees /
dealers that the only requirement of law, as far as the purchasing
dealers wanting to avail the benefit of Input Tax Credit is concerned, is
that he has to make sure that the selling dealer is a registered dealer
and has issued the tax invoice in compliance with the requirement of the
KVAT Act and the Rules made thereunder. It is submitted that once the
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purchasing dealer demonstrates that he has complied with such
requirement, he cannot be denied the ITC only because the selling
dealer fails to discharge his obligation under the KVAT Act.
7.3 It is submitted that in the present case, the respondents are
purchasing dealers, who have complied with the requirement of KVAT
Act and have ensured that the purchases made by them are in
compliance with the requirements of the KVAT Act and Rules for
claiming ITC. Reliance is placed on the decision of this Court in the
case of Corporation Bank Vs. Saraswati Abharansala, (2009) 19 VST
84 (SC). It is further submitted that the ITC could be denied where the
purchasing dealer has acted without due diligence, i.e., by proceeding
with the transaction without first ascertaining if the selling dealer is a
registered dealer having a valid registration. It is submitted that denial of
ITC to a purchasing dealer who has taken all the necessary precautions
fails to distinguish such a diligent purchasing dealer from the one that
has not acted bonafide. It is submitted that in the case of The
Additional Commissioner of commercial Taxes Zone – II and Ors.
Vs. M/s. Transworld Star Manjushree, Civil Appeal Nos. 216-217 of
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2023 @ SLP (Civil) No. 6337-6338 of 2022, both the seller and dealer
were registered.
7.4 Making above submissions, it is prayed to dismiss the present
appeals.
8. We have heard learned counsel for the respective parties at
length.
We have gone through the orders passed by the Assessing Officer
and the first Appellate Authority as well as the orders passed by the
second Appellate Authority/Tribunal and also the impugned judgment(s)
and order(s) passed by the High Court dismissing the revision
applications. The respondents herein – all purchasing dealers claimed
the Input Tax Credit on the alleged purchases made from the respective
dealers. The Assessing Officer, on appreciation of evidence and
considering the other material on record, doubted the genuineness of
the transactions and the purchases made from the respective dealers
and denied the ITC. The findings of fact recorded by the Assessing
Officer came to be confirmed by the first Appellate Authority. However,
the second Appellate Authority and the High Court have allowed the ITC,
by observing that as the purchasing dealers produced the invoices
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issued by the respective dealers and that in some of the cases they also
made the payment through cheques, the Assessing Officer was not
justified in denying the ITC. Against the grant of ITC, the State is before
this Court.
8.1 Therefore, the short question which is posed for the consideration
of this Court is, “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?”
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 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.
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(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 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
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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 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
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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,
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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, 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. Despite the findings of fact recorded by the Assessing Officer on
the genuineness of the transactions, while refusing to allow the ITC,
which came to be confirmed by the first Appellate Authority, the second
Appellate Authority as well as the High Court have upset the concurrent
findings given by the Assessing Officer as well as the first Appellate
Authority, on irrelevant considerations that producing invoices or
payments through cheques are sufficient to claim ITC which, as
observed hereinabove, is erroneous. As observed hereinabove, over
and above the invoices and the particulars of payment, the purchasing
dealer has to produce further material like the name and address of the
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selling dealer, details of the vehicle which has delivered the goods,
payment of freight charges, acknowledgement of taking delivery of
goods including actual physical movement of the goods, alleged to have
been purchased from the concerned dealers.
13. Now so far as the reliance placed upon Rules 27 and 29 of the
Karnataka Value Added Tax Rules, 2005 and the submission on behalf
of the purchasing dealers that under the provisions of the Rules 2005,
more particularly under Rules 27 & 29, the only requirement is to issue
the tax invoice and to produce the same and there is no other
requirement is concerned, the aforesaid has no substance. Rule 27 cast
an obligation on the dealers to issue tax invoice and the particulars of
the tax invoice are provided under Rule 29. Merely because the tax
invoice as per Rule 27 and Rule 29 might have been produced, that by
itself cannot be said to be proving the actual physical movement of the
goods, which is required to be proved, as observed hereinabove.
Producing the invoices as per Rules 27 and 29 of the Rules 2005 can be
said to be proving one of the documents, but not all the documents to
discharge the burden to prove the genuineness of the transactions as
per section 70 of the KVAT Act, 2003.
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14. Now so far as the reliance upon the decision of the Delhi High
Court in the case of On Quest Merchandising India Pvt. Ltd. v.
Government of NCT of Delhi (Writ Petition (Civil) No. 6093/2017,
decided on 26.10.2017), relying upon by the learned counsel appearing
on behalf of the purchasing dealers is concerned, at the outset, it is
required to be noted that before the Delhi High Court, Section 9(2)(g) of
the Delhi Value Added Tax Act was under consideration, which reads as
under:
“9(2)(g) to the dealers or class of dealers unless the tax paid by the
purchasing dealer has actually been deposited by the selling dealer with
the Government or has been lawfully adjusted against output tax liability
and correctly reflected in the return filed for the respective tax period.”
The burden of proof as per Section 70 of the KVAT Act, 2003 was
not an issue before the Delhi High Court. How and when the burden of
proof can be said to have been discharged to prove the genuineness of
the transactions was not the issue before the Delhi High Court. As
observed hereinabove, while claiming ITC as per section 70 of the KVAT
Act, 2003, the purchasing dealer has to prove the genuineness of the
transaction and as per section 70 of the KVAT Act, 2003, the burden is
upon the purchasing dealer to prove the same while claiming ITC.
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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.
16. The instant appeals are accordingly allowed. However, there shall
be no order as to costs.
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……………………………..J.
[M.R. SHAH]
NEW DELHI; ……………………………..J.
MARCH 13, 2023. [C.T. RAVIKUMAR]
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thanks for fabulous info sir
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