IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 19TH DAY OF NOVEMBER, 2019 BEFORE:
THE HON’BLE MRS. JUSTICE S.SUJATHA WRIT PETITION No.50880/2019 (T – RES) BETWEEN:
M/s. JAIN STEELS AND ALLOYS MFRS. & REPROCESSING OF STEEL BARS KIADB INDUSTRIAL AREA II STAGE, ANTHARASANAHALLI TUMKUR-572106 REP. BY ITS PARTNER SRI ASHISH KUMAR JAIN AGED 32 YEARS. …PETITIONER (BY SRI K.M.SHIVAYOGISWAMY, ADV.) AND:
THE ASSISTANT COMMISSIONER OF COMMERCIAL TAXES [AUDIT]-1, II FLOOR COMMERCIAL TAXES COMPLEX SIDDESHWARA EXTN., NEAR SUKRUTHA HOSPITAL TUMKUR-572103. …RESPONDENT (BY SRI T.K.VEDAMURTHY, AGA.) THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA, PRAYING TO QUASH THE IMPUGNED REASSESSMENT ORDER PASSED BY THE RESPONDENT AUTHORITY UNDER THE PROVISIONS OF THE KVAT ACT IN RELATION TO THE ASSESSMENT PERIOD 2014-15 DATED 30.03.2019 AND THE CONSEQUENTIAL DEMAND NOTICE ISSUED THERETO DATED 30.03.2019 VIDE ANNEXURE-F AND G RESPECTIVELY INSOFAR AS IT RELATES TO DISALLOWANCE OF INPUT TAX CREDIT; AND ETC., THIS PETITION COMING ON FOR PRELIMINARY HEARING, THIS DAY, THE COURT MADE THE FOLLOWING:-
O R D E R Learned Additional Government Advocate accepts notice for the respondent.
2. The petitioner has assailed the reassessment order passed by the respondent-Authority under the provisions of the Karnataka Value Added Tax Act, 2003 [‘Act’ for short] relating to the tax periods April 2014 to March 2015 and the consequential demand notice issued thereto, both dated 30.03.2019 vide Annexures-F and G respectively insofar as it amounts to disallowance of input tax credit.
3. The petitioner is a partnership concern engaged in the business of manufacturing and reprocessing of Steel Bars and Job Work for straightening, polishing, De-scaling and Cutting etc., and a registered dealer under the provisions of the Act.
4. The respondent has concluded the reassessment proceedings relating to the tax periods in question pursuant to the proposition notice issued and considering the reply submitted, denying the input tax credit mainly on the ground that the selling dealer has not deposited the taxes collected. Being aggrieved, the petitioner is before this Court.
5. Learned counsel Sri.K.M.Shivayogiswamy appearing for the petitioner placing reliance on the order of this Court in Onyx Designs V/s. Assistant Commissioner of Commercial Taxes [Audit] 6.1, Bangalore and Another, reported in [2019] 67 GSTR 209 [Karn] would submit that as long as transaction of the assessee-petitioner is held to be genuine and bona fide claim has been made regarding the input tax credit, in the absence of any other allegations made against the purchasing dealer in the assessment orders, merely for the reason that selling dealer has not deposited the collected tax amount to the Government, the input tax credit claimed by the purchasing dealer could not be denied.
6. Learned Additional Government Advocate supporting the order impugned has referred to the Division Bench Ruling of this Court in the case of M/s. Bhavani Enterprises V/s. The Additional Commissioner of Commercial Taxes [S.T.A.No.71/2013] [D.D. 13.06.2018] to contend that the burden of proof lies on the assessee in terms of Section 70 of the Act. No material has been placed to establish the factum of payment of taxes by the petitioner to the selling dealer. In the absence of returns filed by the selling dealer, it has to be inferred that the selling dealer is a bogus dealer and the transaction is not genuine. In such circumstances, the denial of input tax credit cannot be held to be unjustifiable.
7. Having heard the learned counsel appearing for the parties and perusing the material on record, it is ex-facie apparent that the Assessing Authority has denied the input tax credit mainly on the ground that the selling dealer has not deposited the taxes collected. It is recorded that the selling dealer – M/s. Sai Baba Industries, Tumkur TIN: 29290220285, has not filed monthly returns in VAT-100s from December 2014 onwards; it clearly goes to prove that the petitioner has not paid output taxes payable to the Government.
8. There is no dispute regarding the genuineness of the purchase made by the petitioner – purchasing dealer. The Assessing Authority sans examining the transaction of the petitioner inasmuch as the payment of taxes made to the selling dealer, merely for the reason that the selling dealer has not deposited the collected tax amount, ought not to have arrived at a decision to deny the input tax credit. This Court in the case of the Onyx Designs supra, has observed as under:
“20. In view of admission of the genuine transaction as well as bonafide claim and in the absence of any other allegations made against the purchasing dealer in the assessment orders, merely for the reason that selling dealers have not deposited the collected tax amount or some of the selling dealers have been subsequently deregistered cannot be a ground to deny the input tax credit.”
9. In the case of Bhavani Enterprises supra, the Division Bench has observed thus:
“11. Thus, burden of proving that the claim of input tax credit is correct, is squarely upon the Assessee who never discharged the said burden in the present case. The first Appellate Authority was absolutely wrong in setting aside the penalty assuming such burden of proof to be on the Revenue. The Revisional Authority, was therefore, perfectly justified and within his jurisdiction to restore the order of penalty in these circumstances. We also find that at least two of the dealers from whom input tax credit invoices were claimed in the present case were for consideration before this Court in Microqual’s case also [supra], namely, M/s.
S.L.V. Enterprises and M/s. T.D. and Company. Therefore, the same or similar bogus selling dealers registered without actual dealers existing appears to be forming the chain of producing false and fake invoices, on the basis of which, such input tax credit was claimed by the purchasing dealers.”
10. In the case of Bhavani Enterprises supra, it was imperative that some of the dealers from whom input tax credit invoices were claimed in the case were before this Court in Microqual’s case namely, M/s.
S.L.V. Enterprises and M/s. T.D. and Company, where the similar bogus selling dealers registered without actual dealership producing false and fake invoices claiming input tax credit. In that context it has been held that the assessee did not knowingly produced such invoices, knowing them to be false or fake. A dealer entering into a genuine transaction of purchase always knows the existence and identity of selling dealer. Considering these aspects, the division bench has held that these questions remains finding of fact, not giving raise to any question of law and has restored the penalty.
11. There is no cavil on the said legal proposition. Now, the fulcrum of dispute is whether the assessee has discharged the burden of proving the claim of input tax credit on the payment of taxes alleged to have been made. Without examining the same, merely on the ground that no selling dealer has deposited the collected taxes, input tax credit has been denied. This factual aspect requires to be re-considered by the Assessing Authority in the light of the judgments referred to above.
12. Even as regards denial of input tax credit relating to the purchase of old used machinery from M/s. Saibaba Industries claimed as capital goods by the assessee is not supported by any satisfactory reasons.
13. For the aforesaid reasons, the assessment order impugned deserves to be set aside. Accordingly, the impugned order and the demand notice both dated 30.03.2019 at Annexures-F and G are set aside and the matter is remanded to the Assessing Officer to re- consider the matter in the light of the observations made herein above. All the rights and contentions of the parties are left open. Compliance shall be made by the respondent in an expedite manner.
Writ petition stands disposed of in terms of the above.
Sd/- JUDGE NC.