Claims of Input Tax Credit Transaction must be proven beyond reasonable doubt: Supreme Court

Overview : This guide consists of the Supreme Court ruling stating to claim Input Tax Credit, a dealer must establish actual physical movement of goods and transaction authenticity. The Apex Court further said that if the purchasing dealer cannot provide sufficient evidence to support the crucial aspect of physical movement of the goods that they claimed to have purchased from the mentioned dealers and used to claim ITC; the Assessing Officer has every right to reject such claims.

In its civil appellate jurisdiction, the Supreme Court ruled that to claim Input Tax Credit, a dealer must establish actual physical movement of goods and transaction genuineness. Evidence required includes details of the seller, delivery vehicle, freight charges, and tax invoices. Failure to prove this may lead to rejection of ITC claims. According to the Supreme Court, if the purchasing dealer cannot provide sufficient evidence to support the crucial aspect of physical movement of the goods that they claimed to have bought from the relevant dealers and used to claim input tax credit, then the Assessing Officer has every right to reject such a claim.

Download Complete Judgement of Supreme Court of India in Pdf State of Karnataka v. Ecom Gill Coffee Trading Private Limited (SC)

Factual Matrix

The State of Karnataka challenged a High Court order that allowed purchasing dealers to claim Input Tax Credit (ITC) on green coffee beans purchased for further sale. The Assessing Officer found irregularities in the ITC claimed by the respondent, who had claimed ITC from 27 sellers, 6 of whom were de-registered and 9 had not filed or paid taxes.

The ITC claim was disallowed by the Assessing Officer and the first Appellate Authority confirmed this. However, the Karnataka Appellate Tribunal allowed the second appeal, stating that the respondent had purchased the coffee from a registered dealer using genuine tax invoices. The High Court dismissed the revision application filed by the revenue authorities, leading to the present appeal.

Issues

Whether the second Appellate Authority as well as the High Court were justified in allowing the Input Tax Credit?
Interpretation of Section 70 of the Karnataka Value Added Tax (KVAT)

Court Analysis

In this case, the court emphasized the burden of proof on purchasing dealers to establish the actual transaction and physical movement of goods to claim Input Tax Credit (ITC) under Section 70 of the KVAT Act, 2003. Mere production of invoices or payment by cheques is not enough to discharge this burden of proof. If a dealer knowingly produces a false tax invoice or other document to support an ITC claim, they are liable to pay a penalty.

The court found that the Assessing Officer had provided cogent reasons to doubt the genuineness of the transactions in this case, as some of the selling dealers were de-registered, and others had disputed or denied the sales. Despite this, the first and second Appellate Authorities and the Karnataka High Court allowed the ITC claim on the basis of irrelevant considerations, which was found to be erroneous by the Supreme Court.

Thus, the court set aside the earlier judgments and held that the burden of proof lies with the purchasing dealer, and they must provide sufficient evidence to establish the physical movement of goods and transaction genuineness. The court’s ruling reinforces the importance of providing accurate and complete documentation to support ITC claims and highlights the consequences of failing to do so.

Conclusion

This court analysis highlights the Supreme Court's ruling on the burden of proof for Input Tax Credit (ITC) claims under the KVAT Act, 2003. It emphasized the importance of providing sufficient evidence to establish the physical movement of goods and transaction genuineness, and noted that merely producing invoices or payment by cheques is not enough to discharge this burden of proof. The court's ruling underscores the need for accurate and complete documentation to support ITC claims and emphasizes the consequences of failing to do so. This analysis provides insights for businesses and taxpayers regarding the requirements for claiming ITC and the need for compliance with the KVAT Act, 2003.