In Civil Appeal No. 230 of 2023 – SC – Supreme Court holds that as per Karnataka Value Added Tax Act, burden of proof of genuineness of transaction lies with purchasing dealers when claiming Input Tax Credit
Justice M.R. Shah & Justice C.T. Ravikumar [13-03-2023]

Read Order: The State of Karnataka v. M/s Ecom Gill Coffee Trading Private Limited

Chahat Varma

New Delhi, May 31, 2023: The Supreme Court of India has quashed the orders passed by the Karnataka High Court and the Second Appellate Authority, in a case concerning Input Tax Credit (ITC) claimed by purchasing dealers. The court has ruled that, according to section 70 of the Karnataka Value Added Tax Act, 2003 (KVAT Act), the burden of proof lies with the purchasing dealer to establish the genuineness of the transaction when claiming ITC.

The issue at hand concerned the interpretation of section 70 of the KVAT Act.

The division bench of Justice M.R. Shah and Justice C.T. Ravikumar held that mere production of the invoices or payment by cheques was insufficient to meet the burden of proof required under section 70 of the KVAT Act. The court emphasized that the dealer claiming ITC had to prove beyond doubt the actual transaction which could be proved by furnishing details such as 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 aforesaid information would be in addition to tax invoices, particulars of payment etc.

The court observed, “for claiming ITC, genuineness of the transaction and actual physical movement of the 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.”

The court noted that despite the Assessing Officer's findings on the genuineness of the transactions, while refusing to allow the ITC and subsequent confirmation by the First Appellate Authority, the Second Appellate Authority and the Karnataka High Court had overturned these concurrent findings, on irrelevant considerations, such as the mere production of invoices or payments through cheques, as sufficient evidence for claiming ITC, which was erroneous.