M/S Metgud Tiles A Partnership Firm vs The State Of Karnataka

-1- NC: 2024:KHC-D:7718 WP No. 105344 of 2023

IN THE HIGH COURT OF KARNATAKA DHARWAD BENCH DATED THIS THE 10TH DAY OF JUNE, 2024 BEFORE THE HON'BLE MR JUSTICE PRADEEP SINGH YERUR WRIT PETITION NO.105344 OF 2023 (T-RES) BETWEEN:

M/S. METGUD TILES PLOT NO.189, DEVALAPUR ROAD, OPP. SAI MANDIR, BAILHONGAL, KARNATAKA-591102. R/BY PARTNER SRI. SUNIL SHIVAYOGI METGUD S/O SRI. SHIVAYOGI METGUD, AGED ABOUT 58 YEARS, #537, BELGAUM ROAD, VIJAY COTTON OIL MILL, BAILHONGAL, KARNATAKA-591102. ... PETITIONER (BY SRI GANESH VISHWNATH SHANDAGE AND SMT. PRATIMA S. SHIPURKAR, ADVOCATES.)

AND:

1. THE STATE OF KARNATAKA, Digitally signed by ASHPAK R/BY CHIEF SECRETARY TO GOVT., KASHIMSA

ASHPAK KASHIMSA MALAGALADINNI MALAGALADINNI Location: HIGH COURT OF KARNATAKA VIDHANA SOUDHA, BENGALURU-560009. DHARWAD BENCH Date: 2024.07.22 12:32:12 +0530

2. THE UNION OF INDIA, REPRESENTED HEREIN BY THE SECREATRY, DEPARTMENT OF REVENUE, MINISTRY OF FINANCE, GOVERNMENT OF INDIA, NORTH BLOCK, NEW DELHI-110001.

3. THE CHAIRMAN, CENTRAL BOARD OF INDIRECT TAXES & CUSTOMS, GOVERNMENT OF INDIA, MINISTRY OF FINANCE, DEPARTMENT OF REVENUE, NEW DELHI-110001. -2- NC: 2024:KHC-D:7718 WP No. 105344 of 2023

4. THE COMMISSIONER OF COMMERCIAL TAXES, COMMERCIAL TAX DEPARTMENT, GOVERNMENT OF KARNATAKA, COMMERCIAL TAX OFFICE-1, FIRST MAIN ROAD, GANDHINAGAR, BENGALURU-560009.

5. THE JOINT COMMISSIONER OF COMMERCIAL TAXES (APPEALS), COMMERCIAL TAX DEPARTMENT, GOVERNMENT OF KARNATAKA, SUMUOULYA SOUDHA, 5TH FLOOR, CLUB ROAD, BELAGAVI-590001.

6. THE JOINT COMMISSIONER OF COMMERCIAL TAXES (ADMIN), COMMERCIAL TAX DEPARTMENT, GOVERNMENT OF KARNATAKA, SUMOULYA SOUDHA, 1ST FLOOR, CLUB ROAD, BELAGAVI-590001.

7. THE COMMERCIAL TAX OFFICER (AUDIT-3), COMMERCIAL TAX DEPARTMENT, GOVERNMENT OF KARNATAKA, SUMOULYA SOUDHA, 2ND FLOOR, CLUB ROAD, BELAGAVI-590001. ... RESPONDENTS

(BY SRI SHIVAPRABHU S. HIREMATH, AGA FOR R1, R4-R7; SRI AVINASH ANGADI, ADVOCATE FOR R2 & R3; SRI SHIVARAJ S. BALLOLI, ADVOCATE FOR R3)

THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA, PRAYING TO:

A) ISSUE A WRIT OF CERTIORARI, OR SUCH OTHER WRIT, ORDER OR DIRECTION IN THE NATURE OF A WRIT OF CERTIORARI, QUASHING THE IMPUGNED ORDER-IN-APPEAL BEARING NO.GST- 15/22-23 DATED 23.05.2023 PASSED BY RESPONDENT NO.5 UNDER SECTION 107(11) OF KARNATAKA GOODS AND SERVICES ACT, 2017 (ANNEXURE-P).

B) ISSUE A WRIT OF CERTIORARI, OR SUCH OTHER WRIT, ORDER OR DIRECTION IN THE NATURE OF A WRIT OF CERTIORARI, -3- NC: 2024:KHC-D:7718 WP No. 105344 of 2023

QUASHING BOTH THE IMPUGNED DEMAND LETTER-1 CTO/(AUDIT)- 3/BGV/2023-24/B-314 DATED 15.07.2023 (ANNEXURE-Q) AND IMPUGNED ENDORSEMENT LETTER-2 CTO/(AUDIT)-3/BGV/ ENDORSEMENT/2023-24/B-379 DATED 10.08.2023 (ANNEXURE-S), OF RESPONDENT NO.7 AS BEING ILLEGAL, ARBITRARY, EXTRA- LEGISLATIVE AND CONTRARY TO ORDER IN ORDER-09/2019- CENTRAL TAX DATED 03.12.2023 ISSUED BY RESPONDENT NO.3 (ANNEXURE-W), INSTRUCTIONS IN CIRCULAR 132/2/2020 DATED 18.03.2020 ISSUED BY RESPONDENT NO.3 (ANNEXURE-X) AND CIRCULAR GST-01/2020 DATED 27.04.2020 DATED 27.04.2020 ISSUED BY RESPONDENT NO.4 (ANNEXURE-A1) AND ETC.

THIS PETITION COMING ON FOR PRELIMINARY HEARING THIS DAY, THE COURT MADE THE FOLLOWING:

ORDER (ORAL)

Heard learned counsel for the petitioner and learned

AGA for the respondents No.1, 4 and 7, learned counsel

Sri Avinash Angadi, appearing for respondents No.2 and 3 as

well as Sri Shivaraj S. Balloli appearing for respondent No.3.

2. This petition is filed by the petitioner questioning

the validity of the impugned order in Appeal bearing No.GST-

15/22-23, dated 23.05.2023 passed by respondent No.5

under Section 107(11) of the Karnataka Goods and Services

Act, 2017. The petitioner is also seeking an order to quash

the impugned demand letter-1 CTO/ (AUDIT)-3/BGV/2023-

24/B-314, dated 15.07.2023 (Annexure-O) and impugned

endorsement letter-2 CTO/(AUDIT)-3/BGV/ENDORSEMENT/ -4- NC: 2024:KHC-D:7718 WP No. 105344 of 2023

2023-24/B-379, dated 10.08.2023 (Annexure-S) of

respondent No.7 as being illegal, arbitrary, extra-legislative

and contrary to the order in Order No.09/2019-Central Tax,

dated 03.12.2019 issued by respondent No.3 (Annexure-W),

instructions in Circular No.132/2/2020, dated 18.03.2020

issued by respondent No.3 (Annexure-X) and Circular GST-

01/2020, dated 27.04.2020 issued by respondent No.4

(Annexure-A1).

3. Petitioner is a partnership firm carrying on

business of trading in the granite slabs and blocks at

Bailhongal, Karnataka State. Petitioner is a registered person

under GST Law possessing GST Identification No.GSTIN as

29AAOFM2421R1ZM. Petitioner is said to have purchased

certain goods from the supplier, therefore, under Section

16(1) of the Central Goods and Services Tax Act, 2017 and

Karnataka Goods and Services Tax Act, 2017 (for short, 'the

Act') it entitles a 'registered person' to take credit of the

input tax charged on any supply of goods or services to him.

To take credit of input tax charged on any supply of goods or

services to him, therefore petitioner being a partnership firm -5- NC: 2024:KHC-D:7718 WP No. 105344 of 2023

Trader in granites, slabs and blocks has during the financial

year 2017-18 that is (from July-2017 to March-2018) availed

credits under Section 16(1) of the Act of GST paid on the

purchase made of goods during the financial year 2017-18.

In the case of petitioner's, there is also a condition that for

availing input tax credit of GST paid, the taxpayer who

wishes to avail credit, should file GSTR-3B returns under

Section 39 of the GST Act. This being the state of affairs,

respondent No.7 based on the audit assessment received

from respondent No.4 in exercise of powers under Section 65

of the KGST Act under the supervision of respondent No.6,

had undertaken the audit of books of accounts of petitioner

for the financial year 2017-18. During the course of such

audit, it was found purchase details of GSTR-2A and GSTR-

3B respondent No.7 found two suppliers namely

M/s.S.R.M.Granite vide GSTIN:29ABVFS6296E1Z9 and

M/s.A.S.Granites vide GSTIN:29AINPA6943P1Z1 (defaulted

suppliers) who had supplied goods to the petitioner when the

petitioner availed input tax credit. In view of the said faulted

suppliers did not file their respective GST returns namely -6- NC: 2024:KHC-D:7718 WP No. 105344 of 2023

GSTR-1 and GSTR-3B for 2017-18 and consequently did not

remit the applicable output taxes to the Government.

Therefore, respondent No.7 in the audit observation made in

form ADT-2 had invoked Section 16(2)(c) of the Act and

directed the mandatory conditions to be fulfilled to be eligible

to avail the input tax credit under Section 16(1) of the Act.

The total proposed demand of the tax along with interest and

penalty on account of tax payment delinquencies by the said

faulted suppliers as observed in the audit observation in form

ADT-2 issued to petitioner was to an extent of Rs.4,27,086/-

under the CGST Act and Rs.4,27,086/- under the KGST Act

with total combined demand of Rs.8,54,172/-. In view of the

audit observations and the discovery with regard to faulted

suppliers, after investigation, a demand for recovery

proceedings came to be initiated against the faulted suppliers

seeking demand or recovery for a person to whom law holds

accountable the amount that was due to the revenue.

4. It is the case of petitioner that in accordance to

the provisions of the Act, absolutely no recovery or

investigation steps were initiated or taken against the faulted -7- NC: 2024:KHC-D:7718 WP No. 105344 of 2023

suppliers. Prior to initiating the current demand proceedings

for reversal of Input Tax Credit against the petitioner and so

also no material evidence was produced to demonstrate that

the investigation, demand or recovery actions were initiated

against the faulted suppliers.

5. Learned counsel for the petitioner further relies

on the press release dated 04.05.2018 issued by the GST

Council, which states that only in exceptional situations when

the supplier is missing or he closed his business has become

insolvent, the authority respondent No.7 could precipitate

the matter directly for demand and recovery of the amount

from the purchaser namely the petitioner herein.

6. It is the vehement contention of learned counsel

for the petitioner that without initiating any process as stated

herein above, to trace the supplier or any material with

regard to the supplier having defaulted, missing or has

become insolvent or closed his business, a demand has been

made against the petitioner herein which has been affirmed

and the same is questioned by the petitioner before this

Court.

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7. Learned counsel for the petitioner in support of

his arguments relies upon the following Judgments as

mentioned herein below:

(i) In the case of Assistant Commissioner of State Tax vs. Suncraft Energy (P) Ltd., (2023) 157 taxmann.com 352 (SC).

(ii) In the case of Lokenath Construction Private Limited vs. Tax/Revenue Government of West Bengal and others MAT No.2459/2023, dated 02.05.2024 of High Court of Judicature at Calcutta.

(iii) In the case of Commissioner of Central Excise, Bangalore vs. Brindavan Beverages (P.) Ltd., 2007 taxmann.com 728.

(iv) In the case of Henna Medicals vs. State Tax Officer, (2023) 155 taxmann.com 29 (Kerala).

8. Per contra, the learned Addl. Government

Advocate Sri Shivaprabhu Hiremath, representing the State

contends that, the writ petition filed by the petitioner is liable

to be dismissed for the reason that the petitioner has

claimed excess ITC in GSTR-3B more than available in

GSTR-2A and that some of the dealers have not filed the -9- NC: 2024:KHC-D:7718 WP No. 105344 of 2023

returns in GSTR-3B or GSTR-1, which is the tax liability to be

discharged to the Government. Hence, the excess claim of

ITC was noticed and thereafter the audit was conducted.

After verification it was realized that there is an excess claim

of ITC of Rs.8,82,857-60 and on perusal of the records it was

seen that the selling dealers have filed returns and uploaded

GSTR-2A with the department and the following dealers as

mentioned in the statement of objections have not filed

GSTR-1 and GSTR-3B. Therefore they have not discharged

the tax liability to the department. They are SRM Granites

and A.S.Granites, which are mentioned in paragraph No.5 of

the statement of objections filed by the State.

9. Further, it is contended by learned Addl.

Government Advocate that as per section 16(2)(c)(d) of the

Act if the supplier does not file the returns for the related

period and not discharged the taxes to the Government, the

Assessing Authority can restrict the ITC claimed by recipient

in contravention to section 16(2)(c)(d) of the Act and the

same could be demanded from the recipient. Therefore, the

department has demanded the recipient by passing the order

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under section 73(9) of the Act, and he sustains the order

passed by the respondents.

10. It is further contended by the learned Addl.

Government Advocate for the respondents that when any

person claims to be eligible for Input Tax Credit (ITC) under

the Act, it is the burden on him under section 155 read with

section 16 of the GST Act, to show and the same would lie

on such person to show that he is entitled for the Input Tax

Credit. Learned Addl. Government Advocate for the

respondents also contends that the press release issued by

the Central Board of GST Council on 04.05.2018 may not be

applicable to the petitioner as a general rule as it comes with

exceptions and it will have to be based on the facts and

circumstances of each of the case. He further contends that

in case of default in payment of tax by the seller, recovery

shall be made from the seller. However, reversal of credit

from buyer shall also be an option available with the revenue

authorities to address exceptional situations like missing

dealer, closure of business by the supplier or supplier not

having adequate assets, etc.,.

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11. In the present case on hand, it is contended that

the petitioner has issued four invoices as detailed in the

Table-I, but it is noticed that E-Sugam facility was utilized

based on the vehicle numbers provided. The details of the

vehicle were checked by the RTO website and out of the four

vehicles, the details of three vehicles are not available in the

RTO website, which clearly indicates that both the petitioner

and the suppliers have used fictitious vehicle numbers for

generating E-Sugam. Therefore, learned Addl. Government

Advocate for the respondents contends that the contentions

put forth by the learned counsel for petitioner cannot be

accepted and the argument also would not hold water in

view of the judgment of the Hon'ble Apex Court in the case

of The State of Karnataka vs. M/s. Ecom Gill Coffee

Trading Private Limited in Civil Appeal No.230 of 2023

(arising from SLP (Civil) No.2572/2022) dated

13.03.2023. Hence, respondent No.7 has rightfully issued

notice under section 16(2)(c) of the KGST/CGST Act, 2017

and there is nothing arbitrary or illegal in the impugned

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order passed by the respondent. Hence he seeks for

dismissal of the petition.

12. Learned Addl. Government Advocate has relied

upon the following judgments in support of his case.

1. M/S Malik Traders vs. State of U.P. and 2 Others, reported in Neutral Citation No.2023:AHC:201260;

2. M/S Shiv Trading vs. State of U.P. and 2 Others, reported in Neutral Citation No.2023:AHC:223893

13. The learned counsel for respondent No.3 has

relied upon the following judgments.

1. Supreme Court of India decision in the case of The State of Karnataka vs. Ecom Gill Coffee Trading Private Limited, reported in Neutral Citation:2023(72) G.S.T.L. 134;

2. High Court of Allahabad decision in the case of Malik Traders vs. State of U.P. and Others, reported in Neutral Citation No.(2023) 100 GST 286 (Allahabad);

3. High Court of Allahabad decision in the case of The Commissioner, Commercial Tax vs. Ramway Foods Ltd., reported in Neutral Citation:2023/AHC/169366;

4. High Court of Patna decision in the case of Aastha Enterprises Vs. The State of Bihar and

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Ors., reported in Neutral Citation:(2023)99 GST 655.

14. I have heard learned counsel for the petitioner

and learned counsel for the respondents. I have carefully

gone through the impugned order passed by the authority

i.e., respondent No.7 and the judgments relied by the

learned counsels appearing for both the parties. It is not in

dispute that the petitioner had purchased certain goods from

the supplier and he has now availed the Input Tax Credit

(ITC) facility which is an availment he can make under

section 41 of the GST Act 2017, which has been made by the

petitioner and upon making such an availment, audit has

been conducted by the Assessment Officer and on

verification of records, not being satisfied with the supplier

having paid the taxes under section 39 of the Act, issued

demand notice to the petitioner. It is relevant to extract

section 16 of the Central Goods and Services Tax Act, 2017,

which reads as under:

Eligibility and condition for taking input tax credit.

16. (1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section

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49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,-

(a) XXX

(aa) XXX

(b) XXX

(i) XXX

(ii) XXX

(ba) XXX

(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and

(d) xxx.

15. It is also relevant to extract section 155 of the

Act of 2017, which reads as under:

155. Where any person claims that he is eligible for input tax credit under this Act, the burden of proving such claim shall lie on such person.

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16. It is seen that aggrieved by the assessment

order, an appeal came to be preferred by the petitioner, the

appellate authority has dismissed the appeal of the petitioner

and affirmed the order of the Assessment Officer respondent

No.7. The respondent after verifying the records and books

of accounts noticed the mismatch and the claim of ITC in the

form of GSTR-3B and GSTR-2A and accordingly passed an

order under section 73(9) of the KGST Act/CGST Act, 2017.

Vehement contention has been put forth by the learned

counsel for the petitioner that the assessment and the audit

made by the respondent authorities are arbitrary, illegal and

no opportunity has been given to the petitioner and therefore

the invocation of the provisions of section 16(2)(c) of the Act

would not be applicable to the facts of the present case of

the petitioner and therefore the impugned order is liable to

be set aside and quashed.

17. Learned counsel has relied upon the judgment of

the Division Bench of the Calcutta High Court in the case of

Suncraft Energy Private Limited and another vs. the

Assistant Commissioner, State Tax, Ballygunge Charge

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and others, dated 02.08.2023, in MAT 1218 of 2023,

more specifically relying on paragraph Nos.8, 9 and 10.

Learned counsel has also relied upon the judgment in the

case of Lokenath Construction Private Limited vs.

Tax/Revenue, Government of West Bengal and Others,

dated 02.05.2024 in MAT 2459 of 2023, he relies on

paragraph Nos.8 and 9 in support of his case.

18. The sum and substance of the entire argument of

learned counsel for the petitioner is that the adjudicating

authority without resorting to any action against the supplier

who was the selling dealer, has ignored the tax invoices

produced, ignored the payment of tax and has gone against

the purchaser, which is illegal, arbitrary, and the same is

liable to be quashed. He further contends that the recipient

purchaser has made good the tax. He has made good the tax

of the supplier against the transaction of the supplier and

now is seeking the Input Tax Credit. Whereas it is a case of

the department, i.e., revenue, that the so called tax which

has been made good by the petitioner purchaser against the

transaction has not been remitted to the State Exchequer.

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Secondly, such tax is not paid, returns also not filed, so also

the supplier has not filed the returns as contemplated under

the Act and while conducting the audit, the revenue has also

unearthed that the vehicle in which the goods were supplied

so quoted by the petitioner, has also not been registered

before the RTA, i.e., the Road Transport Authority.

19. Therefore, the fundamental principles would be

that before the revenue initiates action against the

purchaser, like the petitioner, it is incumbent upon the

revenue to cause an inquiry with the supplier and if he is

available, recover the tax which is not paid, and thereafter

only penalize the appellant, if he is otherwise liable. The

judgments referred to by the learned counsel for the

petitioner are also in the same line wherein it is held by the

Hon'ble Division Bench of the Calcutta High Court that

without causing inquiry with the supplier penalizing the

purchaser is arbitrary, illegal and without jurisdiction.

20. Now the question before this Court is whether the

revenue has initiated action against the purchaser petitioner

without making any audit clarification with regard to there

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being any filing of returns by the supplier, filing of tax by the

supplier and the whereabouts and the details of the vehicles

in which the goods were supplied by the supplier to the

purchaser.

21. In a similar situation the Hon'ble Apex Court while

dealing with the provisions of section 70 of the Karnataka

Value Added Tax Act, which is akin to the KGST and CGST

Act as in the case of the State of Karnataka vs. Ecom Gill

Coffee Trading Private Limited (supra), has decided the

matter. The Hon'ble Apex Court in the said case was dealing

with the matter wherein this Court had allowed the Input Tax

Credit, dismissed the revision application preferred by the

State of Karnataka, allowed the Input Tax Credit of the

purchasing dealer and the matter ended up before the

Hon'ble Apex Court. It was relied that the High Court had

allowed the ITC in favour of the purchasing dealer solely on

the ground that the sale price was paid to the seller by an

account payee cheque and the copies of invoices were

produced. But upon finding some irregularities in the input

tax rebate claimed by the purchaser dealer for the said

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assessment year, therein the Assessing Officer issued notice

under section 39 of the Karnataka Value Added Tax Act,

2003, upon furnishing of books of accounts and thereafter,

after reassessment, it was found that the purchasing dealer

had claimed ITC from mainly 27 sellers. Out of said 27

sellers, 06 were found to be deregistered, 03 had affected

sales to the respondent, but did not file taxes, and 06 had

out rightly denied turnover and not paid taxes, etc., which is

forthcoming in paragraph No.4.2 of the judgment in Ecom

Gill (supra).

22. In paragraph No.9, 9.1, 10, 11 and 15 of the

judgment of Ecom Gill (supra), the Hon'ble Apex Court

held as under:

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

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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.

(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

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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 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

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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 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, 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,

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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. xxx.xxx.xxx.......

13. xxx.xxx.xxx.......

14. xxx.xxx.xxx.......

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.

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23. In the present case, in similar circumstances,

after it was found by the revenue that there were certain

violations/anomalies by the supplier and the dealer with

regard to payment of tax returns audit was conducted. By

virtue of the judgment in the case of Ecom Gill (supra), it

is held that the purchasing dealers have to prove the actual

physical movement of the goods unless they have been

purchased from their respective dealers and if the respective

purchasing dealer fails to establish and prove the important

aspect of physical movement of the goods alleged to have

been purchased from the concerned dealers on which the ITC

has been claimed, the Assessing Officer is absolutely justified

in rejecting such ITC claims, though in the present case the

petitioner has produced documents to show that there is

existence of the supplier and he is continuing his business by

virtue of a separate GST number and has also now produced

along with a memo photograph showing some of the

godowns belonging to the supplier.

24. The fact remains that the goods that was moved

and purchased from the supplier to the purchaser, the

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vehicles in which it was moved have not been traced and

those appear to be fraudulent and not registered before the

Regional Transport Authority. Therefore, the provisions of

section 16 (2) (c) (d) is squarely applicable to the case on

hand. Whether the tax charge in respect of supplier actually

has been paid to the Government, either in cash or through

utilization of Input Tax Credit admissible in respect of the

said supply would have to be proved by the purchaser as

contemplated under section 155 of the Act, which says

where any person claims that he is eligible for Input Tax

Credit under this Act, the burden of proving such claim shall

lie upon such person.

25. Hence, in view of the above discussions and

having gone through the judgments of the Division Bench of

the High Court of Calcutta, which has not dealt with the

judgment of Ecom Gill (supra) as it was not placed before

the Court, the matter was decided, but the Hon'ble Apex

Court in the case of Ecom Gill (supra) has clearly laid down

as to on whom the onus would lie. Onus of proof is on whom

and so also it is not necessary for the revenue to prove

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against the supplier if the claim against the purchaser in case

of where the tax has not been paid, the returns has not been

filed and the supplier is not traced and after making inquiry

with regard to the movement of goods which also has not

been proved to have been supplied, the Assessment Officer

has passed the order which on appeal has been rejected by

the appellate authority. Therefore, in view of the judgment of

the Hon'le Apex Court, I do not find any illegality or

arbitrariness in the order passed by the appellate authority

i.e., respondent No.5 in passing the impugned order.

26. Though the learned counsel for the petitioner

contends that he has supplied and produced all materials to

show that he is a bonafide purchaser having paid the taxes

to the supplier, he was served notice under Section 74 of the

Act, whereas he would come under Section 73(1) of the Act

for determination of tax not paid or short paid or erroneously

refunded or Input Tax Credit wrongly availed or utilized for

any reason other than fraud or willful misstatement or

suppression of facts, I am afraid, the said contentions put

forth by the learned counsel for the petitioner cannot be

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accepted even if he is a bonafide purchaser from the

supplier. The law contemplates that the supplier ought to

have filed the returns and paid the tax and if he has stopped

payment of tax, the revenue is at liberty and by law entitled

to recover from the purchaser, initiate proceedings against

the purchaser in accordance with law and the ITC claimed by

the petitioner ought to have paid to the Government by the

supplier for having paid the tax to the revenue. Hence the

same has been rightly rejected by the Assessing Officer

which is confirmed by the appellate authority. Therefore, I do

not find any anomaly, illegality or discrepancy in the order

passed by the appellate authority confirming the order of the

respondent No.7.

27. Learned counsel for the revenue has relied upon

the judgment in the case of Malik Traders vs. State of UP

and Others reported in 2023/AHC/201260, which also

dealt with the proceedings under 74 of UP GST Act for wrong

availment of input tax credit which is confirmed by the

Assessment Officer in the first appeal. In this case also, the

Ecom Gill Coffee Trading Private Limited case was referred to

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by the Hon'ble Apex Court and relying on the same, the

petition filed by the petitioner who was the purchaser therein

came to be dismissed relying upon the judgment in the case

of Ecom Gill Coffee Trading Private Limited which is the other

one.

28. Subsequently another judgment is relied of the

High Court of Allahabad in M/s. Shiv Trading vs. State of

UP and Others, wherein in similar circumstances the

petition filed by the petitioner therein came to be dismissed

with regard to Input Tax Credit and the appeal was also

rejected by the appellate authority which was again

questioned before the High Court of Allahabad and in the

said case, relying upon the case of Malik Traders stated

supra and the Hon'ble Apex Court judgment in the case of

Ecom Gill Coffee Trading Private Limited, the petition of the

purchaser who was claiming ITC came to be dismissed.

Therefore, all these judgments relied by the revenue are

squarely applicable to the case on hand.

29. Under the circumstances, when the law has

already been laid down by the Hon'ble Apex Court in the

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case of Ecom Gill Coffee Trading Private Limited stated

herein above, the order that is questioned herein is not

tainted with any malice, arbitrariness, illegality or

capriciousness.

30. Under the circumstances, the writ petition lacks

merit for consideration. Accordingly, I pass the following:

ORDER

That writ petition is dismissed.

Sd/-

JUDGE

CKK-para 1 to 7.

MRK-para 8 to 23.

SH-para 24 to end.

CT:BCK List No.: 1 Sl No.: 27