2023 LiveLaw (SC) 187

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION
M.R. SHAH; J., C.T. RAVIKUMAR; J.
MARCH 13, 2023
CIVIL APPEAL NO. 230 OF 2023 (Arising from SLP(Civil) No. 2572/2022)
The State of Karnataka versus M/s Ecom Gill Coffee Trading Private Limited
Karnataka Value Added Tax, 2003; Section 70 - 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 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. (Para 9.1)
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)

For Appellant(s) Mr. Shubhranshu Padhi, AOR Mr. Vishal Banshal, Adv. Mrs. Rajeshwari Shankar, Adv.
Mr. Niroop Sukrithi, Adv. Mr. Md. Ovais, Adv.
For Respondent(s) Mr. Swarnendu Chatterjee, AOR Mr. Pai Amit, AOR Ms. Pankhuri Bhardwaj, Adv. Mr.
Rahat Bansal, Adv. Ms. Sonali Suryavanshi, Adv. Mr. Abhiyudaya Vats, Adv. Mr. K J Kamath, Adv. Mr.
Bhargava V. Desai, AOR Mrs. Veena Kamath, Adv. Ms. Lekha, Adv. Ms. Devina Bhandari, Adv.
JUDGMENT
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 ‘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 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
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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 – 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).
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 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

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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 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 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 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
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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 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 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 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:

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“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.
(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 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
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
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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, 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 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.
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
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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.
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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