BY TIOL News Service

BENGALURU, JUNE 19, 2018: THE ISSUE AT HAND BEFORE THE BENCH WAS - Whether the onus of proving the genuineness & correctness of claim for input tax credit lies on the assessee and not on the Revenue. Consequently, the other issue at hand was as to whether penalty imposed is sustainable where assessee claims input tax credit based on fake invoices issued by dealer who later professes to not being a genuine dealer. YES IS THE ANSWER.

Facts of the case

The assessee company filed returns for the relevant AY, claiming input tax credit on certain purchases made. On assessment, the AO alleged that the assessee availed input tax credit based on fake and false invoices issued by dealers who were found to be non-existent. Hence the AO proceeded to impose penalty u/s 70(2) of the Act. On appeal, the appellate authority set aside the penalty imposed. However, the same was restored by the revisional authority.

On appeal, the High Court held that,

++ no question of law arises in the present appeal for consideration by this Court and essentially it is a finding of fact arrived at by the Assessing Authority as well as the Revisional Authority in the present case that the Assessee claimed input tax credit on the basis of invoices issued by the non existent dealers. We do not find any force in the submission made by Counsel for the Assessee and as held by the first Appellate Authority that the burden of proof gets shifted on the Revenue to establish that the circumstances exist for imposition of penalty under Section 70[2] of the Act. The provisions of Section 70 quoted below in its plain terms clearly stipulates that the burden of proving that input tax claim is correct lies upon the dealer claiming such input tax credit;

++ The penalty imposable under Section 70[2] of the Act using the words "knowingly issues or produces a false tax invoice" does not shift the burden on the Revenue, merely because the dealer claiming such input tax credit claims that he is a bona fide purchaser and knowingly he has not produced a false and fake invoice in question. The burden of proving the correctness of input tax credit remains upon the dealer claiming such input tax credit. Such a burden of proof does not get shifted on to the Revenue. Even the findings of fact arrived at by the Assessing Authority after process of cross examination of one of the persons, Mr. Chhatar Singh Kathotia indicates that he obtained the registrations in the name of other firms at the instance of a third party Mr. Goutham Chand and he never claimed himself to be genuine Selling Dealers actually selling goods in question to the Appellant-Assessee. Therefore, mere his production before the Assessing Authority and his cross examination recorded by the Assessing Authority does not dispel the fact that the tax invoices produced by the Assessee for claiming input tax credit emanates from the genuinely existing selling dealers;

++ 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;

++ it cannot be said, in these circumstances, that the Assessee did not 'knowingly' produce 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. Essentially, two parties must actually exist to enter into a valid contract of sale or purchase and therefore, it cannot be said, in these circumstances, that the Assessee did not 'knowingly' produce the tax invoices which were false or fake.

(See 2018-TIOL-1146-HC-KAR-VAT)