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ITC - Burden of Proof

MARCH 15, 2023

By Vijay Kumar

IN a judgement delivered this week - 13th March 2023, the Supreme Court observed, - 2023-TIOL-18-SC-VAT

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 the Act. 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 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.

Therefore, 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.

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.

Merely because the tax invoice 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 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.

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. 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.

Of course, this was not a GST case, but one under the 'Karnataka Value Added Tax Act, 2003'

But it may be noted that the GST Act, has a provision in Section 155:

Section 155 - Burden of proof - 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.

And how do you discharge this burden?

If the above-mentioned supreme Court order is applicable to GST also, then as per the order',

The dealer claiming ITC has to prove beyond doubt the actual transaction which can be proved by furnishing the

1. name and address of the selling dealer,

2. details of the vehicle which has delivered the goods,

3. payment of freight charges,

4. acknowledgement of taking delivery of goods,

5. tax invoices and payment particulars

6. etc.

Obviously serial numbers 1 to 5 above are only illustrative and, as the cliché goes, not exhaustive. There is item no 6 - etc., As of now, we do not know what that etc., is.

So, to be on safe side, when you take ITC, you have to be ready with at least all of the above-mentioned documents, failing which ITC could be rejected.

Of course, in the GST era, the e-invoice system can make Section 155 irrelevant as every invoice is recorded in the system. Is it?

Knotty knotty GST

There is a tax called GST,

Making us feel quite distraught,

With its complicated laws,

And filing obligations,

Natu Natu we cry, quite oppressed!

Until Next week


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