Karnataka High Court

The Joint Commissioner Of ... vs M/S Rajshree Impex on 28 June, 2021

Author: Satish Chandra Rangaswamy

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     IN THE HIGH COURT OF KARNATAKA AT BENGALURU

          DATED THIS THE 28TH DAY OF JUNE, 2021

                         PRESENT

     THE HON'BLE MR. JUSTICE SATISH CHANDRA SHARMA

                           AND

      THE HON'BLE MR. JUSTICE NATARAJ RANGASWAMY

                  S.T.R.P. NO.55 OF 2019
BETWEEN:

1.      THE JOINT COMMISSIONER OF
        COMMERCIAL TAXES (APPEALS)-6,
        BENGALURU.

2.      THE DEPUTY COMMISSIONER OF
        COMMERCIAL TAXES (AUDIT)-6.7,
        DVO-6, BENGALURU.                   ...PETITIONERS

(BY SRI. HEMA KUMAR, ADDITIONAL GOVERNMENT ADVOCATE)

AND:

M/S RAJSHREEE IMPEX,
NO.3, 1ST CROSS,
1ST B MAIN,
NANDINI LAYOUT,
BENGALURU-560096.                          ... RESPONDENT
(BY SRI. S.R.JAYAKUMAR, ADVOCATE)

     THIS STRP FILED UNDER SECTION 65(1) OF THE
KARNATAKA VALUE ADDED TAX ACT, 2003 AGAINST THE
JUDGMENT DATED 19.09.2018 PASSED IN STA NO.895/2016
ON THE FILE OF THE KARNATAKA APPELLATE TRIBUNAL AT
BENGALURU, ALLOWING THE APPEAL AND SETTING ASIDE THE
ORDER DATED 09.08.2016 PASSED IN VAT.AP.NO.671 TO
673/2014-15 ON THE FILE OF THE JOINT COMMISSIONER OF
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COMMERCIAL TAXES, (APPEAL) 6 BENGALURU DISMISSING THE
APPEAL AND UPHOLDING THE RE-ASSESSMENT ORDER DATED
30.05.2014 PASSED UNDER SECTION 39 READ WITH SECTION
36, 72(2) AND 70(2) AND 70(2) OF THE ACT FILED AGAINST
THE    ORDER   DATED    29.11.2014   BY   THE   DEPUTY
COMMISSIONER OF COMMERCIAL TAXES (AUDIT), 6.7 DVO 6
BENGALURU FOR THE TAX PERIODS OF APRIL 2011 TO MARCH
2012.

      THIS STRP HAVING BEEN HEARD AND RESERVED ON
15.06.2021, COMING ON FOR 'PRONOUNCEMENT OF ORDERS'
THIS DAY, NATARAJ RANGASWAMY J., MADE THE
FOLLOWING:

                          ORDER

This revision petition is filed by the Revenue

challenging the order of the Karnataka Appellate Tribunal,

Bengaluru (henceforth referred to as 'the Tribunal' for

short) dated 19.09.2018 passed in S.T.A.No.895/2016.

The respondent is a Proprietor and a dealer registered

under the provisions of the Karnataka Value Added Tax

Act, 2003 (hereinafter referred to as 'K.V.A.T. Act' for

short) and is engaged in the business of trading in Iron

and Steel. During the tax period April 2011 to March 2012,

the respondent had filed its returns and claimed Input Tax

Credit (hereinafter referred to as 'ITC' for short) on the

purchases made from the registered dealers. The

Assessing Authority passed a reassessment order dated

30.05.2014 disallowing the ITC claimed in respect of the

purchases from three dealers, on the ground, that the said

three dealers were non-existent but bogus dealers and

that they had not sold any goods to the respondent but

had only issued tax invoice in order to enable the

respondent to claim ITC. The Assessing Authority levied

penalty under Section 70(2) and interest under Section 36

of the K.V.A.T. Act. The Assessing Officer thereafter

passed an order of reassessment on 30.05.2014 which was

later rectified and a fresh order dated 29.11.2014, as one

of the alleged bogus dealers had paid the tax on the sales

brought about him to the respondent.

2. The respondent filed an appeal under Section

62 of the K.V.A.T. Act, which was dismissed by the First

Appellate Authority in terms of the order dated

09.08.2016. The respondent then filed a second appeal

before the Karnataka Administrative Tribunal (hereinafter

referred to as 'the Tribunal' for short). The Tribunal after

hearing the parties, passed an order dated 19.09.2018 and

allowed the appeals and set aside the orders of Assessing

Authority and the First Appellate Authority. The Tribunal

held that the ITC cannot be denied merely on the ground

that the selling dealer had failed to discharge his tax

liability. Being aggrieved by the aforesaid order of the

Tribunal, the revenue has preferred the present revision

petition.

3. The learned Government Advocate submitted

that in order to deprive revenue to the State, bogus

invoices are generated and ITC is claimed from the

Government. He contended that it is difficult for the

Government to keep a track of the transactions that

happen between the dealers. He also contended that the

provisions of the Act give a free hand to the department to

proceed against the purchasing dealers or the selling

dealers or both, when it is found that the tax paid by the

purchasing dealer is not actually deposited by the selling

dealer with the Government or has not been lawfully

adjusted against the selling dealers input tax liability and

or is not correctly reflected in the return filed by such

selling dealer in the respective tax periods.

4. Per contra, learned counsel for the assessee

submitted that there was no reason as to why the

transaction entered into by the assessee with the dealers

could be termed as bogus. He brought to our attention the

fact that the assessee is in possession of the original tax

invoices as well as the E-Sugam receipts. He also

submitted that the payment to the selling dealers were

made through account payee cheques and therefore, he

contended that the assessee took all steps to ensure that

the transaction in question is lawful and brought about in

accordance with the provisions of the K.V.A.T. Act.

5. We have given our anxious consideration to

the arguments canvassed by the learned counsel for the

parties.

6. The statement of objects and reasons to the

K.V.A.T. Act provide that the legislation is meant to

provide for set off of all tax paid at the earliest points in

respect of goods sold against tax payable at any point, the

set off scheme being called as 'input rebating'. It also

provides that the tax paid on inputs purchased within the

State is permitted to be rebated against goods sold within

the state in the course of trade. The provisions of the Act

provide for registration of dealers and provides for

detection of fraudulent acts to claim ITC and also provide a

detailed mechanism for conducting audit of the registered

dealers and also launch prosecution against dealers who

indulge in generating bogus invoices to avail the ITC etc.

It is seen from the case on hand that the selling dealers

from whom the assessee had purchased the goods were all

registered dealers. It is not the case of the revenue that

these selling dealers were not traceable and or that they

were not registered. Consequently, the revenue cannot

contend that merely because the selling dealers have failed

to deposit the VAT collected from the assessee, the

transaction itself is bogus and is designed to claim ITC. A

similar question fell for consideration before this Court in

STRP No.82/2018. This question is no longer res-intigra in

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

of CORPORATION BANK VS. SARASWATI

ABHARANSALA AND ANOTHER reported in (2009) 19

VST 84, where the Hon'ble Supreme Court held:

"Para 48. The decision of he Supreme Court in Corporation Bank (supra) applies to the present case on all fronts. The Court explained there that the selling dealer collects tax as an agent of the Government. Therefore, the bona fide buyer cannot be put in jeopardy when he was done all the law requires him to do so. The purchasing dealer has no means to ascertain and secure compliance by the selling dealer. Again, in Central Wines, Hyderabad (Supra) the Supreme Court inter alia observed that "the seller acts as an agent of the buyer while collecting the tax".

7. In M/S CENTRAL WINES, HYDERABAD VS.

SPECIAL COMMERCIAL TAX OFFICER reported in

(1987) 2 SCC 371, the Supreme Court inter-alia

observed that the seller acts an agent of the buyer while

collecting the tax. The High Court of Delhi in the case of

ARUN JAIN (HUF) VS. COMMISSIONER, VALUE

ADDED TAX in W.P.(C).NO.4704/2016 decided on

26.10.2017 further held:

"54. The result of such reading down would be that the department is precluded from invoking

section 9(2)(g) of the DVAT to deny ITC to a purchasing dealer who has bonafide entered into a purchase transaction with a registered selling dealer who had issued a tax invoice reflecting the TIN number. In the event that the selling dealer has failed to deposit the tax collected by him from the purchasing dealer, the remedy for the Department would be to proceed against the defaulting selling dealer to recover such tax and not deny the purchasing dealer the ITC. Where, however, the Department is able to come across the material to show that the purchasing dealer and the selling dealer acted in collusion then the Department can proceed under Section 40A of the DVAT Act".

8. Therefore, a bonafide purchaser cannot be put

at jeopardy, when he has done all that the law expects him

to comply. The purchasing dealer has no means to

ascertain and secure compliance provisions of the K.V.A.T.

Act by the selling dealer. Following the aforesaid exposition

of law, this Court in similar circumstances in STRP

No.82/2018 has held that the assessee is entitled to claim

ITC. In the present case, except contending that the

assessee in collusion with the selling dealers have created

the invoices to claim ITC, the revenue was not able to

establish the same. The assessee has made the payment

of the invoice through account payee cheques. Therefore,