UPGST | For Claiming ITC, Burden On Assesee To Prove Genuineness Of Transaction Beyond Doubt: Allahabad High Court

The Allahabad High Court has held that input tax credit cannot be claimed by an assesee if he has failed to discharge the burden to prove the actual transaction and physical movement of goods beyond doubt.

Referring to Section 16 and 74 of the UP Goods and Service Tax Act, 2017, Justice Piyush Agrawal held “it is evident that in the event of wrong availment of input tax credit, the proceedings can be initiated against the registered person or registered dealer but at the same time, restrictions has been imposed upon the authorities that without putting notice to the dealer, no adjudication proceeding can be initiated.”

The Court specifically observed that in State of Karnataka Vs. M/s Ecom Gill Coffee Trading Private Limited, the Supreme Court has held that “onus is to be discharged by the petitioner to prove and establish beyond doubt the actual transaction and physical movement of goods.”

Reliance was also placed on decision of the Allahabad High Court in Commissioner Commercial Tax Vs. M/s Ramway Foods Ltd. wherein it was held that dealer claiming the benefit has the primary responsibility to prove and establish actual physical movement of goods, genuineness of transactions, etc. In case of failure to discharge the burden of proof, benefit cannot be granted.

Factual Background

Petitioner was issued a show cause notice under Section 74 of UP GST Act on the ground of wrong availment of input tax credit for a period starting from April 2018 to September 2019. Being dissatisfied with the reply of the petitioner, an order was passed imposing tax liability of Rs. 6,16,074/- along with penalty of Rs. 6,16,074/-. Appeal preferred by the petitioner was rejected.

Counsel for petitioner contended that the goods being transported were accompanied by all valid documents. Benefit of input tax credit cannot be denied to petitioner based on the seller not depositing the tax with the Government. Further, it was argued that the benefit of tax credit in the GST regime was brought to avoid cascading effect and once the tax has been charged on the bill and paid by the petitioner through banking channel, the benefit of input tax credit cannot be denied, legally. Lastly, it was submitted that recovery of input tax credit claimed by the petitioner would lead to double taxation.

Per Contra, counsel for respondent contended that input tax credit can be claimed only if conditions under Section 16 of UPGST Act are fulfilled. It was contended that the onus is on the petitioner to prove beyond any reasonable doubt actual physical movement of goods and establish genuineness of transaction by giving necessary details like vehicle details used for transportation of goods acknowledgement of delivery of goods and payment etc. Merely furnishing the details of tax invoices, e-way bills, GR is not sufficient.

High Court Verdict

The Court observed that the concept of input tax credit, though introduced prior to GST, was carried into the Goods and Service Tax regime to avoid cascading effect of tax.

“The purchasing dealer can avail the input tax credit on tax paid on its purchase whereas manufacturer can avail the same on purchase of its raw material used for manufacturing or selling of its final product which will avoid double taxation. The benefit of concession / I.T.C. under the tax statute can be availed only on fulfilment of certain conditions or restrictions as stipulated under the Act. In the event of breach of any of the conditions as enumerated under the Act, no benefit can be conferred to the dealer.”

Perusing Section 16 (Eligibility and conditions for taking input tax credit) and Section 74 (Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts) of the UPGST Act, the Court held in case of wrong availment of input tax credit, proceedings can be initiated against registered person/dealer only after issuing notice to such dealer. The Court observed that no proceedings can be initiated without putting such dealer to notice.

Reliance was placed on State of Karnataka Vs. M/s Ecom Gill Coffee Trading Private Limited, wherein the Supreme Court while considering pari materia provisions of the Karnataka Value Added Tax Act, 2003 held that “primarily burden of proof for claiming the input tax credit is upon the dealer to furnish the details of selling dealer, vehicle number, payment of freight charges, acknowledgement of taking delivery of goods, tax invoices and payment particulars etc. to prove and establish the actual physical movement of the goods. Further by submitting tax invoice, e-way bill, GR or payment details is not sufficient.”

The Court observed that the petitioner had failed to prove the actual physical movement of goods and genuineness of transportation as well as transaction by not bringing on record details such as payment of freight charges, acknowledgement of taking delivery of goods, toll receipts and payment thereof. Further, the Court held that since no proof of filing of GSTR 2A was brought on record, the proceeding initiated against the petitioner were valid.

Accordingly, the writ petition was dismissed.

Case Title: M/S Malik Traders v. State Of U.P. And 2 Others [WRIT TAX No. - 1237 of 2021]

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