1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 20 TH DAY OF JULY 2012 PRESENT THE HON BLE MR.JUSTICE D.V.SHYLENDRA KUMAR AND THE HON BLE MR.JUSTICE B.MANOHAR STRP.NO.1/2011 & STRP.NOS.321 TO 347/2012 BETWEEN: M/S.PACKWELL INDUSTRIES, NO.82, INDUSTRIAL SUBRUB, II STAGE, YESHWANTHPUR, BANGALORE 560 022, REPRESENTED BY ITS PARTNER S.J.GUNARANJAN. APPELLANT (BY SRI.B.G.CHIDANANDA URS, ADV) AND: THE STATE OF KARNATAKA, THROUGH THE SECRETARY, FINANCE DEPARTMENT, VIDHANA SOUDHAN, BANGALORE. RESPONDENT (BY SMT.S.SUJATHA, AGA) STRP FILED U/S.65 (1) OF KARNATAKA VALUE ADDED TAX ACT, 2003, AGAINST THE JUDGMENT DATED: 8.4.2010 PASSED IN STA.NO.876/2008 ON THE FILE OF THE KARNATAKA APPELLATE TRIBUNAL, BANGALORE, DISMISSING THE APPEAL
2 AS DEVOID OF MERITS FILED UNDER THE PROVISIONS OF THE KARNATAKA VALUE ADDED TAX ACT, 2003. THESE PETITIONS ARE COMING ON FOR HEARING THIS DAY, B.MANOHAR, J., DELIVERED THE FOLLOWING: - O R D E R These revision petitions are filed under Section 65(1) of the Karnataka Value Added Tax Act, 2003 ( the Act for short) against the order dated 8-4-2010 made in STA No.876/2008 passed by the Karnataka Appellate Tribunal dismissing the appeal and confirming the order passed by the Joint Commissioner of Commercial Taxes (Appeals) (hereinafter referred to as First Appellate Authority) in No.VAT/AP/502-2007-08, upholding the reassessment order dated 15.02.2008, and denying the input tax rebate for the period from April 2005 to July 2007. 2. The petitioner has contended that the petitionerfirm is a registered dealer, engaged in manufacture of wooden packing materials and plywood goods since
3 three decades and has been regularly paying tax as per the returns. The petitioner has paid the tax for the assessed period based on VAT 100 returns with the concerned LVO Office. The dispute is with regard to the period involved from April 2005 to July 2007. 3. For the purpose of doing business, the petitioner has purchased the goods from the local dealers and claimed input tax rebate for having collected 4% tax on packing materials and 12½% on plywood sheets and also made purchase of jungle wood from the unregistered dealer. The petitioner has claimed the input tax rebate on the purchase of jungle wood and plywood. However, the Assessing Officer visited the business place for the audit of books of accounts. The said Assessing Officer found that the petitioner has purchased the goods from the following unregistered local dealers and availed the input tax rebate.
4 (i) (ii) M/s.New Timber Traders, New Bamboo Bazar, Bangalore-560 002; M/s. Adnan Timber Mart, New Bamboo Bazar, Bangalore; (iii) M/s.Swastik Plywoods, Kanakapura Road, Bangalore; (iv) M/s.Rajadhani Glass and Plywoods, Manjunathanagar; (v) M/s.Mahadev Trading Company, Chandapura, Bangalore-81; (vi) M/s.Rajashree Distributors, R.C.Puram, Bangalore-21. But they have not remitted the tax collected from the petitioner, hence the petitioner is not entitled for input tax rebate. Accordingly, a proposition notice was issued under Section 39 of the Karnataka Value Added Tax Act, 2003. The petitioner filed his objections to the said proposition notice and contended that he has purchased the jungle wood and plywoods from the registered dealer who are having TIN numbers. Further they have issued tax invoices. Hence, the petitioner is
5 entitled to claim input tax rebate on the said invoices and it is not his concern, whether the said dealer has remitted the amount to the Government or not. It is the responsibility of the Government to collect the said amount from the said dealers and the petitioner cannot be penalised for the same. The Assessing Authority after considering the objections filed by the petitioner, reassessed the tax and denied the input tax rebate since the petitioner has purchased the goods from the unregistered dealers and the said unregistered dealers have not remitted the tax amount to the State Government. 4. Being aggrieved by the order dated 15-2-2008, passed by the Assistant Commissioner of Commercial Taxes (Audit), the petitioner filed an appeal before the First Appellate Authority contending that the assessment order passed by the Assessing Authority denying the input tax rebate is contrary to law. The
6 First Appellate Authority after considering the arguments addressed by the parties dismissed the appeal upholding the order passed by the Assessing Authority. Being aggrieved by the same, the petitioner approached the Karnataka Appellate Tribunal in STA No.876/2008 challenging the order passed by the First Appellate Authority as well as the Assessing Authority. The Appellate Tribunal after considering the matter in detail dismissed the appeal holding that the petitioner had dealt with the unregistered dealers and the said unregistered dealers have not remitted the tax amount collected from the petitioner to the State Government. Hence, the petitioner is not entitled for the input tax rebate. Being aggrieved by the same, the petitioner has filed the above revision petitions. 5. Sri.Chidanand Urs, learned counsel appearing for the petitioner contended that the order passed by the Karnataka Appellate Tribunal confirming the order
7 passed by the First Appellate Authority as well as the Assessing Authority is contrary to law. He contended that during the course of business, the petitioner-firm purchased goods from the registered dealers who had issued tax invoices as per the prescribed procedure under the Act. The petitioner has claimed the benefit of set-off of input tax as envisaged under Section 10 of the Act. However, the Assessing Authority proposed to reassess the turnover of the dealers as per returns filed by the petitioner, under Section 39 of the Act and issued proposition notice calling upon the petitioner to show cause as to why the input tax rebate claimed by the petitioner shall not be disallowed. He filed objections to the said notice. Without considering the same, the Assessing Authority reassessed the returns filed by the petitioner, which was confirmed by the First Appellate Authority as well as the Appellate Tribunal. He further contended that Section 47(4) enables the State Government to recover the tax from the dealer
8 who has unauthorisedly collected the tax from the buyer. The Assessing Authority without taking action against those persons, disallowed the input tax rebate which is contrary to law. He also drew the attention of the court with regard to Sections 10(4) and 11 of the Act and contended that the provisions of the Act does not debar a dealer from claiming input tax rebate just because taxes are paid through an unregistered dealer or a registered dealer whose registration has been cancelled by the authorities concerned. He further contended that without following the procedure prescribed under the law, the registration of the dealer could not have been cancelled. In the instant case, no document has been produced before the court to show that before canceling the registration of the above said six dealers, the procedure has been followed as contemplated under Section 27 of the Act. Further, no notice was issued before canceling the registration certificates of those dealers.
9 6. Learned counsel for the petitioner also relied upon the judgment reported in AIR 1961 SC 1471 in the case of M.A.RAHMAN AND OTHERS v/s STATE OF ANDHRA PRADESH AND OTHERS and another judgment reported in 2011(71)KLJ 341(Tri)(DB) in the case of CENTUM INDUSTRIES PRIVATE LIMITED, BANGALORE v/s STATE OF KARNATAKA and contended that when the State Government at the time of granting registration has taken care to get full information of the dealers, it is for the Government to collect tax from such a registered dealer. Hence it is not open to the State Government to take it out on the petitioner dealer because of its inability to collect the tax. He further contended that it is not the duty of the petitioner-firm to verify the registration certificate of the dealer before purchasing the goods. Once the dealer issued the tax invoices, after the due registration, it is for the authorities to take action against those
10 unregistered dealers and the petitioner cannot be penalised by disallowing the input tax rebate and sought for setting aside the order impugned by allowing the revision petitions. 7. Smt.Sujatha, learned Additional Government Advocate appearing for the respondent-state contended that the petitioner is carrying on the business for more than three decades. The petitioner has purchased the jungle wood from the de-registered dealers. The dispute in these revision petitions is with regard to the monthly returns for the period from 1-4-2005 to 31-7-2007. The registration of the dealers referred to above has been cancelled as on the date of petitioner purchasing the jungle wood from those dealers. Further those dealers have not credited the tax collected from the petitioner. Hence, the question of allowing the input tax rebate to the petitioner does not arise. All the three authorities after considering the materials available on record came
11 to the conclusion that the petitioner is not entitled for the input tax rebate. She contended that for claiming input tax rebate under Section 10(4) of the Act, the tax invoices, debit note or credit note in relation to the sale shall be issued in accordance with Sections 29 or 30 of the Act and is with the registered dealer taking deduction at the time any return in respect of the sale is furnished, except such tax paid under sub-section (2) of Section 3 of the Act. She further contended that the burden of proving payment or assessment of tax or to claim any input tax rebate is on the dealer. Unless the dealer remits the tax collected to the State Government, the petitioner is not entitled for the rebate in the input tax and sought for dismissal of the revision petitions. 8. After considering the arguments addressed by the learned counsel for the parties, the only point that arises for consideration in these revision petitions is as to whether the petitioner is entitled for input tax rebate
12 under Section 10 of the Act and has made out a case for interference with the order passed by the Authorities below? 9. The records disclose that the revision petitioner is the registered dealer engaged in the manufacture of wooden packing materials and plywood goods. He has purchased the goods from the unregistered local dealers and availed input tax rebate. He has submitted the monthly returns for the period from 1-4-2005 to 31-7-2007. The Assessing Authority visited the business place for the purpose of audit of books of accounts. During the visit, it was observed that the petitioner has purchased the goods from the local dealers and availed input tax rebate. On the sale of goods, he has collected input VAT at 4% on the packing materials and 12½% on the plywood goods. He also purchased jungle wood from the unregistered dealers. The sale invoices, sale register, purchase invoices,
13 purchase register were verified and compared with the returns filed by the dealers. On verification it was found that the petitioner-firm claimed input tax rebate on the purchase of jungle wood and plywood from the six dealers who have been de-registered under the KVAT Act. In view of that, proposition notice under Sections 39, 70, 36, 72 of KVAT Act was issued calling upon the petitioner-firm to show cause why the reassessment proceedings should not be initiated by disallowing the input tax rebate claimed. In response to the proposition notice, the petitioner-firm filed objections on 12-10-2007 stating that he had purchased the input from the registered dealers who have issued tax invoices and availed input tax rebate and sought for dropping of the proceedings of reassessment. The Assessing Authority after considering the objections filed by the petitioner-firm found that he has purchased the goods from the de-registered dealers and the said dealers have not remitted the tax collected from the petitioner-firm.
14 Accordingly, the petitioner-firm is not entitled for the input tax rebate, and hence, disallowed the input tax rebate and issued demand notice calling upon the petitioner to pay the tax with fine and interest of Rs.2,02,873/-. Being aggrieved by the order dated 15-02-2008 passed by the Assessing Authority, the petitioner preferred an appeal before the First Appellate Authority and the same was dismissed on 3-5-2008 confirming the order of the Assessing Authority. The said order was confirmed by the Karnataka Appellate Tribunal on 8-4-2010. 10. On verification of the records, the authorities found that as on the date of the purchase made by the petitioner, the said six firms were de-registered, whereabouts of the said firms was also not known and efforts have been made to trace the said six firms. However, the said six dealers are not available. Hence, it is clear that the petitioner-firm has made a
15 transaction with the bogus and fake dealers. On the basis of the invoices issued by the said bogus and fake dealers, the petitioner-firm claims input tax rebate. The transaction between the petitioner-firm and the said six firms clearly disclose that the purchase has been made by cash payment, except one or two payments made through cheques. On the basis of the fake tax invoices, the petitioner-firm availed the input tax rebate. Under Section 10-4 of the Act, no deduction for input tax shall be made unless a tax invoice, debit note or credit note, in relation to a sale has been issued in accordance with Sections 29 or 30 and is with the registered dealer taking deduction at the time any returns in respect of sale is furnished. 11. In the instant case, the said six dealers have not filed any declarations nor remitted the tax collected from the petitioner-firm. Section 70(1) of the Act, cast
16 burden of proof on the dealer who claims exemption or input tax rebate. Section 70(1) reads as under: 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. 12. Further it is clear from the records that the petitioner-firm has not produced any materials to show that the dealers with whom the petitioner has made transaction have remitted the tax collected from him though the petitioner has been making transaction with the said firms for the last more than three years. In order to gain the input tax rebate, the petitioner has produced the bogus tax invoices. 13. Further, M/s.New Timber Traders, M/s.Adnan Timber Mart, M/s.Mahadevan Trading Copmpany have been de-registered w.e.f. 1-4-2005. M/s.Swastik Plywoods has been de-registered w.e.f. 1-1-2006 and
17 M/s.Rajdhani Glass and Plywood has been de-registered w.e.f. 5-4-2006. Insofar as M/s.Rajashree Distributors, they have not been registered under the Act. The transaction has been made by the petitioner-firm after de-registration of the said dealers. Further, the said firms have not remitted the tax collected from the petitioner-firm. Hence, the petitioner is not entitled to claim input tax rebate. Further, the petitioner-firm has not furnished reliable and proper information about the existence of the above said six dealers. The whereabouts of the said dealers was also not made known to the Department. Under Section 70 of the Act, the duty is cast upon the petitioner to prove that the said dealers have remitted the said amount to the State Government. Hence it is clear that the petitioner-firm has purchased the jungle wood from the bogus dealers who had TIN number without authority of law. The purchase was effected by the petitioner after the date of de-registration under the KVAT Act, hence the petitioner
18 is not entitled to claim input tax rebate. Hence, the petitioner is liable to pay the penalty as provided under Section 72(2) of the Act and interest under Section 36 of the Act. 14. The judgments relied upon by the learned counsel for the petitioner is not applicable to the facts of the present case. The petitioner has not challenged the deregistration of the six dealers in these revision petitions. 15. We find that there is no infirmity or irregularity in the order passed by the Karnataka Appellate Tribunal dated 8-4-2010 confirming the order passed by the First Appellate Authority dated 3-5-2008 and also order dated 15-2-2008 passed by the Assessing Authority disallowing the input tax rebate.
19 16. Accordingly the point framed in these revision petitions is answered against the petitioner. Accordingly, we pass the following: ORDER Revision petitions are dismissed. Sd/- JUDGE Sd/- JUDGE mpk/-*