THE STATE OF KARNATAKAversusM/S ECOM GILL COFFEE TRADING PRIVATE LIMITED

                        [2023] 2 S.C.R. 647                             647


                  THE STATE OF KARNATAKA                                A
                                 v.
   M/S ECOM GILL COFFEE TRADING PRIVATE LIMITED
                   (Civil Appeal No. 230 of 2023)
                         MARCH 13, 2023                                 B
         [M. R. SHAH AND C. T. RAVIKUMAR, JJ.]
       Karnataka Value Added Tax Act, 2003 – s.70 Karnataka Value
Added Tax Rules, 2005 – rr. 27 and 29 – Burden of proof u/s. 70 –
Input Tax Credit – Claim of – Respondents (purchasing dealers)
claimed the Input Tax Credit (ITC) on the purchases made from the       C
respective dealers – Assessing Officer, doubted the genuineness of
the transactions and the purchases made from the respective dealers
and denied the ITC – Findings of Assessing Officer confirmed by
the first Appellate Authority – Second Appellate Authority and the
High Court have allowed the ITC, by observing that as the
purchasing dealers produced the invoices issued by the respective       D
dealers and that in some of the cases, they also made the payment
through cheques, the Assessing Officer was not justified in denying
the ITC – On appeal, held: The burden of proving that the ITC
claim is correct lies upon the purchasing dealer claiming such ITC
– For claiming ITC, genuineness of the transaction and actual           E
physical movement of the goods are the sine qua non – Mere
production of the invoices and/or payment by cheque is not sufficient
and cannot be said to be proving the burden as per s.70 –
Respondents failed to prove the genuineness of the transactions
and failed to discharge the burden of proof as per s. 70 – In absence
of any cogent material like furnishing the name and address of the      F
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 –
                                                                        G
Merely because the tax invoice as per Rule 27 and Rule 29 might
have been produced, that by itself cannot be said to be proving the
actual physical movement of the goods – Judgments passed by the
High Court and the second Appellate Authority allowing the ITC
quashed and set aside – The orders passed by the Assessing Officer,
confirmed by the first Appellate Authority are restored.                H
                                647
648            SUPREME COURT REPORTS                      [2023] 2 S.C.R.


A           Allowing the appeals, the Court
            HELD: 1. The provisions of Section 70, in its plain terms
      clearly stipulate that the burden of proving that the ITC claim is
      correct lies upon the purchasing dealer claiming such ITC.
      Burden of proof that the ITC claim is correct is squarely upon
B     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
C     enough and cannot be said to be discharging the burden of proof
      cast under section 70 of the Karnataka Value Added Tax Act, 2003.
      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
D     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
E     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 as per section
      70 of the KVAT Act, 2003 would be upon the purchasing dealer.
F     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 as per
      section 70 of the Act, 2003. 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/
G     them from the concerned dealers and on which the ITC have
      been claimed, the Assessing Officer is absolutely justified in
      rejecting such ITC claim. [Paras 9.1, 10][656-F-H; 657-A-C, G]


H
  THE STATE OF KARNATAKA v. M/S ECOM GILL COFFEE                      649
             TRADING PRIVATE LIMITED

      2. Now so far as the reliance placed upon Rules 27 and 29       A
of the Karnataka Value Added Tax Rules, 2005 and the
submission on behalf of the purchasing dealers that under the
provisions of the Rules 2005, more particularly under Rules 27
& 29, the only requirement is to issue the tax invoice and to
produce the same and there is no other requirement is concerned,
                                                                      B
the aforesaid has no substance. Rule 27 cast an obligation on the
dealers to issue tax invoice and the particulars of the tax invoice
are provided under Rule 29. Merely because the tax invoice as
per Rule 27 and Rule 29 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. [Para 13][658-G-H; 659-        C
A]
      3. 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         D
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      E
to prove the genuineness of the transactions and failed to
discharge the burden of proof as per section 70 of the KVAT Act,
2003. 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         F
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. [Para 15][659-F-H; 660-A-B]
      M/s. Bhagadia Brothers Vs. Additional Commissioner              G
      of Commercial Taxes STA No. 4 of 2018 dated
      29.01.2020; Madhav Steel Corporation Vs. State of
      Gujarat Tax Appeal No. 742 of 2013; Shreeji Impex
      Vs. State of Gujarat Tax Appeal No. 330 of 2014, 2014
      SCC OnLine Guj 8074; Corporation Bank Vs.
                                                                      H
650             SUPREME COURT REPORTS                        [2023] 2 S.C.R.


A             Saraswati Abharansala (2009) 19 VST 84 (SC); The
              Additional Commissioner of commercial Taxes Zone –
              II and Ors. Vs. M/s. Transworld Star Manjushree Civil
              Appeal Nos. 216-217 of 2023 @ SLP (Civil) No. 6337-
              6338 of 2022; On Quest Merchandising India Pvt. Ltd.
              v. Government of NCT of Delhi (Writ Petition (Civil)
B
              No. 6093/2017, decided on 26.10.2017 – referred to.
              CIVIL APPELLATE JURISDICTION: Civil Appeal No. 230 of
      2023.
            From the Judgment and Order dated 26.05.2021 of the High Court
C     of Karnataka at Bengaluru in STRP No. 18 of 2017.
              With
              Civil Appeal Nos. 231, 232 and 216-217 of 2023.
            Nikhil Goel, AAG, Shubhranshu Padhi, Vishal Bansal, Ms.
D     Rajeshwari Shankar, Niroop Sukrithy, Mohd. Ovais, Adithya Koshy Roy,
      Advs. for the Appellant.
             Swarnendu Chatterjee, Ms. Deepakshi Garg, Yashwardhan Singh,
      Ms. Megha Saha, Pai Amit, Thirumalesh M., Ms. Pankhuri Bhardwaj,
      Rahat Bansal, Abhiyudaya Vats, Ms. Sonali Suryawanshi, Raghavendra
      S. Srivatsa, Amit Pai, Venkita Subramoniom T.R., Likhi Chand Bhonsle,
E
      Ms. Komal Mundhra, K.J. Kamath, Bhargava V. Desai, Mrs. Veena
      Kamath, Ms. Lekha Dhilip, Rahul Gupta, Ms. Ankita Chopra, Advs. for
      the Respondent.
              The Judgment of the Court was delivered by
F             M. R. SHAH, J.
            1. As common question of law and facts arise in this group of
      appeals and the issue is with respect to interpretation of Section 70 of
      the Karnataka Value Added Tax Act, 2003 (hereinafter referred to as
      the ‘KVAT Act, 2003’), all these appeals are decided and disposed of
G     together, by this common judgment and order.
             2. For the sake of convenience, Civil Appeal No. 231 of 2023
      arising from the impugned judgment and order dated 26.02.2021 passed
      by the High Court of Karnataka at Bengaluru in S.T.R.P. No. 82 of 2018
      is treated as the lead matter, as in some matters, the said decision has
H     been relied upon.
   THE STATE OF KARNATAKA v. M/S ECOM GILL COFFEE                             651
       TRADING PRIVATE LIMITED [M. R. SHAH, J.]

      3. By the impugned judgment(s) and order(s) passed by the High          A
Court, the High Court has dismissed the revision applications preferred
by the revenue – State of Karnataka and as such has allowed the Input
Tax Credit (hereinafter referred to as the ‘ITC’) claimed by the respective
purchasing dealers. The impugned judgment(s) and order(s) passed by
the High Court are the subject matter of present appeals.
                                                                              B
     Civil Appeal No. 231/2023 (The State of Karnataka v. M/s
Tallam Apparels)
      4. The facts leading to the present appeal in nutshell are as under:
       That the respondent herein – M/s Tallam Apparels (hereinafter
referred to as the ‘purchasing dealer’) purchased readymade garments          C
from other dealers for the purposes of further sale. The purchasing dealer
claimed the ITC on such sale to the extent of Rs. 4,18,818/-. Vide order
dated 26.12.2014, the Assessing Officer disallowed the ITC claim for
the Assessment Year 2012-2013 on the ground that the dealers from
whom M/s Tallam Apparels have purchased the readymade garments                D
have either got their registration cancelled or have filed ‘NIL’ returns.
Thus, the Assessing Officer doubted the sale and the payment of tax on
such sale of which the ITC was claimed. An Appeal was filed by the
purchasing dealer. The Appellate Authority dismissed the same by holding
that the burden under section 70 of the KVAT Act, 2003 has not been
discharged. However, the Karnataka Appellate Tribunal reversed the            E
orders passed by the Assessing Officer as well as the first Appellate
Authority on the ground that the purchasing dealer should not suffer due
to default of seller. The revision application before the High Court has
been dismissed by the impugned judgment and order.
      4.1. In other cases, the Tribunal as well as the High Court have        F
allowed the ITC in favour of the purchasing dealers solely/mainly on the
ground that the sale price was paid to the seller by an account payee
cheque and that copies of invoices were produced.
      4.2 Insofar as the case of M/s Ecom Gill Coffee Trading Private
Limited being Civil Appeal No. 230 of 2023 is concerned, M/s Ecom –           G
purchasing dealer purchased green coffee bean from other dealers for
the purposes of further sale in exports and in domestic market. Upon
finding some irregularities in Input Tax Rebate claimed by the purchasing
dealer for Assessment Year 2010-2011, the Assessing Officer issued
notice under section 39 of the KVAT Act, 2003 seeking furnishing of
                                                                              H
652             SUPREME COURT REPORTS                            [2023] 2 S.C.R.


A     accounts, books, tax invoices etc. Re-assessment order came to be
      passed. It was found that the purchasing dealer had claimed ITC from
      mainly 27 sellers and out of aforesaid 27 sellers , six were found to be
      de-registered; three had effected sales to the respondent but did not file
      taxes and six have outrightly denied turnover nor paid taxes. Therefore,
      ITC came to be disallowed to the extent of Rs. 10.52 lacs. The first
B
      Appellate Authority confirmed the findings of the Assessing Officer.
      However, the Tribunal allowed the second appeal on the ground that the
      purchasing dealer purchased the coffee from the registered dealer under
      genuine tax invoices and consequently allowed the ITC claimed. The
      revision application before the High Court has been dismissed, relying
C     upon its earlier decision in the case of M/s Tallam Apparels (supra).
            5. Shri Nikhil Goel, learned AAG has appeared on behalf of the
      State of Karnataka and the respective learned counsel have appeared
      on behalf of the respective purchasing dealers.
             6. Shri Nikhil Goel, learned AAG appearing on behalf of the State
D
      has vehemently submitted that in the facts and circumstances of the
      case, the High Court has materially erred in dismissing the revision
      applications and confirming the respective orders passed by the Appellate
      Authorities in allowing the Input Tax Credit in favour of the respective
      purchasing dealers.
E            6.1 It is vehemently submitted that the High Court has not properly
      appreciated that when the Assessing Officer doubted the genuineness
      of the transactions/sales and when it was found that the sale transactions
      were only paper transactions and even in some of the cases, the
      registration of the sellers were cancelled and nothing was on record that
F     any tax was paid by the seller, the purchasing dealers shall not be entitled
      to the Input Tax Credit.
              6.2 It is vehemently submitted by Shri Nikhil Goel, learned AAG
      appearing on behalf of the State that the High Court ought to have
      appreciated that as such a duty is cast upon the purchasing dealers to
G     prove the transactions/financial transfers, which in the present case, the
      purchasing dealers failed to discharge. It is submitted that for the purposes
      of Section 70 of the KVAT Act, 2003, the burden required to be discharged
      is slightly higher than showing financial transfers and should show actual
      movement of goods. It is submitted that mere production of invoices or
      even payment to the seller by cheque cannot be said to be sufficient and
H
  THE STATE OF KARNATAKA v. M/S ECOM GILL COFFEE                             653
      TRADING PRIVATE LIMITED [M. R. SHAH, J.]

may not be said to discharging the burden to claim Input Tax Credit, to      A
be discharged under Section 70 of the KVAT Act, 2003. It is submitted
that actual movement of goods is required to be established and proved,
over and above the invoices, payment by cheques and actual payment
and even the demand of tax by the seller.
       6.3 Shri Goel, learned AAG has heavily relied upon the decision       B
of the Karnataka High Court in the case of M/s. Bhagadia Brothers
Vs. Additional Commissioner of Commercial Taxes, STA No. 4
of 2018 dated 29.01.2020, against which the special leave petition has
been dismissed as well as the decision of the Gujarat High Court in the
case of Madhav Steel Corporation Vs. State of Gujarat, Tax Appeal
                                                                             C
No. 742 of 2013 and other allied tax appeals against which also the
special leave petition has been dismissed, however, keeping the question
of law open and has also relied upon another decision of the Gujarat
High Court in the case of Shreeji Impex Vs. State of Gujarat, Tax
Appeal No. 330 of 2014, 2014 SCC OnLine Guj 8074, in support
of his above submissions.                                                    D
       6.4 It is further submitted by Shri Nikhil Goel, learned AAG
appearing on behalf of the State that the High Court has failed to
appreciate that the revenue cannot recover from the seller who is not
registered or who has filed ‘NIL’ returns, thereby denying sale. It is
further submitted that the High Court has materially erred in observing      E
and holding that once the purchases are made by the purchasing dealer
by account payee cheque, the purchasing dealer is deemed to have
discharged his burden. It is submitted that the High Court has also
materially erred in observing that if the seller of the goods from whom
the dealer has purchased does not deposit such tax, the dealer (purchasing
                                                                             F
dealer) cannot be held liable for that. It is submitted that as such the
purchasing dealer is entitled to the Input Tax Credit on the tax paid by
the seller and/or on the tax paid. It is submitted that therefore, for the
purposes of Input Tax Credit, the purchasing dealer has to prove the
actual payment of tax and actual transfer of goods and mere paper
transaction is not sufficient.                                               G
      6.5 Making above submissions and relying upon the above
decisions, it is prayed to allow the present appeals.
      7. While opposing the present appeals, learned counsel appearing
on behalf of the respective assessees/dealers, who claimed the Input
                                                                             H
654             SUPREME COURT REPORTS                            [2023] 2 S.C.R.


A     Tax Credit have vehemently submitted that in the present case, as such,
      the purchasing dealers have discharged the burden of proof cast under
      Section 70 of the KVAT Act, 2003 and proved the genuineness of the
      transactions by producing the genuine invoices and even the payment
      made through cheques. It is submitted that therefore once the dealer
      has discharged the burden cast under Section 70 of the KVAT Act,2003,
B
      the purchasing dealer is entitled to the Input Tax Credit and if at all it is
      found that a tax is not paid by the seller, the same can be recovered from
      the seller. However, so far as the purchasing dealer is concerned, they
      are entitled to the ITC, once having discharged the burden under Section
      70 of the KVAT Act, 2003.
C            7.1 It is further submitted by learned counsel appearing on behalf
      of the respective dealers that in fact they have discharged the burden of
      proof cast under Section 70 of the KVAT Act, 2003 by producing the
      valid invoices and making the payment online to the supplier. It is
      submitted that registration of the dealer and online payments were never
D     disputed. It is further submitted that apart from Section 70 of the KVAT
      Act, 2003, the Karnataka Value Added Tax Rules, 2005, namely Rules
      27 and 29 provide for the details and obligations upon the dealer to issue
      the tax invoice and also the particulars of the tax invoices. It is submitted
      that neither the KVAT Act nor the Rules provide for any other document
      or any other obligation, which are statutorily required for the purposes of
E     establishing the claim for seeking refund towards Input Tax Credit.
             7.2 It is submitted that therefore the decision of the adjudicating
      authority was beyond the Act and Rules. It is further submitted by the
      learned counsel appearing on behalf of the respective assessees / dealers
      that the only requirement of law, as far as the purchasing dealers wanting
F     to avail the benefit of Input Tax Credit is concerned, is that he has to
      make sure that the selling dealer is a registered dealer and has issued
      the tax invoice in compliance with the requirement of the KVAT Act and
      the Rules made thereunder. It is submitted that once the purchasing
      dealer demonstrates that he has complied with such requirement, he
G     cannot be denied the ITC only because the selling dealer fails to discharge
      his obligation under the KVAT Act.
            7.3 It is submitted that in the present case, the respondents are
      purchasing dealers, who have complied with the requirement of KVAT
      Act and have ensured that the purchases made by them are in
H     compliance with the requirements of the KVAT Act and Rules for
   THE STATE OF KARNATAKA v. M/S ECOM GILL COFFEE                             655
       TRADING PRIVATE LIMITED [M. R. SHAH, J.]

claiming ITC. Reliance is placed on the decision of this Court in the         A
case of Corporation Bank Vs. Saraswati Abharansala, (2009) 19
VST 84 (SC). It is further submitted that the ITC could be denied
where the purchasing dealer has acted without due diligence, i.e., by
proceeding with the transaction without first ascertaining if the selling
dealer is a registered dealer having a valid registration. It is submitted
                                                                              B
that denial of ITC to a purchasing dealer who has taken all the necessary
precautions fails to distinguish such a diligent purchasing dealer from
the one that has not acted bonafide. It is submitted that in the case of
The Additional Commissioner of commercial Taxes Zone – II
and Ors. Vs. M/s. Transworld Star Manjushree, Civil Appeal
Nos. 216-217 of 2023 @ SLP (Civil) No. 6337-6338 of 2022,                     C
both the seller and dealer were registered.
      7.4 Making above submissions, it is prayed to dismiss the present
appeals.
       8. We have heard learned counsel for the respective parties at
length.                                                                       D

        We have gone through the orders passed by the Assessing Officer
and the first Appellate Authority as well as the orders passed by the
second Appellate Authority/Tribunal and also the impugned judgment(s)
and order(s) passed by the High Court dismissing the revision applications.
The respondents herein – all purchasing dealers claimed the Input Tax         E
Credit on the alleged purchases made from the respective dealers. The
Assessing Officer, on appreciation of evidence and considering the other
material on record, doubted the genuineness of the transactions and the
purchases made from the respective dealers and denied the ITC. The
findings of fact recorded by the Assessing Officer came to be confirmed       F
by the first Appellate Authority. However, the second Appellate Authority
and the High Court have allowed the ITC, by observing that as the
purchasing dealers produced the invoices issued by the respective dealers
and that in some of the cases they also made the payment through cheques,
the Assessing Officer was not justified in denying the ITC. Against the
grant of ITC, the State is before this Court.                                 G
       8.1 Therefore, the short question which is posed for the
consideration of this Court is, “whether, in the facts and circumstances
of the case, the second Appellate Authority as well as the High Court
were justified in allowing the Input Tax Credit?”
                                                                              H
656            SUPREME COURT REPORTS                           [2023] 2 S.C.R.


A           9. While considering the aforesaid issue/question, Section 70 of
      the Karnataka Value Added Tax Act, 2003 is required to be referred to,
      which reads as under:
            “70. Burden of proof.- (1) For the purposes of payment or
            assessment of tax or any claim to input tax under this Act, the
B           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.
            (2) Where a dealer knowingly issues or produces a false tax invoice,
            credit or debit note, declaration, certificate or other document with
C           a view to support or make any claim that a transaction of sale or
            purchase effected by him or any other dealer, is not liable to be
            taxed, or liable to tax at a lower rate, or that a deduction of input
            tax is available, the prescribed authority shall, on detecting such
            issue or production, direct the dealer issuing or producing such
            document to pay as penalty:
D
                (a) in the case of first such detection, three times the tax due
                in respect of such transaction or claim; and
                (b) in the case of second or subsequent detection, five times
                the tax due in respect of such transaction or claim.
E           (3) Before issuing any direction for the payment of the penalty
            under this Section, the prescribed authority shall give to the dealer
            the opportunity of showing cause in writing against the imposition
            of such penalty.”
              9.1 Thus, the provisions of Section 70, quoted hereinabove, in its
F     plain terms clearly stipulate that the burden of proving that the ITC claim
      is correct lies upon the purchasing dealer claiming such ITC. 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
G
      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 section 70 of the KVAT Act, 2003. The dealer claiming
      ITC has to prove beyond doubt the actual transaction which can be
H     proved by furnishing the name and address of the selling dealer, details
   THE STATE OF KARNATAKA v. M/S ECOM GILL COFFEE                                657
       TRADING PRIVATE LIMITED [M. R. SHAH, J.]

of the vehicle which has delivered the goods, payment of freight charges,        A
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
                                                                                 B
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 as per section 70 of the KVAT Act, 2003
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           C
is not sufficient and cannot be said to be proving the burden as per
section 70 of the Act, 2003.
        10. Even considering the intent of section 70 of the Act, 2003, it
can be seen that the ITC can be claimed only on the genuine transactions
of the sale and purchase and even as per section 70(2) if a dealer               D
knowingly issues or produces a false tax invoice, credit or debit note,
declaration, certificate or other document with a view to support or make
any claim that a transaction of sale or purchase effected by him or any
other dealer, is not liable to be taxed, or liable to take at a lower rate, or
that a deduction of input tax is available, such a dealer is liable to pay the
                                                                                 E
penalty. Therefore, as observed hereinabove, 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            F
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              G
which the ITC have been claimed, the Assessing Officer is absolutely
justified in rejecting such ITC claim.
      11. In the present case, the respective purchasing dealer/s has/
have produced either the invoices or payment by cheques to claim ITC.
The Assessing Officer has doubted the genuineness of the transactions
                                                                                 H
658            SUPREME COURT REPORTS                           [2023] 2 S.C.R.


A     by giving cogent reasons on the basis of the evidence and material on
      record. In some of the cases, the registration of the selling dealers have
      been cancelled or even the sale by the concerned dealers has been
      disputed and/or denied by the concerned dealer. In none of the cases,
      the concerned purchasing dealers have produced any further supporting
      material, such as, furnishing the name and address of the selling dealer,
B
      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 therefore it can be said that the concerned
      purchasing dealers failed to discharge the burden cast upon them under
      Section 70 of the KVAT Act, 2003. At the cost of repetition, it is observed
C     and held that unless and until the purchasing dealer discharges the burden
      cast under Section 70 of the KVAT Act, 2003 and proves the genuineness
      of the transaction/purchase and sale by producing the aforesaid materials,
      such purchasing dealer shall not be entitled to Input Tax Credit.
             12. Despite the findings of fact recorded by the Assessing Officer
D     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
E
      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
F     physical movement of the goods, alleged to have been purchased from
      the concerned dealers.
             13. Now so far as the reliance placed upon Rules 27 and 29 of the
      Karnataka Value Added Tax Rules, 2005 and the submission on behalf
      of the purchasing dealers that under the provisions of the Rules 2005,
G     more particularly under Rules 27 & 29, the only requirement is to issue
      the tax invoice and to produce the same and there is no other requirement
      is concerned, the aforesaid has no substance. Rule 27 cast an obligation
      on the dealers to issue tax invoice and the particulars of the tax invoice
      are provided under Rule 29. Merely because the tax invoice as per Rule
      27 and Rule 29 might have been produced, that by itself cannot be said
H
  THE STATE OF KARNATAKA v. M/S ECOM GILL COFFEE                             659
      TRADING PRIVATE LIMITED [M. R. SHAH, J.]

to be proving the actual physical movement of the goods, which is required   A
to be proved, as observed hereinabove. Producing the invoices as per
Rules 27 and 29 of the Rules 2005 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 as per section 70 of the KVAT Act,
2003.
                                                                             B
      14. Now so far as the reliance upon the decision of the Delhi
High Court in the case of On Quest Merchandising India Pvt. Ltd. v.
Government of NCT of Delhi (Writ Petition (Civil) No. 6093/2017,
decided on 26.10.2017), relying upon by the learned counsel appearing
on behalf of the purchasing dealers is concerned, at the outset, it is
                                                                             C
required to be noted that before the Delhi High Court, Section 9(2)(g) of
the Delhi Value Added Tax Act was under consideration, which reads
as under:
      “9(2)(g) to the dealers or class of dealers unless the tax paid by
      the purchasing dealer has actually been deposited by the selling
                                                                             D
      dealer with the Government or has been lawfully adjusted against
      output tax liability and correctly reflected in the return filed for
      the respective tax period.”
       The burden of proof as per Section 70 of the KVAT Act, 2003
was not an issue before the Delhi High Court. How and when the burden
of proof can be said to have been discharged to prove the genuineness        E
of the transactions was not the issue before the Delhi High Court. As
observed hereinabove, while claiming ITC as per section 70 of the KVAT
Act, 2003, the purchasing dealer has to prove the genuineness of the
transaction and as per section 70 of the KVAT Act, 2003, the burden is
upon the purchasing dealer to prove the same while claiming ITC.             F
       15. 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         G
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
                                                                             H
660              SUPREME COURT REPORTS                       [2023] 2 S.C.R.


A     genuineness of the transactions and failed to discharge the burden of
      proof as per section 70 of the KVAT Act, 2003. 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
B
      dealers, confirmed by the first Appellate Authority are hereby restored.
             16. The instant appeals are accordingly allowed. However, there
      shall be no order as to costs.


C     Ankit Gyan                                                Appeals allowed.
      (Assisted by : Aarsh Choudhary, LCRA)




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