The Allahabad High Court’s recent ruling stipulates that an assessee is ineligible to claim input tax credit unless they successfully demonstrate unambiguous proof of the actual transaction and the physical movement of goods.
Referring to Sections 16 and 74 of the UP Goods and Service Tax Act, 2017, Justice Piyush Agrawal stated that “it is evident that in the event of wrong availment of the input tax credit, the proceedings can be initiated against the registered person or registered dealer but at the same time, restrictions have been imposed upon the authorities that without putting notice to the dealer, no adjudication proceeding can be initiated.”
In its judgment, the Court notably referenced the Supreme Court’s decision in the case of the State of Karnataka Vs. M/s Ecom Gill Coffee Trading Private Limited, which emphasized that the petitioner bears the onus of unequivocally proving the actual transaction and physical movement of goods.
Additionally, the Court drew upon the precedent set by the Allahabad High Court in Commissioner Commercial Tax Vs. M/s Ramway Foods Ltd., affirming that the responsibility for establishing the genuineness of transactions and the actual physical movement of goods lies primarily with the claiming dealer. Failure to meet this burden of proof results in the denial of benefits.
The petitioner received a show cause notice under Section 74 of the UP GST Act, alleging wrongful utilization of input tax credit during the period from April 2018 to September 2019.
Dissatisfied with the petitioner’s response, an order was issued, imposing a tax liability of Rs. 6,16,074, in addition to a penalty of Rs. 6,16,074. The petitioner’s appeal was subsequently denied.
The petitioner’s legal representative argued that all transported goods were accompanied by valid documentation, and the denial of input tax credit based on the seller’s failure to remit tax to the government was unwarranted.
Furthermore, it was contended that the GST system was established to prevent the cascading effect of taxes, and once the tax was invoiced and paid by the petitioner through a legitimate banking channel, the legal entitlement to input tax credit should not be denied.
Finally, it was asserted that attempting to recover the input tax credit claimed by the petitioner would result in double taxation.
On the contrary, the respondent’s counsel argued that input tax credit could only be claimed if the conditions outlined in Section 16 of the UPGST Act were met. They contended that the burden of proof rested with the petitioner to unquestionably establish the actual physical movement of goods and the authenticity of the transaction, providing essential details such as vehicle particulars used for transportation, proof of goods delivery, and payment records, among other things. Merely furnishing tax invoices, e-way bills, and goods receipts was deemed insufficient.
Allahabad High Court’s Verdict
The Court recognized that the concept of input tax credit, initially introduced before the advent of the GST, was integrated into the Goods and Service Tax regime to prevent the accumulation of tax liabilities.
“The purchasing dealer can avail the input tax credit under GST 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 a breach of any of the conditions, as enumerated under the Act, no benefit can be conferred to the dealer.”
Upon reviewing 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 utilized because of fraud or any willful misstatement or suppression of facts) of the UPGST Act, the Court asserted that in cases of improper utilization of input tax credit, legal proceedings can only be initiated against registered persons or dealers after the issuance of formal notice.
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The Court firmly maintained that commencing proceedings without providing due notice to the dealer was impermissible.
A reference was made to State of Karnataka v. M/s Ecom Gill Coffee Trading Private Limited, in which the Supreme Court found that the Karnataka Value Added Tax Act of 2003 pari materia clauses were applicable “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 submitting GST invoices, e-way bills, GR or payment details is not sufficient.”
Furthermore, the Court noted that the petitioner had not substantiated the genuine physical movement of goods and the authenticity of the transportation and transaction, as critical particulars such as payment of freight charges, acknowledgement of goods delivery, toll receipts, and related payments were absent from the record. Additionally, the Court upheld the validity of the proceedings initiated against the petitioner since there was no evidence of GSTR 2A filing.
As a result, the writ petition was dismissed.
| Petitioner Name | M/S Malik Traders |
| Citation | WRIT TAX No. – 1237 of 2021 |
| Date | 18.10.2023 |
| Counsel For Appellant | Pradeep Kumar Srivastava, Pavan Kumar Srivastava |
| Counsel For Respondent | State Of U.P. And 2 Others |
| Allahabad High Court | Read Order |