Ruling of VAT regime. In absence of cogent evidence, mere invoice production, cheque-payment insufficient to claim ITC: Supreme Court

It’s a bad news for the industry as Supreme Court has held that mere production of invoice and cheque payment is insufficient to claim ITC (Input Tax Credit). Expert say though this order is related with matter under Value Added Tax (VAT) regime, but likely to have impact on GST too.

“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 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,” a division bench of Justices M R Shah and C T Ravikumar said while quashing order by the High Court and second Appellate Authority and allowing the appeal by the Karnataka State government.

Read also: Reversal of ITC at midnight during search and seizure can’t be voluntary payment of GST dues: Gujarat HC

Ecom Gill Coffee case

The matter involves Ecom Gill Coffee Trading Private Limited as a respondent. Initially, the Assessing Officer 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 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 in some cases, making the payment through cheques, the Assessing Officer was not justified in denying the ITC. Aggrieved by this, State government moved to the Apex Court.

After perusing the facts presented and arguments made, the division bench of the Apex Court observed that 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. It also said that if a dealer claims ITC on purchases, he will have to prove and establish the actual physical movement of goods, genuineness of transactions by furnishing the details referred above and mere production of tax invoices would not be sufficient to claim ITC.

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Commenting on the ruling, Harpreet Singh, Partner with KPMG India says while the ruling is under the erstwhile VAT regime, if tax authorities were to apply the same principles under GST, Companies would need to be more cautious on their vendor selection and ensure that they keep a proper track of compliances done by vendors and have robust documentation such as details of vehicle which delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods etc.

Prateek Bansal, Tax Partner with White and Brief - Advocates & Solicitors, says it will have large implications on the pending VAT assessments and appellate proceedings across the country. Further, taking cue from SC ruling, he said that the GST assesses/purchaser may now be required to prove (with cogent evidences) that there was actual receipt of goods/services, and that the subject tax has been paid to the Government at all levels of supply chain so as to avail ITC under Section 16 of the CGST Act. “It is thus critical that an undertaking-cum- indemnity be taken by the purchasers from the sellers regarding payment of taxes and filing of returns by the said seller, besides maintaining appropriate documentation/records in respect of the supply,” he said.

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