- 1 - HC-KAR NC: 2026:KHC:19938-DB STRP No. 51 of 2025 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 9TH DAY OF APRIL, 2026 PRESENT THE HON'BLE MR. JUSTICE S.G.PANDIT AND THE HON'BLE MR. JUSTICE K. V. ARAVIND SALES TAX REVISION PETITION No. 51 OF 2025 BETWEEN: 1. SRI K.M. JAYESH (MANAGING PARTNER), M/S SRI RAM POWER CONTROLS, No.1/4, LAKSHMAIAH INDUSTRIAL LAYOUT, ABBIGERE VILLAGE, BENGALURU-560 090. …PETITIONER (BY SRI ATUL KRISHNA RAO ALUR, ADVOCATE) AND: 1. STATE OF KARNATAKA, REPRESENTED BY COMMISSIONER OF COMMERCIAL TAXES, VANIJIYA THERIGE KARYALAYA -1, 9TH MAIN, GANDHI NAGAR, BENGALURU 560 090. …RESPONDENT (BY SRI ADITYA VIKRAM BHAT, AGA) THIS STRP IS FILED UNDER SECTION 65(1) OF THE KARNATAKA VALUE ADDED TAX ACT, 2003 AGAINST THE JUDGMENT DATED 28.04.2025, PASSED IN ST. APPEAL No. 36/2021 ON THE FILE OF KARNATAKA APPELLATE TRIBUNAL AT BANGALORE, DISMISSING THE APPEAL AND FILED AGAINST THE ORDER DATED 11.01.2021 PASSED IN VAT.AP. No.214/2018-19 (A.Y.2010-11) ON THE FILE OF JOINT COMMISSIONER OF COMMERCIAL TAXES (APPEALS-6) DISMISSING THE APPEAL FOR THE TAX PERIODS FROM APRIL 2010 TO MARCH 2011. Digitally signed by VINUTHA B S Location: High Court of Karnataka - 2 - HC-KAR NC: 2026:KHC:19938-DB STRP No. 51 of 2025 THIS PETITION, COMING ON FOR ADMISSION THIS DAY, ORDER WAS MADE THEREIN AS UNDER: CORAM: HON'BLE MR. JUSTICE S.G.PANDIT and HON'BLE MR. JUSTICE K. V. ARAVIND ORAL ORDER (PER: HON'BLE MR. JUSTICE K.V. ARAVIND) Heard Sri Atul Krishna Rao Alur, learned counsel for the petitioner and Sri Aditya Vikram Bhat, learned Additional Government Advocate for the respondent. 2. This Sales Tax Revision Petition is filed under Section 65(1) of the Karnataka Value Added Tax Act, 2003 (for short, ‘KVAT Act’) by the dealer, assailing the order dated 28.04.2025 passed in STA No.36/2021 by the Karnataka Appellate Tribunal, Bengaluru (for short, ‘Tribunal’). 3. The petition raises the following questions of law for consideration by this Court: a) "WHETHER on facts and circumstances of the case, the Tribunal was right is disallowing the ITC made from the Registered dealer." b) "WHETHER on facts and circumstances of the case, the Tribunal was right in denial of Input Tax Credit on the ground of alleged de-registration of the selling dealer is justified when the dealer was validly registered at the time of purchase and issued proper tax invoices?" - 3 - HC-KAR NC: 2026:KHC:19938-DB STRP No. 51 of 2025 c) "WHETHER on facts and circumstances of the case, the Tribunal was right in confirming the rectification order passed under section 69 of the KVAT Act." d) "WHETHER on facts and circumstances of the case, the Tribunal was right in dev ting the issue of registration and deregistration to the input tax credit" e) "WHETHER on facts and circumstances of the case, the Tribunal was right in denying the ITC on the ground that, the suppliers are from deregistered dealer, when the Registration was cancelled retrospectively" d) "WHETHER on facts and circumstances of the case, the rectification and appellate orders violate the principles of natural justice by rejecting the rectification application without providing a proper opportunity of hearing?" f) "WHETHER on facts and circumstances of the case, the e-Sugam notification can be misapplied to deny Input Tax Credit for periods prior to its applicability?" g) "WHETHER on facts and circumstances of the case, the imposition of penalty and interest is justified when the Petitioner had a valid claim and complied with the provisions of the KVAT Act, 2003?" 4. The brief facts of the case are that the petitioner is a partnership firm engaged in the manufacture and sale of power transformers and is registered as a dealer under the KVAT Act. Reassessment for the financial year April 2010 to March 2011 was completed, wherein input tax credit of ₹14,27,669/- was allowed. - 4 - HC-KAR NC: 2026:KHC:19938-DB STRP No. 51 of 2025 4.1 Subsequently, proceedings under Section 69(1) of the Act were initiated on noticing that the supplier, M/s. JAS Trans, had neither declared the supplies made to the petitioner nor paid the tax collected under the invoices. It was further noticed that the said supplier had been deregistered with effect from 30.06.2010. In the absence of any response to the notice, the Assessing Authority confirmed the proposed liability by rectifying the reassessment order. 4.2 Thereafter, the petitioner filed an application for rectification seeking to rectify the disallowance of input tax credit relating to the supplier, M/s. JAS Trans, contending that payments had been made through banking channels on the basis of valid tax invoices. The said application for rectification came to be rejected by the Assessing Authority by endorsement dated 09.01.2019. 4.3 Aggrieved thereby, the petitioner preferred an appeal before the Joint Commissioner of Commercial Taxes [Appeals- 6] (First Appellate Authority)(for short “FAA”), contending that the generation of e-Sugam for transportation of goods was not mandatory and that input tax credit could not be denied on the - 5 - HC-KAR NC: 2026:KHC:19938-DB STRP No. 51 of 2025 ground of deregistration of the supplier. The said appeal came to be rejected by the FAA. 4.4 Challenging the same, the petitioner preferred a further appeal before the Tribunal, which, by the impugned order, upheld the order of the FAA as well as the endorsement dated 09.01.2019. 5. Sri Atul Krishna Rao Alur, learned counsel appearing for the petitioner, submits that the genuineness of the purchases and supplies stands established by the production of invoices and proof of payment through banking channels. It is further submitted that the Tribunal has placed reliance on the compliance requirements as laid down by the Hon’ble Supreme Court in State of Karnataka vs. Ecom Gill Coffee Trading Private Limited [(2023) 18 SCC 809], though such requirements were not in force at the time when the returns were filed. 5.1 It is contended that no opportunity was afforded to the petitioner to produce the requisite documents/details in terms of the said judgment. It is therefore submitted that the - 6 - HC-KAR NC: 2026:KHC:19938-DB STRP No. 51 of 2025 impugned order passed by the Tribunal is in violation of the principles of natural justice. 6. Per contra, Sri Aditya Vikram Bhat, learned Additional Government Advocate appearing for the respondents, submits that, as held by the Hon’ble Supreme Court in Ecom Gill Coffee Trading Private Limited (supra), production of invoices and proof of payment through banking channels is not sufficient to discharge the burden of proof. It is contended that where the transaction is doubtful, a higher degree of proof is required to be furnished by the dealer, which, in the present case, has not been discharged by the petitioner. 6.1 It is therefore submitted that the Appellate Authority as well as the Tribunal were justified in denying input tax credit insofar as the transactions with the supplier, M/s. JAS Trans, are concerned. 7. We have considered the submissions made by the learned counsel for the petitioner and the learned Additional Government Advocate appearing for the respondent–State. It is evident from the record that the reassessment order was - 7 - HC-KAR NC: 2026:KHC:19938-DB STRP No. 51 of 2025 passed allowing input tax credit in respect of the supplier, M/s. JAS Trans. Subsequently, on the basis of information in the possession of the authorities casting doubt on the genuineness of the transaction, a notice for rectification was issued. As there was no response to the said notice, the input tax credit insofar as it related to the supplier, M/s. JAS Trans, came to be withdrawn. The rectification application filed by the petitioner was rejected, and the appeal preferred against the order of rectification was also dismissed. 7.1 The Tribunal, while affirming the order of the First Appellate Authority, has placed reliance on the judgment of the Hon’ble Supreme Court in Ecom Gill Coffee Trading Private Limited (supra). It is, however, to be noticed that at the time when the reassessment order was passed, the said judgment had not been rendered. 7.2 The Hon’ble Supreme Court in Ecom Gill Coffee Trading Private Limited (supra) has laid down certain conditions and parameters to be complied with for establishing the genuineness of transactions while claiming input tax credit. However, when such requirements were not in force as on the - 8 - HC-KAR NC: 2026:KHC:19938-DB STRP No. 51 of 2025 date of the reassessment proceedings, the FAA as well as the Tribunal were not justified in applying the said judgment retrospectively and denying the claim on the ground of non- compliance with the conditions or parameters so laid down. Such denial, in the facts of the present case, would amount to a violation of the principles of natural justice. 7.3 The Hon’ble Supreme Court in Ecom Gill Coffee Trading Private Limited supra has held as under: 14. 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 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 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: - 9 - HC-KAR NC: 2026:KHC:19938-DB STRP No. 51 of 2025 (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. (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.” 15. Thus, the provisions of Section 70, quoted hereinabove, in its plain terms clearly stipulate that the burden of proving that ITC claim is correct lies upon the purchasing dealer claiming such ITC. Burden of proof that 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 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 proved by furnishing the name and address of the selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgment 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. 16. 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 transactions by furnishing the details referred above and mere production of tax invoices would not be sufficient to claim ITC. In fact, the - 10 - HC-KAR NC: 2026:KHC:19938-DB STRP No. 51 of 2025 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 is not sufficient and cannot be said to be proving the burden as per Section 70 of the 2003 Act. 17. Even considering the intent of Section 70 of the 2003 Act, it can be seen that ITC can be claimed only on the genuine transactions of the sale and purchase and even as per Section 70(2) if a dealer 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 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, acknowledgment of taking delivery of goods, tax invoices and payment 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) fail(s) to establish and prove the said important aspect of physical movement of the goods alleged to have been purchased by it/them from the dealers concerned and on which ITC have been claimed, the assessing officer is absolutely justified in rejecting such ITC claim." 8. In the light of the above, without examining the merits of the case, we deem it appropriate to set aside the order dated 11.01.2021 passed by the FAA in VAT AP No.214/18-19, as well as the order dated 28.04.2025 passed by the Tribunal in STA - 11 - HC-KAR NC: 2026:KHC:19938-DB STRP No. 51 of 2025 No.36/2021, and to remit the matter to the Assessing Authority for fresh consideration in accordance with law. 9. It is needless to observe that the Assessing Authority shall afford sufficient opportunity to the petitioner to establish compliance with the conditions laid down by the Hon’ble Supreme Court in Ecom Gill Coffee Trading Private Limited(supra), including by permitting the production of additional evidence/documents. It is made clear that this Court has not expressed any opinion on the merits of the case. Accordingly, the revision petition stands disposed of. Sd/- (S.G.PANDIT) JUDGE Sd/- (K. V. ARAVIND) JUDGE MV List No.: 1 Sl No.: 19