Burden of Proof in case of

ITC
Abhishek Raja Ram
 Let’s decode Section 155
• In the context of Indian Tax Law, particularly regarding
Indirect Taxes and Goods and Services Tax (GST), the
concept of "burden of proof" plays a crucial role.
• This concept is especially pertinent in the context of
claiming input tax credits under the GST regime.
 Section 155. Burden of proof
• Where any person claims that he is eligible for input tax
credit under this Act, the burden of proving such claim
shall lie on such person.
• Implication: It clearly states that the responsibility to
prove eligibility for input tax credit lies with the person
claiming it. This means that businesses or individuals
claiming such credits must have adequate
documentation and evidence to support their claim.
State of Karnataka vs M/s ECOM GILL COFFEE TRADING
PRIVATE LIMITED – Supreme Court
CIVIL APPEAL NOS.216-217 OF 2023, dated 13-Mar-23
• Burden of proof that the claim of ITC is correct is
squarely upon the assessee who has to discharge the
said burden.
• Such a burden of proof cannot get shifted on the
revenue
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Cancelled
Registration

Retrospectively
Cases of Vendor

5
 Sanchita Kundu vs The Assistant Commissioner of State Tax, Bureau of
Investigation, South Bengal
W.P.A. 7231 of 2022 and W.P.A. 7232 of 2022
dated 05.05.2022 (Calcutta High Court)
• The Input Tax Credit (ITC) was denied of the Petitioner on purchase of the
goods in question from the suppliers and asking the petitioners to pay the
penalty and interest under the relevant provisions of GST Act, on the ground
that the registration of the suppliers in question has already been
cancelled with retrospective effect covering the transaction period in
question.
• The Petitioners - due diligence - verified the genuineness and identity of the
suppliers - the names of those suppliers as registered taxable person were
available at the Government portal showing their registrations as valid and
existing at the time of transactions - petitioners - limitation -ascertaining the
validity and genuineness of the suppliers - done whatever possible - were
already available with the Government record.
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 Sanchita Kundu vs The Assistant Commissioner of State Tax, Bureau of
Investigation, South Bengal
W.P.A. 7231 of 2022 and W.P.A. 7232 of 2022
dated 05.05.2022 (Calcutta High Court)
• Petitioners further submit that they have paid the amount of
purchases in question as well as tax on the same not in cash and all
transactions were through banks and petitioners are helpless if at
some point of time after the transactions were over, if the respondents
concerned finds on enquiries that the aforesaid suppliers (RTP) were
fake and bogus and on this basis petitioners could not be penalised
unless the department/respondents establish with concrete materials
that the transactions in question were the outcome of any collusion
between the petitioners/purchasers and the suppliers in question.
• Petitioners further submit that all the purchasers in question invoices-
wise were available on the GST portal in form GSTR-2A which are
matters of record.
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 Sanchita Kundu vs The Assistant Commissioner of State Tax, Bureau of
Investigation, South Bengal
W.P.A. 7231 of 2022 and W.P.A. 7232 of 2022
dated 05.05.2022 (Calcutta High Court)
• The Calcutta High Court bench of Justice Md. Nizamuddin has held that
the Input Tax Credit (ITC) cannot be denied on genuine transactions
with suppliers whose GST registration was cancelled after the
transaction.

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 LGW Industries Limited vs Union of India
WPA No.23512 of 2019
dated 13.12.2021 (Calcutta High Court)

• Notices issued by the respondents concerned for not allowing the

petitioners, who are the purchasers of the goods in question and
refusing to grant the benefit of input tax credit (ITC) on purchase from
the non-existent suppliers and also asking the petitioners to pay
penalty and interest under relevant provisions of GST Act.
• Disallowance of input tax credit on the ground that the purchases
made by petitioners are from non-existing suppliers and the bank
accounts opened by those suppliers are on the basis of fake
documents and that the petitioners have not verified the genuineness
and identity of the suppliers before entering into transaction with
those suppliers.
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 LGW Industries Limited vs Union of India
WPA No.23512 of 2019
dated 13.12.2021 (Calcutta High Court)

• Further grounds of denying the input tax credit benefit to the

petitioners are that the registration of suppliers in question have been
cancelled with retrospective effect covering the transactions period in
question.
• Case remanded to the Authority concerned with direction if it is found
that all purchases and transactions in question are genuine and
supported by valid documents and transaction in question were made
before the cancellation of Registration of those suppliers, the
assessees shall be given the benefit of ITC in the question.

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 Gargo Traders vs Joint Commissioner of Commercial Taxes
Calcutta High Court | WPA No.1009 of 2022 | 12-Jun-2023

• Denial of ITC on the allegations of ITC Fraud wrt Fake and non-existing
supplier.
• ITC was denied on ground that supplier were fake and non-existing;
that bank accounts were opened by supplier on basis of fake
document and, therefore, ITC claim of petitioner was not supported by
any relevant document.
• Department sad that there was failure by petitioner to verify
genuineness and identity of supplier whether they were registered
taxable person (RTP) before entering into any transaction with supplier
and that registration of supplier in question was already cancelled with
retrospective effect covering transaction period of petitioner.
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 Gargo Traders vs Joint Commissioner of Commercial Taxes
Calcutta High Court | WPA No.1009 of 2022 | 12-Jun-2023

• At time of transaction, supplier's name as registered taxable person

was already available on Government record and petitioner paid
amount on purchased articles as well as tax on same through bank and
not in cash.
• It was not a case of Department that there was a collusion between
petitioner and supplier with regard to transaction.
• Without proper verification, it cannot be said that there was any
failure on petitioner's part in compliance of any obligation required
under statute before entering into transactions in question.

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 Gargo Traders vs Joint Commissioner of Commercial Taxes
Calcutta High Court | WPA No.1009 of 2022 | 12-Jun-2023

• Claim was rejected taking into consideration cancellation of

registration of supplier with retrospective effect without considering
documents relied on by petitioner.
• Conclusion: ITC claim was rejected on ground of cancellation of
registration of supplier with retrospective effect without considering
whether documents relied on by petitioner was proper or not;
Authority should consider petitioner's grievance afresh.

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 Daesung Electric India Pvt Ltd vs Commercial Tax officer, Tiruttani
[Link].1814 to 1820 of 2017 and WMP Nos.1801 to 1807 of 2017
dated 13.02.2017 (Madras High Court)

• Petitioner challenged the reversal of ITC which was

reversed because of cancellation of registration
certificate of seller.
• A perusal of details shows that in some cases, the
effective date of cancellation of registration certificate,
precedes the date of the invoice, while in other cases,
the effective date follows the date of the invoice.

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 Daesung Electric India Pvt Ltd vs Commercial Tax officer, Tiruttani
[Link].1814 to 1820 of 2017 and WMP Nos.1801 to 1807 of 2017
dated 13.02.2017 (Madras High Court)

• Quite clearly, if, the effective date of cancellation of registration

certificate follows the date of invoice, then, the fact the registration
certificate was valid on the date, when, the transaction took place, is
an aspect, which attains criticality.
• The petitioner's transaction cannot be impacted by subsequent
cancellation of registration.
• In such like cases, therefore, logically, the petitioner should be able to
claim ITC, on such transactions.

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 D.Y. Beathel Enterprises
vs State Tax Officer (Data Cell),
Tirunelveli

HIGH COURT OF MADRAS

W.P.(MD)NOS. 2127, 2117, 2121, 2152, 2159, 2160, 2168, 2177,
2500, 2530, 2532, 2534, 2538, 2539, 2540, 2503 & 2504 OF 2021
W.M.P. (MD) NOS. 1781 & 1791 OF 2021 & OTHER
24-FEBRUARY-2021

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 Facts of the Case

• Recovery of input tax credit for non-payment of GST by seller.

• Validity of recovery from petitioner-buyer in the absence of similar
recovery action against the seller.
• Challenge to automatic reversal of input tax credit from the buyer on
non-payment of tax by the seller.

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 Madras High Court Held:

• The respondent does not appear to have taken any recovery action
against the seller on the present transactions.
• When the seller has collected tax from the purchasing dealers, the
omission on the part of the seller to remit the tax in question must
have been viewed seriously and strict action ought to have been
initiated against the seller - in enquiry in question, the seller ought to
have been examined and this is all the more necessary, because the
respondent has alleged that the petitioners have not even received
the goods and had availed input tax credits on the strength of
generated invoices.

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 Madras High Court Held:

• the impugned orders suffers from fundamental flaws of non-

examination of seller in the enquiry and non-initiation of recovery
action against seller in the first place.
• The impugned orders are quashed and the matters are remitted back
to the file of the respondent.

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 Surana Industries Ltd vs State of Karnataka - Karnataka
Appellate Tribunal, Bangalore
Sales Tax Appeal No. 2680 to 2687 of 2012 Dated: 27-Sep-2017
The onus to prove genuineness of the transaction lies on the Person
claiming ITC. If the claim is not substantiated with any document or if
any document is found missing then Department has the right to
disallow ITC.

In my View:
As the Department is rejecting ITC claims due to Bogus or Fake ITC, it is
recommended to keep all necessary documentary evidence ready while
availing ITC. There should be monthly reconciliation of ITC with
documents so that if something is missing that can be collected timely.
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8. Ineligible ITC availed in respect of invoices / debit
notes issued by the suppliers who have not filed
their GSTR-3B returns for the relevant tax period.
 FORM GSTR-2A of the registered person contains the
details of “GSTR-3B filing status” of the supplier in
respect of each invoice / debit note received by the
registered person.
 Where the said status is “No”, it indicates the supplier has
furnished invoice details in his FORM GSTR-1, but has
not furnished the return in FORM GSTR-3B for the
corresponding tax period.

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 ITC claim where the supplier has not furnished Form GSTR-3B

Details to be checked Conclusion by Department

• Form GSTR-2A provides the GSTR- • The availment of ITC in respect of
3B filing status of the supplier in such invoices/debit notes may be
respect of each invoice/debit note checked as it is not allowed.
received by the registered person. • On the basis of case discussed
• The ‘No’ status indicates the earlier the matter could be
supplier has furnished invoice litigated.
details in his Form GSTR-1 but has
not furnished Form GSTR-3B for
the corresponding tax period.

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Cases of ITC not

paid by Supplier

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 Quest Merchandising India Pvt. Ltd. vs Govt. of NCT of Delhi
W.P. (C) 6093 of 2017
dated 26.10.2017 (Delhi High Court)
• The concerned provision (DVAT) to not include a buyer who has bona
fide entered into the purchase transactions with validly registered
dealers who have issued the tax invoices against the transaction.

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 Arise India Limited vs Govt. of NCT of Delhi
W.P. (C) 2016 of 2015
dated 26.10.2017 (Delhi High Court)
• In the event that the selling dealer has failed to deposit the tax
collected by him from the purchasing dealer, the remedy for the
Department would be to proceed against the defaulting selling dealer
to recover such tax and not deny the purchasing dealer the ITC.
• Where, however, the Department is able to come across material to
show that the purchasing dealer and the selling dealer acted in
collusion then the Department can proceed under Section 40A of the
DVAT Act.

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 Sri Vinayaga Agencies v. Assistant Commissioner,
W.P. Nos. 2036 to 2038 of 2013,
dated 29.01.2013 (Madras High Court)

• Law does not empower the tax authorities to reverse the ITC availed,
on a plea that the selling dealer has not deposited the tax. It can
revoke the input credit only if it relates to the incorrect, incomplete or
improper claim of such credit.

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 Gheru Lal Bal Chand v. State of Haryana
Civil Writ Petition No.6573 of 2007
dated 23.09.2011 (P&H High Court)

• The law need to distinguish between honest and dishonest dealers.

• Law cannot put such onerous responsibility on the assessee
otherwise, it would be difficult to hold the law to be valid on the
touchstone of Articles 14 and 19 of the Constitution of India.
• In the absence of any malafide intention, connivance or wrongful
association of the assessee with the selling dealer or any dealer
earlier thereto, no liability can be imposed on the principle of
vicarious liability.
• Taxpayer cannot be forced to substantiate its truthfulness by running
from pillar to post to collect the material for its authenticity.
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Laws
Landmark Case
Other Important

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 Commissioner of Customs vs Subodh Das
Calcutta High Court | 14-Mar-2023
CUSTA Nos. 23-24, 22, 25-27 of 2022 and I.A. No. GA 2 of 2022
• This case is of Customs.
• Betel nuts purchased on payment of cess under West Bengal Agricultural Produce
Marketing (Regulation) Act, 1972 could not be held to be smuggled based on
presumptions and assumptions, and in absence of evidence from revenue to discharge
its burden of proof.
• For betel nuts seized far away from international border, in absence of contrary
evidence, it could not said that revenue had discharged its burden of proof that they
were smuggled.
• Betal nuts being perishable goods seized in March, 2016 should not be returned in 2022
as they would be unfit for human consumption; liberty was to be given to importer to
apply for payment of value of goods.
• Statements of semi-literate persons, which are identical and mirror image of each other,
should be disbelieved, especially when they were retracted at earliest point of time.
• Denial of opportunity for cross-examination goes to root of matter and vitiates entire
proceedings.
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 Commissioner of Customs (Preventive), Shillong vs Nemluni
Gauhati High Court | 02-Jun-2023
Case Nos. [Link]. 1-3 of 2022

• This case is of Customs.

• Department having failed to discharge its initial burden to prove that seized
betel nuts were of foreign origin as neither there was any foreign markings on
bags in which they were contained nor was there any expert opinion regarding
their foreign origin, confiscation thereof could not be sustained.
• Confiscation of seized betel nuts which were initially tested to be fit for human
consumption could not be justified merely on ground that same were later on
tested to be unfit for human consumption during period of seizure.
• Initial burden to prove that goods seized are of foreign origin and smuggled in
nature lies upon Department; however, such onus may shift to assessee if seized
goods suspected to be of foreign origin were notified under Section 123(2) of
Customs Act, 1962.

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Commissioner of CGST and Central Excise vs Ashirwad Foundries Pvt. Ltd.
Calcutta High Court | 16-Dec-2022
CEXA No. 22 of 2021 in I.A. No. GA 2 of 2021

• This case is of Excise.

• Assessee's director accepted that suppliers were non-existent and
fraudulent nature of cenvatable invoices. Other statements showed
that transactions were fictitious. No retraction of statements. In reply
to show cause notice, neither denial nor allegations made against
department while recording statements. Verification of registration
of transportation vehicles on "VAHAN" indicated that they were
non-transport vehicles, but were three wheelers, mopeds etc., and
not trucks.

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Commissioner of CGST and Central Excise vs Ashirwad Foundries Pvt. Ltd.
Calcutta High Court | 16-Dec-2022
CEXA No. 22 of 2021 in I.A. No. GA 2 of 2021

• HELD: Statements could be relied on as they were not retracted.

Department had sufficient material to establish fraudulent availment
of credit and discharged its burden of proof - Burden had shifted to
assessee to show that transactions were genuine and they failed to
discharge it. Assessee was not entitled to CENVAT Credit. Rule 3 of
CENVAT Credit Rules, 2004 and Section 108 of Customs Act, 1962.
[paras 10, 11, 12, 15]
• CENVAT credit - Fraudulent claim - Payment of service tax through
banking channel and voluntary payment by service recipient will not
make transactions genuine. Rule 3 of Cenvat Credit Rules, 2004.
[para 11]

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 Anurag Alloys and Die Cast Pvt. Ltd. vs Commissioner of Central Excise, Faridabad
Punjab and Haryana High Court | 14-Oct-2022
C.E.A. Nos. 65 and 66 of 2014 (O & M)

• This case is of Excise.

• Cenvat credit - Fake invoices without supply of goods- Burden of proof
• Allegations were based only on Dealer's generic statement of non-supply of
goods. Specific ground was taken that appellant after receipt of goods
manufactured finished goods and had cleared same upon due payment of
duty.
• Appellant having duly reflected clearance of goods in RG-1 register,
holding him guilty on presumptions was not sustainable. Allegation of
fraud must be proved by person leveling such allegation. Matter was to be
remanded to CESTAT for adjudicating matter afresh and after examining
entire material in nature of statutory returns/registers in question as also
declaration etc. filed by appellant. [paras 9 and 11]
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 Ansil Ibrahim vs Assistant Commissioner
Kerala High Court | Civil Writ Petition No.31165 of 2023| 25-Sep-2023

• Revenue denied claim of ITC on ground that petitioner did not

provide any evidence in support of claim, nor did petitioner appear in
pursuance of show cause notice for hearing on date fixed.
• HELD : Petitioner himself have given up right to prove claim for
Input Tax Credit, so no merits found in writ petition, hence rejected.

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 Praveen Bhaskaran vs Union of India
Kerala High Court | Civil Writ Petition No.30538 of 2023| 20-Sep-2023

• Where petitioner's ITC claim was denied on ground that ITC to extent
claimed was not reflected in Form GSTR-2A, assessing officer was
required to give opportunity to assessee and if on examination of
evidence submitted by petitioner, assessing officer got satisfied about
bonafide and genuineness of claim, ITC claim was to be given,
impugned order was thus to be set aside to extent of ITC claim.

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 Diva Agencies vs State Tax Officer
Kerala High Court | Civil Writ Petition No.29769 of 2023| 12-Sep-2023

• Where petitioner's claim for input tax credit of Rs. 44,51,943.08 for
CGST and SGST was restricted to Rs. 1,04,376.05 each due to
discrepancies in GSTR 2A, however, said denial based solely on GSTR
2A discrepancies was not justified and directed revenue to provide
petitioner with an opportunity to prove genuineness of transaction
and remittance of tax to seller; Input tax credit should not be denied
without proof of collusion between assessee and seller.

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 Sri Ranganathar Valves P L vs Assistant Commissioner, Coimbatore
Writ Petition No. 4126 to 4129 of 2016
dated 04.09.2020 (Madras High Court)

• Disallowance of ITC on the ground that selling dealer from whom the
petitioner had purchased the goods had not paid tax to the
Government.
• Input Tax Credit cannot be disallowed on the ground that the seller
has not paid tax to the Government, when the purchaser is able to
prove that the seller has collected tax and issued invoices to the
purchaser.

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Conclusion

38
 Challenges for Taxpayers

• Navigating through complex tax laws and maintaining the required

level of documentation can be challenging, especially for small and
medium enterprises.

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 Documentation and Compliance

• Record-Keeping: Claimants must maintain detailed records of

transactions, including invoices, receipts, and other relevant
documents.
• Audit Trails: Regular audits and compliance checks are necessary to
ensure that the claim for input tax credit is legitimate and backed by
verifiable transactions.

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 Legal Precedents and Interpretations

• The Indian judiciary has often interpreted the burden of proof in tax
matters. Courts have consistently held that the onus is on the
taxpayer to substantiate claims with concrete evidence.
• “The burden of proof in a suit or proceeding lies on that person who
would fail if no evidence at all were given on either side.”
• Burden of proof has two distinct meanings viz.
• (i) the burden of proof as a matter of law and pleading, and
• (ii) the burden of proof as a matter of adducing evidence.

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 Conclusion

• The burden of proof in GST and indirect taxes is a critical aspect that
demands meticulous documentation and compliance from taxpayers.
It is essential to understand the legal nuances and constitutional
principles governing this area to effectively navigate the complexities
of tax laws in India.
• Taxpayers and practitioners must stay informed about legal
precedents and regulatory updates to ensure compliance and
optimize their tax positions.

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