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Supreme Court makes ITC availment more onerous for taxpayers

17 Apr 2023

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The Supreme Court, in a recent judgement, held that the burden to prove the admissibility of credit would lie on the taxpayer claiming the ITC. This is likely to increase the compliance burden on the taxpayers and provide more grounds to the tax authorities to challenge the credit availed by the taxpayers.
Partner: Samsuddha Majumder, Senior Associate: Kartikey Kulshrestha, Associate: Shreetama Ghosh

The Supreme Court, in State of Karnataka v Ecom Gill Coffee Trading Pvt. Ltd. (Ecom Gill), has held that the burden to prove the admissibility of any input tax credit (ITC) would lie on the taxpayer who is claiming such ITC. It held that tax invoices and payment details alone would not be sufficient proof and provided a list of documents/records that would need to be furnished in such cases.

This decision, while in the context of Section 70 of the erstwhile Karnataka Value Added Tax (KVAT) Act, 2003, is likely to have a significant impact on the ITC being availed by the taxpayers under the Goods and Services Tax (GST) regime, owing to its similarity to Section 155 of the Central Goods and Services Tax Act, 2017 (CGST Act).


The decision in Ecom Gill arose from a situation where the taxpayers had purchased goods from various sellers, and had availed ITC on such purchases. Subsequently, these sellers either deregistered from the KVAT Act, filed a NIL return, or did not pay the VAT applicable to these purchases to the Government.

Consequently, the admissibility of ITC availed by the taxpayers who had purchased goods from such sellers was brought into question. While the taxpayers produced tax invoices and proof of payment for the purchases in support of their claims, the adjudicating authority and the first appellate authority denied ITC on the ground that the burden of proof under Section 70 had not been discharged. However, the second appellate authority and the Karnataka High Court upheld the taxpayer’s claims and allowed the ITC. This decision of the High Court was challenged before the Supreme Court by the tax authorities.

The Supreme Court, while reversing the decision of the High Court, held that the burden to prove the admissibility of ITC lies on the taxpayers, and cannot be shifted to the tax authorities. Merely producing tax invoices and payment proofs is not sufficient to discharge this burden; satisfying such burden would require the production of additional records like: (i) names and addresses of the sellers, (ii) details of the vehicles which were used to deliver the goods to the taxpayers, (iii) proof of payment of freight charges, and (iv) acknowledgements of taking delivery of goods.

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