Input Tax Credit to purchaser cannot be denied merely on the basis of an affidavit of seller unless opportunity of cross-examine is given

Punjab VAT Tribunal has held in a very important case namely Malkeet Trading Company, Jalalbad Vs State of Punjab(2011) 17 STM (JS) 153 that Input Tax Credit to purchasing dealer cannot be denied merely on the ground of an affidavit by the selling dealer to the effect that he has not made any sales to the purchasing dealer, without giving an opportunity to purchasing dealer of cross examining the deponent-selling dealer.

Facts of the case: In this case, the Excise and Taxation Officer-cum-Designated officer had issued notice to the assessee on the ground that the dealer has claimed input tax credit of Rs. 268150/- on purchase of rice made from a dealer at Ferozpur, in the returns filed for the quarter 1.1.2006 to 31.3.2006, whereas the said dealer has not shown any sales to the assessee in the returns filed for the said period. In this case the selling dealer filed an affidavit solemnly affirming therein that it has not made any sales to the appellant. However the purchasing dealer showed invoices from selling dealer and also showed the payments made through his banker to  the selling dealer. But the Designated officer did not allow the appellant to cross examine the deponent of the affidavit and denied ITC merely on the basis of the affidavit of seller.

Held: The affirmations made in affidavit can be hardly taken to be gospel truth unless tested on the touchstone of cross examination. It is apt to be born in mind that the appellant is being saddled with the liability of huge amount merely on the basis of this affidavit. It would not be in the interest of justice to sustain the orders under appeal merely on the basis of this affidavit. Had an opportunity being afforded to the appellant to cross examine the deponent of the afiidavit, the ends of justice would have been sufficiently safeguarded. The demand of tax raised on the basis of this affidavit is Rs. 856742/- which is not a paltry sum.

Justice Brennan of the United Sates Supreme Court has very aptly observed that "Nothing rankles more in the human heart than a brooding sense of injustice, illness we can put up with, but injustice makes us to pull things down. "Reverting back to the facts of the instant case, it would be doing quack justice, which is not the intention of law, if the affidavit, in question which is sheet-anchor of the case, is allowed to be relied upon, without there being any cross-examination on it. Either the assessee or the dealer is telling a lie, which could have been ascertained, if the latter had been subjected to cross-examination. The falsehood if any, on the part of the dealer could have been elicited or wrenched out during cross-examination. In the circumstance , mere denial by Jagdish Agro, Jalalabad(Seller) was self serving, which can hardly be substituted for proof as required in the realm of law as well as justice. It would be putting too much undue and uncalled for premium on the solemn affirmations, embodied in this affidavit, if allowed to be taken true and correct in the absense of cross-examination of the deponent.

Therefore without sojourning any longer on this short point, the order passed by both the authorities below are hereby set aside with a direction to the designated officer-cum-Excise and Taxation Officer, Ferozpur to allow the appellant to cross examine the properitor of Jagdish Agro, qua the said affidavit and summon the Branch Manager of State Bank of Patiala, Jalalabad along with the record showing the payments made by the appellant through of the cheques of Jagdish Agro, Jalalabad. The expenses of the said Bank Manager shall be borne by the Appellant.

Comments: All the relevant material should be considered before disallowing the ITC to purchasing dealer. The Purchase Invoices and the payments made against it to the seller and all the other relevant factors should be considered before disallowing the input tax credit. If any material or any evidence against the assessee is to be used for disallowing ITC then such material or evidence must be confronted to the assesssee dealer so as to give him an opportunity to cross examine any witness or to rebut such material or evidence, otherwise it may be treated as against the natural justice.


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