S.16 GST | Authorities Not Estopped From Taking Action Against Wrongful Claim Of ITC Based On Non-Existent Firms: Allahabad High Court
The Allahabad High Court has held that the authorities are not estopped from taking action against wrongful claim of input tax credit merely because the firms with which transactions were alleged to have been done were registered at the time of the alleged transactions.Observing that fraud vitiates even the most solemn proceedings, Justice Subhash Vidyarthi, held that “mere fact that...
The Allahabad High Court has held that the authorities are not estopped from taking action against wrongful claim of input tax credit merely because the firms with which transactions were alleged to have been done were registered at the time of the alleged transactions.
Observing that fraud vitiates even the most solemn proceedings, Justice Subhash Vidyarthi, held that “mere fact that the I.T.C. benefit had earlier been granted to the petitioner merely because the firms were registered, would not create any estoppel against the authority taking appropriate action for claiming refund of the benefit wrongly availed by the petitioner on the ground of receiving inward supplies from non-existent firms.”
Section 16 of the Goods and Service Tax Act provides conditions under which input tax credit can be claimed by an assesee. Section 16(2)(b) provides that no person is entitled to input tax credit unless he has received the goods or services or both. Rule 36 of Goods and Service Tax Rules enlists the documents and further conditions for claiming input tax credit.
"Received the goods means the person claiming input tax credit must have actually received the goods,” held the Court.
The Court held that input tax credit cannot be claimed merely based on production of documents listed in Rule 36 of GST Rules when the assesee has not actually received any goods. In case, it is established that the transaction was merely a paper transaction, the Court held that such assesee would be disentitled to receive benefit of input tax credit under Section 16(2)(b) of the GST Act.
Factual Background
Petitioner filed GSTR 3B for the month of May, 2019, August, 2019 and December, 2019. On 25.02.2020, a survey was conducted by the Deputy Commissioner, Special Investigation Branch, Commercial Tax, Lucknow on petitioner's business premises where it was found that the petitioner claimed to have received certain inward supplies on which it had claimed input tax credit.
Later, upon survey of the firms from which ITC is said to have been claimed were found to be non-existent and bogus. Accordingly, it was observed by the Special Investigation Branch that petitioner had claimed a total of Rs. 15,93,491/- ITC in violation of law based on fake invoices.
In proceedings under Section 74 of the Act, the petitioner submitted invoices, copies of GR (goods receipts), e-way bill, ledger and bank statements of the firms, evidence of transaction of amounts through RTGS, evidence of physical receipts of goods and stock register where inward supplies received by the petitioner were recorded.
Petitioner's explanation was rejected based on SIB report and it was held that tax invoices had been raised without actual supply of goods. Accordingly, benefit of ITC was denied to the petitioner and penalty with interest was imposed upon him.
Appeal filed by the petitioner was also rejected holding that the assesee had adjusted in the bilties produced. It was observed that the firms with which transactions were alleged were bogus and no goods were actually transported.
Counsel for petitioner submitted that the firms in question had valid GSTIN registration when the transaction had taken place, and the petitioner was not aware if their registrations were subsequently cancelled. Placing reliance on Section 16 of GST Act and Rule 36 of GST Rules, it was argued that assesee only had to be in possession of tax invoices or debit note issued by the supplier, receipt of goods and actual payment of tax to the Government for availing ITC.
High Court Verdict
The Court observed that petitioner was granted ITC based on fulfillment of requirements under Section 16. The Court held that after the inquiry the firms were later found to be non-existent, bogus and merely existing on paper.
The Court held that since the registration was obtained, by the firms in questions, in the name of non-existent firms, supply could not have been made to such firms.
“Merely because the firm was registered on the date of transaction, it cannot be said that the department is bound to give I.T.C. benefit to the petitioner, even though it has been revealed later on the firm was non-existent and it could not have made any actual supplies.”
The Court held that inward supplies received from non-existent firms to claim benefit of input tax credit amounts to fraud against the department and public exchequer.
The Court held that there was sufficient material in the SIB report to support the order passed by the Adjudicating Authority imposing penalty on the petitioner. Accordingly, the writ petition was dismissed.
Case Title: M/S Rajshi Processors Raebareli Thru. Its Partner Ashok Kumar Lakhotia v. State Of U.P. Thru. Prin. Secy. Deptt. Of State Tax,Lko. And 2 Others 2024 LiveLaw (AB) 320 [WRIT TAX No. - 128 of 2024]
Citation: 2024 LiveLaw (AB) 320