Tax Invoice, E-Way Bill, GR Or Payment Details Not Sufficient To Prove Physical Movement Of Goods: Allahabad High Court Upholds Penalty U/S 74 GST

Section 16 of the Goods and Service Tax Act, 2017 provides for the conditions and eligibility for claiming input tax credit. Section 16(2) provides that an assesee is not entitled any input tax credit unless he possesses tax invoices or debit note issued by supplier and any other tax paying documents as may be prescribed.

Section 74 of the GST Act empowers the proper officer to determine tax and penalty where tax is not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by an assesee by fraud or any willful misstatement or suppression of facts.

Factual Background

Petitioner is engaged in the business of reselling and purchase of Peanut, Galla and Paddy. Petitioner was issued notice under Section 74 of the GST Act for wrongful availment of input tax credit for the month of June, July, August and September, 2020-21. Subsequently, an order was passed rejecting petitioner's reply and imposing a tax liability of Rs.20,31,775/- and penalty of equal amount.

Challenging the order, counsel for petitioner argued that goods were purchased through proper invoices and the payments were made through banking channel by the petitioner. It was argued that merely because the selling dealer had failed to show the purchases, penalty cannot be imposed on the petitioner.

It was argued that intention of bringing GST was to prevent cascading effect of taxes, therefore, once tax had been paid against the invoices, petitioner could not be denied ITC. Further, it was argued that recovering the amount of ITC claimed by the petitioner would amount to double taxation.

Counsel for respondent- department argued that the input tax credit was claimed based on forged invoices. It was argued that ITC could not be claimed without actual movement of goods. It was argued that the burden to prove the genuineness of the transaction was on the petitioner which it had failed to discharge.

High Court Verdict

Justice Piyush Agrawal observed that the petitioner had only brought on record “the tax invoices, e-way bills, and payment through banking channel, but no such details such as payment of freight charges, acknowledgement of taking delivery of goods, toll receipts and payment thereof has been provided.”

The Court observed that the petitioner had not brought on record any proof of filing of GSTR 2A. It was held that the petitioner had failed to prove the actual physical movement of the goods, and the genuineness of the transaction could not be established.

The Court relied on the decision of the Supreme Court in State of Karnataka Vs. M/s Ecom Gill Coffee Trading Private Limited where it had been held that for proving the genuineness of the transaction for claiming Input Tax Credit, the assesee ought to prove its claim beyond doubt by furnishing the details of the “selling dealer, vehicle number, payment of freight charges, acknowledgement of taking delivery of goods, tax invoices and payment particulars etc” which would prove the actual physical movement of the goods.

Holding that the petitioner had failed to prove the genuineness of the transaction without doubt, the Court dismissed the writ petition.

Case Title: M/S Anil Rice Mill v. State Of U.P. And 2 Others [WRIT TAX No. - 886 of 2023]