The court upheld the imposition of penalties under GST laws, affirming that vague allegations do not invalidate the jurisdiction of the authorities when substantial involvement in fraud is established.

ORDER :

BHARGAV D. KARIA, J.

1. Heard learned advocate Mr. Sholab Arora with learned advocate Ms. Vidhi Katoravala for learned advocate Mr. Hiren J. Trivedi for the petitioners and learned advocate Mr. Neel Lakhani for learned advocate Mr. Pradip D. Bhate for the respondents through video conference.

2. By this petition under Article 227 of the Constitution of India, the petitioners have challenged the order-in-original dated 24.12.2024 passed by the respondent no.2 Additional Commissioner, CGST & Central Excise.

3. Brief facts of the case are that on 03.08.2024, the Proper Officer issued composite Show Cause Notices under sections 74 and 122 of the Central Goods and Services Tax Act, 2017 (For short “CST Act”) and Gujarat Goods and Services Tax Act, 2017 (For short “GST Act”) to raise a demand under section 74 against M/s. Poonam Creation whose proprietor was one Ashok Gaggar on the ground that M/s. Poonam Creation had availed fraudulent Input Tax Credit on the strength of alleged fake invoices. The Proper Officer proposed to impose a joint and several liability/penalty to the tune of Rs.4,34,16,381/- on the petitioners along with other co-noticees under sections 74 and 122 of the CST Act and GST Act.

4. In pursuance to such show cause notice, the petitioners submitted their reply on 12.12.2024.

5. The Proper Officer vide impugned order-in-original dated 24.12.2024 rejected the contentions raised by the petitioner and raised a demand of Rs.4,34,16,381/- against the petitioners along with other noticees under section 74(1) of the CST Act and GST Act and a penalty was imposed of even amount under section 122 and 127 of the CST Act and GST Act.

6. Being aggrieved by the show cause notice and the impugned order, the petitioners have preferred the present petition.

7. Learned advocate Mr. Sholab Arora for the petitioners submitted that the impugned order-in-original is without jurisdiction as the petitioners are not taxable person and therefore, provisions of section 74 could not have been invoked to issue the show cause notice against the petitioners. It was submitted that penalty levied upon the petitioners under section 122 read with section 127 of the GST Act is also not tenable as section 127 only provides for procedure for levy of penalty and no power is conferred upon the respondent no.2 to levy the penalty.

8. It was further submitted that vague allegations are made in the show cause notice against the petitioners and in absence of any further material found or analysed in the impugned order-in- original, the petitioners could not have been put at par with the taxable person M/s. Poonam Creation who availed the input tax credit in respect of inward supplies received from various fake/non existent firms/entities without inward supplies being made by the supplier firms.

9. It was submitted that in order-in-original only allegation against the petitioners is recorded in para nos. 5.2 and 5.3 to the effect that from the bank account statement of M/s Poonam Creation three consecutive deposits, total amounting to Rs.10,70,000/- before taking GST registration of M/s. Poonam Creation were done by Ashok Creation which was alleged to have been formed by the petitioners. It was pointed out that except such allegations, there is no other allegation in the entire show cause notice or the impugned order so as to consider the petitioners as a part of syndicate for obtaining the GST registration in name of M/s. Poonam Creation and of availing and passing of fake input tax credit of M/s. Poonam Creation. It was therefore, submitted that the penalty levied upon the petitioner equivalent to Rs.4,34,16,381/- at par with M/s. Poonam Creation is liable to be quashed and set aside and the respondent no.2 could not have levied the penalty upon the petitioners by invoking the provisions of section 122(1A) which was not on the statute at the relevant time when such transaction had taken place.

10. In support of his submission, reliance was placed on the decis