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IN THE HIGH COURT OF ALLAHABAD
SUBHASH VIDYARTHI, J.
M/S Rajshi Processors Raebareli Thru. Its Partner Ashok Kumar Lakhotia – Appellant
Versus
State Of Uttar Pradesh Thru. Prin. Secy. Deptt. Of State Tax,Lko. And 2 Others – Respondents
Writ Tax No. 128 of 2024
Decided on : 14-05-2024
GST - Input Tax Credit - Section 16(2), Rule 36 of GST Act, 2017 - The court discussed the eligibility conditions for claiming input tax credit under Section 16(2) of the GST Act, emphasizing that a registered person must have actually received the goods to claim such credit. The court interpreted that mere possession of documents is insufficient if the underlying transaction is fraudulent. The findings of the Special Investigation Branch revealed that the petitioner claimed input tax credit based on non-existent firms, leading to the conclusion that the petitioner was not entitled to the claimed credit, thus influencing the court's decision to uphold the penalties imposed.
Fact of the Case:
The petitioner, engaged in manufacturing aluminum parts, claimed input tax credit (ITC) based on invoices from three firms later found to be non-existent. Following a survey by the Special Investigation Branch, it was determined that the petitioner fraudulently claimed ITC without actual supply of goods.
Finding of the Court:
The court found that the petitioner failed to substantiate the actual receipt of goods from the alleged suppliers, which were determined to be bogus. The court upheld the decisions of the adjudicating and appellate authorities, confirming the imposition of tax liability and penalties.
Issues: Whether the petitioner was entitled to input tax credit despite the subsequent cancellation of the suppliers' GST registrations and the findings that the suppliers were non-existent.
Ratio Decidendi: The court held that the eligibility for input tax credit under Section 16(2) requires actual receipt of goods. The existence of a valid GST registration at the time of transaction does not guarantee entitlement to ITC if the supplier is later found to be non-existent. Fraudulent claims negate the right to credit.
Final Decision: The writ petition was dismissed, affirming the orders of the adjudicating and appellate authorities regarding the denial of input tax credit and the imposition of penalties.
JUDGMENT :
Subhash Vidyarthi, J.
1. Heard Sri Pranjal Shukla, learned counsel for the petitioner and Sri Vikram Soni, learned Additional Chief Standing Counsel.
2. By means of the instant petition filed under Article 226 of the Constitution of India, the petitioner has prayed for quashing of the order dated 16.07.2021 passed by the Deputy Commissioner, Commercial Tax, Division-1, Raebareli, Lucknow (B), whereby the tax liability and penalty has been imposed on the petitioner on the ground that he had been paid false input tax credit. The petitioner has also challenged the validity of an order dated 10.04.2024 passed by Additional Commissioner. Grade-2 (Appeal)-Ist, State Tax, Lucknow, whereby the Appeal bearing number GST 37/2021, filed by the petitioner, against the aforesaid order dated 16.07.2021, has been dismissed.
3. Briefly stated, the facts of the case are that the petitioner is engaged in manufacturing and sale of Aluminum Casting & Machinery Parts. The petitioner had filed GSTR 3B for the month of May, 2019, August, 2019 and December, 2019. The Deputy Commissioner, Special Investigation Branch, Commercial Tax, Lucknow had conducted a survey of the place of business on 25.02.2020. During survey it was found that the petitioner claimed to have received inward supplies worth Rs.16,39,200/-from M/s Ridhi Sidhi Enterprises (GSTIN09FDTPD8965GIZQ), worth Rs. 17,25,160/-from M/s Siddhartha Trading Company (GSTIN-09HUCPK4270HIZF) and worth Rs. 29,78,025/-from M/s Satvik Enterprises (GSTIN-09GSRPK8763FIZV) and claimed Rs.2,95,056/-, Rs.2,63,160/-and Rs. 4,54,275/-respectively towards I.T.C. Claim for inward supplies received from the aforesaid firms. When the survey of the aforesaid three firms was conducted by the Special Investigation Branch, Agra, it came to the light that all the aforesaid three firms were non-existent and bogus firms. Besides the place of business declared by the aforesaid three firms, no other godown or Branch was found to be in existence. The petitioner had fraudulently claimed I.T.C. benefit of Rs.10,12,491/-without any actual supply of goods, on the basis of the fake invoice issued by the aforesaid three non-existence bogus firms. The Special Investigation Branch found in the enquiry that the petitioner has knowingly claimed excessive amount towards I.T.C. in his GSTR-2A, on the basis of an auto formulated I.T.C. and had adjusted the same in the tax payable by him. Thus, the petitioner claimed a total of Rs. 15,93,491/- I.T.C. in violation of the provisions of law.
4. The adjudicating authority had issued a notice under Section 74 on 03.08.2021. The petitioner submitted his explanation alongwith the evidence, stating that it had received inward supplies worth Rs.16,39,200/-from M/s Ridhi Sidhi Enterprises, Rs. 17,25,160/-from M/s Siddhartha Trading Company and Rs. 29,78,025/-from M/s Satvik Enterprises and had claimed I.T.C. claim of Rs.2,95,056/-, Rs.2,63,160/-and Rs.4,54,275/-respectively regarding the goods received from the aforesaid three firms. In support of its claim of actual receipt of inward supplies, the petitioner had submitted invoices, copies of GR (goods receipts), e-way bill, laser and bank statements of the firms, evidence of transaction of amounts through RTGS and evidence of physical receipts of goods. The inward supplies received by the petitioner have been entered in the stock register.
5. The adjudicating authority did not accept the explanation of the petitioner because the Special Investigation Branch, Agra had found the aforesaid three firms, namely, M/s Ridhi Sidhi Enterprises, M/s Siddhartha Trading Company and M/s Satvik Enterprises to be nonexistent and bogus and that the tax invoices had been issued without any actual supply of goods upon which the petitioner had fraudulently taken benefit of I.T.C. The adjudicating authority declined the benefit of I.T.C. to the petitioner and imposed penalty on the petitioner and fixed the liability of interest also.
6. The petitioner filed an
A registered person is not entitled to input tax credit if the claimed supplies are from non-existent firms, regardless of the validity of the supplier's GST registration at the time of transaction.
Input tax credit under the GST Act requires actual receipt of goods; mere documentation is insufficient if the underlying transactions are fraudulent.
Input tax credit claims require proof of actual tax payment by the supplier; failure to demonstrate this results in denial of credit.
Dealers claiming input tax credit must establish genuine transactions and physical movement of goods with adequate proof; failure to do so may result in disallowance and recovery proceedings under th....
The taxpayer must substantiate claims for input tax credit with adequate proof of genuine transactions; failure to do so justifies the cancellation of GST registration.
Tax authorities must provide substantial evidence of fraud or suppression of facts before imposing penalties under Sections 74 and 50, especially when input tax credit has already been reversed volun....
The burden of proof lies with the dealer to establish the genuineness of transactions and actual movement of goods for Input Tax Credit claims under GST.
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