The Allahabad High Court has held that the Goods and Services Tax ( GST ) authorities are not estopped from taking action against the wrongful claim of Input Tax Credit ( ITC ) merely because the firms with which transactions were alleged to have been done were registered at the time of the alleged transactions.
M/s Rajshi Processors Raebareli, the petitioner is engaged in the manufacturing and sale of Aluminum Casting & Machinery Parts. The petitioner had filed GSTR 3B for May 2019, August 2019 and December 2019. The Deputy Commissioner, Special Investigation Branch had surveyed the place of business.
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 worth Rs. 17,25,160/- from M/s Siddhartha Trading Company and worth Rs. 29,78,025/- from M/s Satvik Enterprises 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.
The Special Investigation Branch found in the enquiry that the petitioner has knowingly claimed an excessive amount towards ITC in his GSTR-2A, based on an auto-formulated ITC and had adjusted the same in the tax payable by him.
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 ITC 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 ITC.
The Court held that ITC cannot claimed merely based on the production of documents listed in Rule 36 of GST Rules when the assesee has not received any goods. In case, it is established that the transaction was merely a paper transaction, the Court held that such an assesee would be disentitled to receive the benefit of input tax credit under Section 16(2)(b) of the GST Act.
The petitioner’s explanation was rejected based on the SIB report and it was held that tax invoices had been raised without actual supply of goods. Accordingly, the benefit of ITC was denied to the petitioner and a penalty with interest was imposed upon him.
The 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 transported.
It was 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 the GST Act and Rule 36 of the GST Rules, it was argued that the assessee only had to own tax invoices or debit notes issued by the supplier, receipt of goods and actual payment of tax to the Government for availing ITC.
A single bench of Justice Subhash Vidyarthi held that “the 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.”
While dismissing the petition, the Court held that there was sufficient material in the SIB report to support the order passed by the Adjudicating Authority imposing a penalty on the petitioner.
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