Bonafide Purchaser Not Liable for Seller's GST Irregularities, Purchaser's Responsibility Limited to Prove Genuineness of Transaction: Andhra Pradesh HC [Read Order]

The High Court of Andhra Pradesh has clarified that a bonafide purchaser cannot be held liable for the Goods and Services Tax (GST) irregularities of the seller. The court clarified that the responsibility of the purchaser is limited to proving the genuineness of the transaction and ensuring compliance with the GST Act.

The decision came in response to the writ petitions filed by M/s. Arhaan Ferrous and Non-Ferrous Solutions Pvt. Ltd. and T. Srinivasulu, challenging the detention and proposed confiscation of their goods and vehicles by the tax authorities.

The case revolved around a transportation and transaction involving the petitioners and M/s. K S Enterprises, the 4^th respondent. The 1^st petitioner, M/s. Arhaan Ferrous and Non-Ferrous Solutions Pvt. Ltd., purchased iron scrap from the 4^th respondent and subsequently sold it to M/s. Radha Smelters Private Limited. The 1^st petitioner engaged the vehicles of the 2^nd petitioner, T. Srinivasulu, for the transportation of the goods from Vijayawada to Sankarampet, Telangana.

The GST authorities detained the goods and vehicles in transit, alleging that the 4^th respondent had no place of business in Vijayawada, leading to suspicions about the legitimacy of the transaction.

The petitioners, represented by V. Siddharth Reddy, contended that they had acted as bonafide purchasers, relying on the GST registration of the 4^th respondent, which appeared valid on the GST official web portal.

The petitioners argued that they had purchased the goods in good faith and had no knowledge of any irregularities on the part of the 4^th respondent. The petitioners further claimed that all relevant documents, including invoices and e-way bills are valid and correct and were duly accompanied with the goods during transportation.

The respondent revenue argued that the 4^th respondent’s GST registration was obtained through fabricated documents and their business premises were found to be non-existent.

The revenue, based on these suspicions, had initiated proceedings against the 4^th respondent under Section 130 of the Andhra Pradesh Goods and Services Tax (APGST) Act, 2017, proposing the confiscation of the goods and conveyance.

The division bench comprising Justice U. Durga Prasad Rao and Justice Venkata Jyothirmai Pratapa clarified that a bonafide purchaser like the 1^st petitioner cannot be held responsible for the irregularities of the seller, the 4^th respondent. The purchaser’s responsibility is confined to proving the genuineness of the transaction, including providing evidence of the GST registration, mode of payment and authenticity of the documents.

The court directed the authorities to initiate proceedings under Section 129 of the GST Act against the petitioners, giving them an opportunity to present their case. These proceedings should focus on the bonafide of the petitioners and their compliance with the law, the bench directed.

Pending the initiation and conclusion of proceedings under Section 129, the court ordered the immediate release of the detained goods to the 1^st petitioner upon depositing 25% of their value and executing a personal bond for the balance. The vehicles were also to be released to the 2^nd petitioner upon the execution of personal security bonds for their determined value.

The bench highlighted the principle that a bona fide purchaser should not be penalised for the actions of the seller, provided the purchaser can demonstrate the legitimacy of their transaction.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates