Claiming GST ITC from Non-existent Firm Without Genuine Supply comes under Purview of S. 74: Allahabad HC dismisses Petition [Read Order]

In a recent decision, the Allahabad High Court has held that claiming input tax credit ( ITC ) under the GST (Goods and Services Tax ) Act without any actual supply of goods or services especially from non-existent firms and squarely falls within the ambit of Section 74 of the Central Goods and Services Tax Act, 2017.

The Court dismissed a writ petition challenging the show cause notice issued by the Joint Director (DGGI), Zonal Unit, Meerut, and the subsequent order-in-original passed by the Additional Commissioner, CGST, Meerut.

The petitioner, M/s Reliable Trading Company is a proprietorship firm engaged in the trade of heavy metals, sought quashing of the said proceedings and also prayed for exemption from the statutory 10% pre-deposit requirement under Section 107(6)(b) of the GST Act, citing financial hardship.

The petitioner’s GST registration had been cancelled with effect from 08.02.2021 on its own request. The department initiated proceedings under Section 74 of the CGST Act, alleging that the petitioner was involved in a fraudulent scheme of creating fake firms to avail and pass on ineligible ITC without actual movement of goods.

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It was alleged that the petitioner had procured invoices from eight such non-existent firms, ostensibly routed through banking channels and supported by e-way bills and transportation documents, in a classic case of circular trading. During investigation, physical inspections revealed that the business premises of these firms did not exist, the funds transferred were immediately withdrawn or rerouted, and key transporters were untraceable. The petitioner, while denying the charges, sought cross-examination of the parties involved.

The adjudicating authority, however, rejected the petitioner’s pleas and recorded a finding of fraudulent availment of ITC based on non-genuine transactions.

The petitioner challenged the findings, arguing that invocation of Section 74 was unjustified and that there was no fraud or suppression as the documents were available with the authorities.

The Chief justice bench, however, upheld the department's action and observed that fraudulent availment of ITC, particularly through fictitious firms and without actual receipt of goods clearly attracts Section 74 of the Act, which deals with cases involving fraud, wilful misstatement, or suppression of facts.

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Chief Justice Arun Bhansali and Justice Kshitij Shailendra relied on the Supreme Court’s ruling in State of Karnataka vs. Ecom Gill Coffee Trading Pvt. Ltd. and the Allahabad High Court’s decision in Shiv Trading vs. State of U.P., where it was held that mere production of invoices and payments through banking channels does not suffice to establish actual supply.

The bench concluded that “In view of the above fact situation, we do not find any reason to entertain the present writ petition bypassing the availability of alternative remedy. The alternative prayer made for exempting the mandatory deposit, cannot be countenanced, which prayer is contrary to the statute.”

Accordingly the petition was dismissed directing the petitioner to take alternate remedy.

To Read the full text of the Order CLICK HERE

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