The Telangana High Court held that no GST demand can be raised or issued when the investigation is still in progress.
The petitioner, M/S Deem Distributors Private is a partnership firm and is registered under the Telangana GST Act, 2017, CGST Act, 2017, and IGST Act, 2017 and is involved in the business of dealing in goods and services relating to Ferrous waste and scrap, re-melting scrap ingots of iron or steel, flat-rolled products of iron or non-alloy steel of a width of 600 mm or hot-rolled, not clad, plated or coated, etc.
The respondent authority issued a letter to the petitioner saying that the petitioner had availed input tax credit on the basis of invoices issued by certain suppliers/firms. It is stated in the said letter that the investigations conducted by the departmental officials reveal that the said suppliers/firms are fictitious and are issuing fake invoices with an intent to pass on the input tax credit, and it appears that the said credit was availed by the petitioner in a fraudulent manner without receiving any material, and the petitioner was requested to reverse the input tax credit of Rs.1,52,35,820/- availed on such invoices immediately.
No doubt summons have been issued to the Director of the petitioner firm under Section 70 of the Act to give evidence / depose statement and to produce certain purchase orders and to appear to vide summons but admittedly investigation against the petitioner is not complete and no notice under Sub-section (1) of Section 74 of the Act has been issued to it.
Petitioner contended that to buy peace with the respondent and to avoid coercion, petitioner had paid Rs.10.00 lakhs on 30.04.2019 and Rs.25.00 lakhs, and the respondents are not entitled to make such a demand.
The division bench of Justice Rama Chandra Rao and Justice T.Vinod Kumar ruled that no tax demand can be issued or raised when the investigation is still in progress. The respondents cannot be allowed to put the cart before the horse and collect any tax, interest, or penalty before they determine, in an enquiry, after putting the petitioner/assessee of notice, and their action is wholly arbitrary and without jurisdiction.
The court restrained the respondent’s authorities from coercing the petitioner to make any payment without issuing notice under Section 74(1) of the Act and following the procedure therein, and they are directed to refund Rs.35,00,000/- already paid by petitioner with interest at the rate of 7% p.a from the date of payment till date of refund within 4 weeks
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