The Orissa High Court revoked the GST Registration Cancellation on the failure of the Department to prove the purchasing dealer deliberately availed of Input Tax Credit (ITC) knowing that the selling dealer was not in existence.
The Petitioner is carrying on the business of manufacturing and trade of Poly Vinyl Chloride (PVC) pipes, high-density polyethylene and low-density polyethylene pipes, scrap iron angles, iron scraps, etc. On 14th August 2020, the CT & GST Officer, Bhubaneswar (Opposite Party No.2) issued a show-cause notice in Form GST REG-17 under Rule 22(1) of the OGST Rules, 2017 for cancellation of Petitioner’s registration on the ground that “in case, Registration has been obtained by means of fraud, willful misstatement or suppression of facts”.
The Petitioner, who is a dealer registered under the Odisha GST Act, has filed this petition questioning the order passed by the Additional Commissioner of CT & GST (Appeal), Bhubaneswar rejecting the Petitioner’s appeal questioning the order passed by the learned Proper Officer (LPO) rejecting the Petitioner’s application for revocation of cancellation of his registration under Section 30(2) of the OGST Act.
Mr. Harichandan, the counsel for the petitioner contended that on a collective reading of Section 16 of the OGST Act with Rule 21 of the OGST Rules 2017, there is no provision that enables the cancellation of the registration of the purchasing dealer for any fraud committed by the selling dealer. Secondly, he points out that the cancellation registration of the selling dealer M/s. Pawansut Enterprises took place only on 1st October 2019 i.e., long after the dates of the purchases made by the present Petitioner from the said dealer. He, therefore, submits that on the date of purchases taking place, there was no way that the Petitioner would have known that at some future point in time, the registration of the selling dealer was going to be canceled.
Mr. Padhy, the counsel for the Department drew the attention of the Court to the reply filed to the present petition where it has been stated that when a field visit was undertaken to the address shown for the selling dealer, the premises were found to be occupied by some other person and not the selling dealer. From the said visits which were undertaken on 1st July 2019, a conclusion was drawn that the transactions entered into by the present Petitioner with the selling dealer in April and August 2018 were fake transactions.
The division bench of Chief Justice Dr. S. Muralidhar and Justice B.P. Routray held that to attribute fraud in such circumstances to the Petitioner, as a purchasing dealer, the Department would have to satisfy a high threshold of showing that the purchaser indulged in the transactions with the full knowledge that the selling dealer was non-existent. The Department would have to show that somehow the purchasing dealer and selling dealer acted in connivance to defraud the revenue. This threshold has not been made in the present case.
In other words, the court observed that the Department has failed to show that the Petitioner as a purchasing dealer deliberately availed of the ITC in respect of the transactions with an entity knowing that such an entity was not in existence.
“The impugned order of the LPO rejecting the Petitioner’s application for revocation of its cancellation of registration and the impugned appellate order dated 5th April 2021 rejecting the Petitioner’s appeal is hereby set aside. The Department is now directed to restore the Petitioner’s registration forthwith by issuing appropriate orders/directions not later than one week from today. The Petitioner will correspondingly now be permitted to file all the return which it could not file on account of the cancellation of the registration,” the court said.
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