The Hon’ble Calcutta High Court in the case of Fairdeal Metals Ltd. v. Assistant Commissioner of Revenue, State Tax, Bureau of Investigation (NB) [Writ Petition Application No. 170 of 2024 dated February 01, 2024], held that the Supplier was given registration by the GST authority and if there had been any deficiency on the part of the Supplier, the registration should not to have been issued. After registration has been issued and tax has been paid by the Supplier, the allegation made against the Supplier does not stand. Further, the Petitioner was not connected with any of the allegations levelled against the Supplier. Hence, the Recipient cannot be held responsible for availing the wrong ITC on account of bogus invoices circulated by the Supplier. Therefore, the Petitioner was not liable to pay the penalty.
Facts:
Fairdeal Metals Ltd. (“the Petitioner”) procured goods from M/s Navaraj Trading Company (“the Supplier”). The Supplier was registered recently under the Central Goods and Services Tax Act, 2017 (“the CGST Act”) from October 9, 2023, in the State of Assam. The Supplier had shown the nature of occupancy over the place of business as ‘rented’ and in support of its claim rent agreement, and the trade license was supplied. No documents like electricity bill, municipal khata copy or any such document to substantiate the legal occupancy of the owner over the place of business was provided as required under the West Bengal Goods and Services Tax Act, 2017 (“the WBGST Act”)/ the CGST Act and the rules made there under.
The Show Cause Notice dated December 31, 2023 (“the Impugned SCN”) was issued to the Petitioner stating that certain discrepancies were found in FORM GSTR-3B of the Supplier for the month of October, 2023 and November, 2023. The Impugned SCN alleged that the goods that were being transported did not have coverage as per their GST registration and accordingly concluded that the purpose of the Supplier was to circulate the bogus ITC.
The Impugned SCN further alleged that the goods had suspicious origin, and the purchase was merely a ‘paper sale’ to hide the original Supplier with the intention of evading payment of tax.
In the meantime, the Supplier paid the input tax through the cash ledger on December 30, 2023. However, the Respondent issued an Order dated January 05, 2024 (“the Impugned Order”) directing the Petitioner to pay tax and penalty. Further, the Revenue Department detained the vehicle and the goods.
Aggrieved by the Impugned Order, the Petitioner filed the writ petition.
Issue:
Whether the Recipient can be held liable for circulating bogus invoices by the Supplier?
Held:
The Hon’ble Calcutta High Court in Writ Petition Application No. 170 of 2024, held as under:
- Observed that, though there was an allegation of non-existence of the Supplier leading to non-deposit of the input tax. However, the Supplier already deposited the input tax on December 30, 2023, prior to the issuance of the Impugned SCN. This act negated the allegation of intention to evade tax.
- Observed that, the Supplier was given registration by the GST authority of Assam. If there had been any deficiency on the part of the Supplier in the production of any documents, registration should not have been issued. After registration has been issued and tax has been paid by the Supplier, the allegation made against the Supplier does not stand. The Petitioner, being in no way connected with any of the allegations that have been levelled against the Supplier, cannot be made liable to pay the penalty as has been assessed.
- Directed that, the Respondent to immediately take steps to release the vehicle and the goods in favor of the Petitioner. Hence, the Impugned Order imposing penalty was set aside and quashed.
Our Comments:
This is an applaudable judgment of the Hon’ble Calcutta High Court. The Court has rightly acknowledged that once registration has been granted and taxes have been duly paid by the Supplier, any allegations levied against the Supplier lose merit.
Section 130 of the CGST Act, talks about “Confiscation of goods or conveyances and levy of penalty”. According to Section 130 (1)(iv) of the CGST Act where any person contravenes any of the provisions of this Act or the rules made thereunder with intent to evade payment of tax then, all such goods or conveyances shall be liable to confiscation and the person shall be liable to penalty under Section 122 of the CGST Act.
(Author can be reached at info@a2ztaxcorp.com)
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