2014 (5) TMI 573 - HC - VAT and Sales Tax

Claim of input tax credit/set-off Hawala transactions Publication prior to F.I.R. - Initiation of proceedings u/s 73 of the MVAT Act, 2002 - The Assessee was confronted with 13 purchase invoices and stated that these bills were given to him by agents in the market and were accounted in the purchase register for the claim of input tax credit - Held that - Judgment in M/s. Mahalaxmi Cotton Ginning Pressing and Oil Industries, Kolhapur. Versus The State of Maharashtra & Ors. 2012 (5) TMI 152 - BOMBAY HIGH COURT followed At least seven of the 34 vendors whose invoices were relied upon by the Asseesse to claim input tax credit were bogus entities - There were no deliveries of goods or actual sales and bogus invoices were raised to get input tax credit - The publication by the State on the web-site falls within the enabling provisions of Section 73(1) - Electronic filing by the Department was put into place to promote greater transparency in and efficient handling of claims for input tax credit. This Court had recorded a statement of AG in Mahalaxmi Cotton (supra) where it was made clear that envisaged modalities were not to apply to transactions by dealers where the certificate/invoice is not genuine (including hawala transactions), no set-off should be granted to the dealer claiming to be a purchaser - The assessee cannot possibly assert that its assessment in accordance with law must be deferred until an assessment is carried out in the first instance against hawala dealers - The assessee has no case whatsoever to make such an assertion - The State is justified in taking necessary steps to complete the assessment in accordance with law The court is satisfied from the disclosures made by the Government in the affidavits that steps are being taken by the State for pursuing the remedies lawfully open even against the hawala dealers - A web of complex transactions has been put into place to defraud the revenue and in the course of this judgement, it is not intended to circumscribe in any manner whatsoever the full range of powers vested in the State Government through its Department for ensuring that due steps are taken to curb or as the case may be deal with hawala transactions which pose a serious threat to the revenue of the State - No merit found - The petition is dismissed Decided against Assessee.

Summary

Issues:
1. Claim of input tax credit/set-off based on fictitious vendors.
2. Allegation of obtaining false bills from hawala dealers resulting in revenue loss.
3. Legality of publishing petitioner's name on the website prior to filing of F.I.R.
4. Duty of Revenue to pursue hawala dealers before taking action against petitioner.
5. Authority of State Government to publish information under Section 73 of MVAT Act.
6. Assessment proceedings in accordance with law.
7. Investigation into hawala operations and recovery of tax from defaulters.

Analysis:

1. The petitioner, a registered dealer, claimed input tax credit/set-off on purchases from vendors suspected to be fictitious. The investigation revealed bogus invoices issued without actual goods delivery, leading to a loss of revenue. The Director admitted lack of knowledge about vendors and absence of supporting documents, indicating a potential tax credit fraud scheme.

2. The Sales Tax Department filed a complaint against the petitioner for obtaining false bills from hawala dealers, causing substantial revenue loss. The petitioner's name was listed on the website as a beneficiary of hawala transactions. The dispute arose regarding the timing of listing before the F.I.R. and the State's duty to pursue hawala dealers before taking action against the petitioner.

3. The legality of publishing the petitioner's name on the website before filing the F.I.R. was contested. The State argued that the action was necessary in the public interest under Section 73 of the MVAT Act. The publication was deemed a cautionary measure, not stigmatizing, to alert genuine dealers and prevent revenue fraud.

4. The Revenue was urged to prioritize action against hawala dealers before assessing the petitioner. However, the State contended that assessment proceedings against the petitioner should proceed independently, citing the fraudulent nature of transactions and the need to safeguard revenue.

5. Section 73 of the MVAT Act empowers the State Government to publish information in the public interest. The State's publication on the website regarding hawala transactions involving the petitioner was deemed lawful and a preventive measure to curb fraudulent practices.

6. The assessment of the petitioner must adhere to legal procedures, ensuring all relevant facts are considered. The Court clarified that its observations did not conclude the assessment proceedings, emphasizing the need for a thorough and lawful assessment.

7. The State conducted investigations into hawala operations, revealing a significant revenue loss due to fraudulent practices. The Court acknowledged the State's efforts to recover tax from defaulters and prevent revenue fraud, emphasizing the importance of upholding the law to combat such activities.

In conclusion, the petition was dismissed, affirming the State's actions against fraudulent practices and the necessity of lawful assessment proceedings to safeguard revenue and combat hawala transactions effectively.