2023 (11) TMI 294 - HC - GST

Claiming benefit of input tax credit when compounding is filed and is accepted - initiation of proceedings under Section 74 of UP GST Act - HELD THAT - It is not in dispute that the petitioner has opted for compounding which has been accepted by the respondent authorities for a period of 1.10.2017 to 21.3.2019. The disputed purchase as shown by the petitioner from Rohit Coal Trader pertains to May 2018 to June 2018, which falls under the aforesaid period of composition. The petitioner in support of his contention has adduced evidence such as tax invoice, e-way bill, G.R., payment receipts etc. to show that the purchases have been made from the registered dealer. It is also admitted that the registration of Rohit Coal Traders has been cancelled vide order dated 24.10.2019 in other words at the time of transaction in question, the seller i.e. Rohit Coal Traders was registered firm under the G.S.T. Act - On the contrary an observation has been made that the petitioner has failed to bring on record any cogent material to show that Rohit Coal Traders has deposited the tax and therefore proceedings were held to be justified. Under the GST regime all details are available in the portal of GST department. The authorities could have very well verified as to whether after filing of GSTR-1 and GSTR 3 B how much tax has been deposited by the selling dealer i.e. Rohit Coal Traders but the authorities have failed to do so. Thus looking to the said facts, the impugned orders cannot be sustained in the eyes of law. The matter is remanded to the first appellate authority, who shall pass a fresh order in accordance with law, expeditiously, preferably within a period of two months from the date of producing a certified copy of this order, without granting any unnecessary adjournment to the parties - Petition allowed.

Summary

Issues involved:
The issues involved in the judgment are the entertainment of Writ Tax due to non-functional GST Tribunal, challenge to orders under Section 74 of the Act for the assessment period, claim of input tax credit, existence of seller during transactions, and the justification of proceedings under Section 74.

Entertainment of Writ Tax:
The High Court entertained the Writ Tax due to the non-functional GST Tribunal in the State of Uttar Pradesh as per the Gazette notification of the Central Government.

Challenge to Orders under Section 74:
The petitioner challenged orders dated 15.7.2020, 20.7.2021, and 26.10.2021 under Section 74 of the Act relating to the assessment period. The petitioner argued that once compounding was accepted, no input tax credit could be claimed. The petitioner contended that despite purchasing goods and paying taxes during the assessment period, no input tax credit was availed due to opting for composition. The orders imposed tax and penalty on the petitioner, which led to the filing of a rectification application and an appeal, both of which were rejected.

Claim of Input Tax Credit:
The petitioner claimed that the purchases were made from a registered dealer, and both the purchaser and seller had filed their returns. The petitioner argued that the seller's existence at the time of the survey should not affect the petitioner since no input tax credit was being availed due to opting for composition. The petitioner asserted that the observations regarding the seller not paying legitimate tax were unfounded, as the seller had filed the required returns.

Existence of Seller during Transactions:
The respondent contended that the purchases shown by the petitioner were from a non-existent seller, leading to the conclusion that the purchases were bogus. The respondent argued that the legitimate tax from these purchases was not deposited, justifying the proceedings initiated under Section 74.

Justification of Proceedings under Section 74:
The Court examined the evidence presented by the petitioner, including tax invoices, e-way bills, and payment receipts, to establish that the purchases were made from a registered dealer. It was noted that the seller's registration was canceled after the transactions, but at the time of the transactions, the seller was a registered firm. The Court criticized the authorities for not verifying whether the seller had deposited taxes after filing returns, as required under the GST regime. The Court concluded that the impugned orders could not be sustained in light of the available facts.

Decision:
The Court allowed the writ petition, setting aside the impugned orders and remanding the matter to the first appellate authority for a fresh order within two months. The petitioner was directed to file a certified copy of the order before the 1st appellate authority within three weeks.