2024 (5) TMI 976 - HC - GST

Levy of tax and penalty on the petitioner on the ground that he had been paid using the false input tax credit - fraudulent claim of ITC - HELD THAT - Section 16 of the GST Act provides the eligibility conditions for taking input tax credit and Sub Section 2(b) provides that no registered person shall be entitled to the credit of any input tax in respect of any supply of goods unless he has received the goods. Undisputedly, the petitioner had fulfilled the requirements and, therefore, the input tax credit was claimed and was granted to him. However, when an enquiry was conducted by the Special Investigation Branch subsequently, it came to light that the firms from which the petitioner claimed to have received inward supplies, were non-existent and bogus. Neither the firms were found on the addresses, claimed by them, nor was any godown or other premises of those firms could found. It appears that the firms were existing on paper only - Merely because the firm was registered on the date of transaction, it cannot be said that the department is bound to give I.T.C. benefit to the petitioner, even though it has been revealed later on the firm was non-existent and it could not have made any actual supplies. It is settled law that fraud vitiates even the most solemn proceedings and the mere fact that the I.T.C. benefit had earlier been granted to the petitioner merely because the firms were registered, would not create any estoppel against the authority taking appropriate action for claiming refund of the benefit wrongly availed by the petitioner on the ground of receiving inward supplies from non-existent firms. There appears no illegality in the impugned orders - Petition dismissed.

Summary

Issues Involved:
1. Validity of the order dated 16.07.2021 by the Deputy Commissioner, Commercial Tax.
2. Validity of the order dated 10.04.2024 by the Additional Commissioner (Appeal)-Ist, State Tax.
3. Legitimacy of the petitioner's Input Tax Credit (ITC) claims.
4. Compliance with Section 16(2) of the GST Act, 2017.
5. Application of Rule 36 of GST Rules, 2017.
6. Relevance of the Delhi High Court's decision in On Quest Merchandising India Pvt. Ltd. Vs. Government of NCT of Delhi & Others.
7. Allegations of fraudulent ITC claims based on non-existent firms.
8. Concept of fraud and its impact on legal proceedings.

Detailed Analysis:

1. Validity of the order dated 16.07.2021 by the Deputy Commissioner, Commercial Tax:
The petitioner challenged the order dated 16.07.2021, which imposed tax liability and penalty on the grounds of false input tax credit (ITC) claims. The Deputy Commissioner found that the petitioner fraudulently claimed ITC based on invoices from non-existent firms, namely M/s Ridhi Sidhi Enterprises, M/s Siddhartha Trading Company, and M/s Satvik Enterprises, without any actual supply of goods.

2. Validity of the order dated 10.04.2024 by the Additional Commissioner (Appeal)-Ist, State Tax:
The petitioner also challenged the appellate order dated 10.04.2024, which dismissed the appeal against the Deputy Commissioner's order. The appellate authority upheld the findings of the adjudicating authority, noting discrepancies in the transport documents and the non-existence of the supplier firms.

3. Legitimacy of the petitioner's Input Tax Credit (ITC) claims:
The petitioner argued that the ITC claims were legitimate as they possessed valid tax invoices, goods receipts, and e-way bills. However, the adjudicating authority and the appellate authority found that the supplier firms were non-existent and the transactions were merely on paper, thus invalidating the ITC claims.

4. Compliance with Section 16(2) of the GST Act, 2017:
The petitioner contended that they fulfilled the conditions under Section 16(2) of the GST Act, 2017, which requires possession of a tax invoice, receipt of goods, and actual payment of tax. The court noted that actual receipt of goods is a crucial condition, and mere possession of documents is insufficient if the goods were not genuinely received.

5. Application of Rule 36 of GST Rules, 2017:
The petitioner claimed compliance with Rule 36 of GST Rules, 2017, which outlines the documentary requirements for claiming ITC. The court found that the petitioner failed to meet these requirements as the transport documents were found to be invalid and the supplier firms non-existent.

6. Relevance of the Delhi High Court's decision in On Quest Merchandising India Pvt. Ltd. Vs. Government of NCT of Delhi & Others:
The petitioner relied on the Delhi High Court's decision, which held that bona fide purchasing dealers should not be penalized for the selling dealer's failure to deposit tax. The court distinguished this case, noting that the petitioner knowingly claimed ITC from non-existent firms, unlike the bona fide dealers in the Delhi High Court case.

7. Allegations of fraudulent ITC claims based on non-existent firms:
The court upheld the findings of the Special Investigation Branch, which revealed that the petitioner claimed ITC based on fictitious transactions with non-existent firms. The discrepancies in transport documents and invalid GSTIN further supported the allegations of fraud.

8. Concept of fraud and its impact on legal proceedings:
The court emphasized that fraud vitiates even the most solemn proceedings. The fraudulent ITC claims by the petitioner justified the recovery of the wrongly availed benefit and the imposition of penalties and interest.

Conclusion:
The court dismissed the writ petition, finding no illegality in the impugned orders. The petitioner failed to establish the legitimacy of their ITC claims, and the evidence supported the authorities' findings of fraudulent transactions with non-existent firms. The petitioner's reliance on the Delhi High Court's decision was misplaced, as the facts of the present case involved deliberate fraud.