2022 (7) TMI 914 - HC - GST

Validity of show cause notice (SCN) - blocking credit ledger Availment of ineligible credit of input tax - fake invoices - bill trading/circular trading without physical movement of goods - mismatch of input tax credit - initiation of proceedings u/s 73(1) of the JGST Act and straightaway issuance of SCN, without issuing DRC-01A under Section 73(5) of the Act - HELD THAT - The respondent No.4 had admitted that upon re-verification, it was found that e-way bills and computer generated measurement slip are true and genuine documents and the petitioner in the past has duly discharged its liability towards any mismatch in ITC. It is relevant to mention here that the said M/s. Jai Jawan Kastha Bhandar and M/s. Priti Enterprises with whom it was alleged that the petitioner was having transactions had filed writ application before this Court in M/S JAI JAWAN KASTHA BHANDAR, M/S PRITI ENTERPRISES, M/S NISHA ENTERPRISES, M/S MAHAVEER STEEL INDUSTRIES VERSUS THE STATE OF JHARKHAND. 2022 (7) TMI 814 - JHARKHAND HIGH COURT for the respective two assessment years and those writ applications were partly allowed by this court and the respective impugned show cause notices, the adjudication orders and the summary of the order/demand notices in DRC-07 in the case of those petitioners were set aside and the matter was remitted back to the concerned authority/adjudicating officer to proceed with the matter in accordance with law vide order dated 21.06.2021. When the respondent-Department has duly accepted all the contentions of the petitioner and found the e-way bills and computer generated measurement slip to be correct and genuine documents and the sole reason for initiating the proceedings against this petitioner and passing of the impugned adjudication orders was due to his transaction with M/s Jai Jawan Kastha Bhandar and M/s. Priti Enterprises and when the cases of those assesses have been remanded to the adjudicating authority to pass fresh order in accordance with law; interest of justice demands that the case of this petitioner should also be remitted back to the adjudicating authority, inasmuch as, the sole cause of action does not survives. The application issued under section 73(1) and Rule 142(1) of the Jharkhand Goods and Services Taxes, (JGST) Act and also the adjudication orders issued under section 73(9) of the JGST Act and DRC-07 are hereby quashed and set-aside - application disposed off.

Issues Involved:
1. Quashing and setting aside show cause notices and adjudication orders under the JGST Act.
2. Unblocking of the credit ledger.
3. Allegations of availing ineligible credit of input tax under fake invoices.
4. Violation of Principles of Natural Justice.
5. Proceedings under Section 73(1) of the JGST Act.
6. Relevance of previous judgments and their implications on the current case.

Issue-Wise Detailed Analysis:

1. Quashing and Setting Aside Show Cause Notices and Adjudication Orders:
The petitioner sought to quash the show cause notices dated 23.07.2020 and the adjudication orders dated 19.10.2020, issued under sections 73(1) and 73(9) of the Jharkhand Goods and Services Taxes (JGST) Act. The petitioner argued that the proceedings were initiated without issuing DRC-01A under Section 73(5) of the Act. The court noted that the respondent department had accepted the petitioner's contentions and verified the documents, but still proceeded against the petitioner due to transactions with M/s Jai Jawan Kastha Bhandar and M/s Priti Enterprises, which were under scrutiny for fraudulent ITC claims. The court found this approach unjustified and quashed the notices and orders, remanding the case for fresh adjudication.

2. Unblocking of the Credit Ledger:
The petitioner also sought the unblocking of the credit ledger, which had been blocked on 17.02.2020 and 18.02.2020. During the pendency of the applications, the credit ledger was unblocked, although the amount had been realized. The court acknowledged this development and did not delve further into this issue.

3. Allegations of Availing Ineligible Credit of Input Tax Under Fake Invoices:
The petitioner was accused of availing ineligible input tax credit (ITC) under fake invoices by engaging in bill trading/circular trading without the physical movement of goods. The court noted that the respondent department had conducted an inspection and blocked the petitioner's credit ledger based on an intelligence note. However, the petitioner provided documentary proof that the transactions were genuine, which the respondent department verified and found to be true. Despite this, the proceedings continued due to the petitioner's transactions with companies under investigation for fraudulent ITC claims.

4. Violation of Principles of Natural Justice:
The petitioner argued that the proceedings violated the Principles of Natural Justice as no inspection report or documents relied upon were provided, and no opportunity to cross-examine witnesses was given. The court agreed, emphasizing that the law requires parties to serve documents relied upon in proceedings. The court referenced the Supreme Court decision in Ayaaubkhan Noorkhan Pathan vs. State of Maharashtra & Ors., which mandates that documents obtained during inspections must be provided to the assessee to enable a proper defense.

5. Proceedings Under Section 73(1) of the JGST Act:
The court highlighted that the respondent department had initially dropped proceedings under Section 74(1) of the JGST Act but later initiated proceedings under Section 73(1) without issuing DRC-01A. The court found this approach procedurally flawed and emphasized the need for adherence to statutory requirements.

6. Relevance of Previous Judgments and Their Implications on the Current Case:
The court referred to previous judgments, including the case of M/s Tarapore Company, Jamshedpur vs. State of Jharkhand, where punitive action against a bona fide dealer was deemed unwarranted. The court also noted that the cases against M/s Jai Jawan Kastha Bhandar and M/s Priti Enterprises had been remitted for fresh adjudication, and thus, the proceedings against the petitioner should also be remitted.

Conclusion:
The court quashed the show cause notices and adjudication orders, directing the respondent department to proceed afresh from the stage of the show cause notice, ensuring adherence to the Principles of Natural Justice and considering the ratio of relevant judgments. The writ applications were disposed of with these directions.

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