2025 (2) TMI 504 - HC - GST

Challenge to Assessment Orders passed on the dates mentioned below pursuant to Remand Orders passed by this Court - petitioners have not been allowed to cross examine Charles and his wife Shanthi the proprietors of the suppliers involved - violation of principles of natural justice - availment of input tax credit (ITC) based on the transactions with the suppliers - HELD THAT - Though the definition of supply in Section 7 of the respective GST enactments is wide and includes not only actual supply but also supply agreed to be made in future for consideration yet to validly avail and utilize Input Tax Credit the mandate of Section 16(2)(b) of the respective GST enactments has to be satisfied by the recipient of goods or service. It has to be proved in the manner recognized under the respective GST enactments Input Tax Credit cannot be availed even if the consideration for the proposed supply of goods or service has not been paid as the case may be - As per 2nd proviso to Section 16(2) of the respective GST enactments if the recipient fails to pay the supplier the consideration within 180 days of invoice for the goods and services supplied other than supplies where tax is payable on reverse charge basis the recipient will not be entitled to claim Input Tax Credit on the payment made towards the value of Supply. A cumulative reading of Rule 138 138A and Rule 55A of respective GST Rules of 2017 makes it clear that the goods should accompany e-way Bill for movement of goods where the value of goods exceed Rupees Fifty Thousand. Only where there is exemption from obtaining E-way Bill it is sufficient that the person in-charge may carry a copy of the tax invoice or bill of supply issued as per the provisions of Rule 46 46A or 49 of the respective GST Rules of 2017 - Rule 56 in Chapter VII of the respective GST Rules of 2017 contemplates maintenance of accounts by a registered person . As per Rule 56 in Chapter VII of the respective GST Rules of 2017 every registered person has to maintain in addition to the particulars specified in Sub-Section (1) of Section 35 a true and up-to date record of goods and services imported or exported as well as supplies subject to tax under reverse charge. Although cross-examination of the said Charles and his wife Shanthi has not been allowed it is to be noted that the credit that is claimed under the provisions of the respective GST enactments can be denied if the recipient does not have requisite document that the goods were not received physically by the recipient from the supplier - It may be useful to refer to Rule 36 in Chapter V of the respective GST Rules 2017. It is intended to implement the requirements of Section 16(2) of the respective GST enactments of 2017. As per Rule 36 of the respective GST Rules 2017 a registered person as a recipient of goods or services or as an Input Service Distributor as the case may be can avail Input Tax Credit on the basis of any of the documents prescribed. Under the provisions of the respective GST enactments and the Rules made thereunder burden is on the recipient to show that the goods were indeed received. In these cases admittedly there are no documents to show that the goods had been received and accompanied e-Way bill. Without discharging the burden the credit that was granted has to be treated as provisional and has to be paid back. Conclusion - i) The burden of proof for claiming ITC lies with the petitioners and they failed to demonstrate the receipt of goods and the genuineness of transactions. ii) The absence of cross-examination was not a violation of natural justice as the statements were recorded in the presence of the petitioners. Petition dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this case were:

• Whether the petitioners were entitled to cross-examine Charles and his wife Shanthi, the proprietors of the suppliers involved, and whether the denial of such cross-examination constituted a violation of natural justice principles.
• Whether the petitioners were entitled to avail input tax credit (ITC) based on the transactions with the suppliers, given the alleged non-movement of goods and the suppliers' non-payment of taxes.
• Whether the assessment orders against the petitioners amounted to double taxation, considering the tax demands against the suppliers.
• Whether the petitioners had an alternate remedy through the appellate process under Section 107 of the Tamil Nadu Goods and Services Tax (TNGST) Act, 2017.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Cross-examination of Suppliers

• Relevant Legal Framework and Precedents: The petitioners argued that the denial of cross-examination violated principles of natural justice. The Court previously ordered cross-examination in an earlier round of litigation.
• Court's Interpretation and Reasoning: The Court noted that the statements of Charles and Shanthi were recorded in the presence of the petitioners, and thus, the lack of cross-examination was not deemed fatal to the proceedings.
• Key Evidence and Findings: The statements were obtained with the petitioners present, and the Court found no procedural impropriety in relying on these statements.
• Application of Law to Facts: The Court held that since the statements were recorded with the petitioners' knowledge, the absence of cross-examination did not constitute a breach of natural justice.
• Conclusions: The petitioners' request for cross-examination was denied, as the statements were not obtained behind their backs.

Issue 2: Entitlement to Input Tax Credit

• Relevant Legal Framework and Precedents: The Court referred to Section 16(2) of the TNGST Act, 2017, which requires the recipient to be in possession of tax invoices and to have received the goods to claim ITC.
• Court's Interpretation and Reasoning: The Court emphasized the burden of proof on the petitioners to demonstrate the actual receipt of goods and the genuineness of transactions.
• Key Evidence and Findings: The petitioners failed to provide evidence of the physical movement of goods, such as e-way bills.
• Application of Law to Facts: The Court found that the petitioners did not meet the statutory requirements for claiming ITC, as there was no proof of goods receipt.
• Conclusions: The ITC claims were denied due to the lack of documentary evidence supporting the receipt and movement of goods.

Issue 3: Double Taxation

• Relevant Legal Framework and Precedents: The petitioners argued that the tax demands on both them and the suppliers resulted in double taxation.
• Court's Interpretation and Reasoning: The Court did not find merit in the double taxation argument, as the petitioners failed to establish valid ITC claims.
• Key Evidence and Findings: The suppliers had not paid the taxes, and the petitioners could not substantiate their claims.
• Application of Law to Facts: The Court held that the petitioners' inability to prove receipt of goods negated their double taxation claim.
• Conclusions: The argument of double taxation was dismissed due to the invalidity of the ITC claims.

Issue 4: Alternate Remedy

• Relevant Legal Framework and Precedents: The respondents argued that the petitioners had an alternate remedy through the appellate process under Section 107 of the TNGST Act, 2017.
• Court's Interpretation and Reasoning: The Court acknowledged the availability of an alternate remedy and granted the petitioners liberty to pursue it.
• Key Evidence and Findings: The petitioners sought to challenge the assessment orders through writ petitions instead of the appellate process.
• Application of Law to Facts: The Court found that the petitioners should have utilized the statutory appellate remedy available to them.
• Conclusions: The Court dismissed the writ petitions but allowed the petitioners to file statutory appeals within 30 days.

3. SIGNIFICANT HOLDINGS

• The Court held that the burden of proof for claiming ITC lies with the petitioners, and they failed to demonstrate the receipt of goods and the genuineness of transactions.
• The Court ruled that the absence of cross-examination was not a violation of natural justice, as the statements were recorded in the presence of the petitioners.
• The Court dismissed the writ petitions, emphasizing the petitioners' failure to substantiate their claims with necessary documentation.
• The Court granted the petitioners liberty to challenge the assessment orders through the appellate process under Section 107 of the TNGST Act, 2017, within 30 days.