2025 (4) TMI 1157 - HC - GST

Challenge to order passed u/s 74(9) of the Bihar Goods and Services Tax (BGST) Act 2017 read with Section 20 of the Integrated Goods and Services Tax (IGST) Act 2017 - availing input tax credit (ITC) on invoices from non-existent suppliers - HELD THAT - This Court has iota of doubt that the Assessing authority while passing the impugned order Annexure-P/10 has not considered in right perspective the materials which were brought on the record. In this regard the petitioner has drawn the attention of this Court towards Annexure-P/6 together with the enclosures which were filed before the State authority to make him appreciate that the invoices which are subject matter of the proceeding before him were earlier the subject matters of the proceeding before the respondent no.5. Be that as it may this Court is convinced that impugned order contained in Annexure-P/10 cannot sustain as it has been passed without consideration of the materials available on the record. Conclusion - The impugned order contained in Annexure-P/10 cannot sustain as it has been passed without consideration of the materials available on the record. Application disposed off.

Summary

The core legal questions considered by the Court in this matter are:

(a) Whether the order passed under Section 74(9) of the Bihar Goods and Services Tax (BGST) Act, 2017 read with Section 20 of the Integrated Goods and Services Tax (IGST) Act, 2017, imposing tax, interest, and penalty on the petitioner for allegedly availing input tax credit (ITC) on invoices from non-existent suppliers, is sustainable.

(b) Whether the Assessing Officer properly considered the fact that the petitioner had already reversed ITC, along with interest and penalty, under protest in a prior proceeding before the Director General of Goods and Services Tax Intelligence (DGGI), Gurugram, and that the said proceeding had been dropped after such deposit.

(c) Whether the impugned order amounts to double taxation on the same transactions.

(d) Whether the petitioner's claim that the suppliers were not non-existent but had filed returns and their tax deposits were reflected in the petitioner's GSTR-2A was adequately considered by the Assessing Officer.

(e) Whether the demand raised under Section 74 of the BGST Act, 2017, is justified and whether the petitioner is entitled to interim protection against attachment of bank accounts.

Issue-wise Detailed Analysis:

1. Validity of the Order under Section 74(9) of BGST Act imposing tax, interest, and penalty on alleged wrongful ITC claim:

The legal framework involves Section 74 of the BGST Act, 2017, which deals with the determination of tax not paid or short paid or ITC wrongly availed or utilized. The IGST Act, 2017, Section 20, also governs the levy of Integrated GST on inter-state supplies.

Precedents on the interpretation of wrongful ITC claims emphasize the necessity of examining whether the suppliers were indeed non-existent or whether the ITC was availed in good faith. The Court noted that the petitioner had placed work orders with three suppliers for supply of materials, and payments were made through bank accounts with tax invoices issued by the suppliers.

The petitioner's ITC claims were reflected in their GSTR-2A returns, indicating that the suppliers had filed their outward supplies and tax deposits.

The Assessing Officer's order did not consider the petitioner's submission that the same transactions had been subject to a prior proceeding before the DGGI, Gurugram, wherein the petitioner had reversed ITC, paid tax, interest, and penalty under protest, and the proceeding was subsequently dropped.

The Court found that the Assessing Officer failed to appreciate the material facts and evidence submitted by the petitioner, including the reversal of ITC and payment of tax under protest, and the fact that the suppliers were not non-existent as their returns and tax payments were reflected in GSTR-2A.

The petitioner's reversal of ITC was supported by documentary evidence (DRC-03) and correspondence clarifying the position, including an email stating that the reversal was not under protest and that no litigation would be pursued.

The State's counter affidavit acknowledged the petitioner's reversal of ITC and payment of tax, interest, and penalty, but contended that the petitioner failed to substantiate the claim with documentary evidence before the Assessing Officer, leading to the impugned demand.

The Court observed that the Assessing Officer's failure to consider the prior proceedings and the reversal of ITC led to an erroneous order imposing double taxation on the same transactions.

2. Double Taxation and Prior Proceedings before DGGI:

The petitioner argued that the same transactions were already examined by the DGGI, Gurugram, which had issued summons and initiated proceedings under Section 70 of the CGST Act, 2017. Upon the petitioner's reversal of ITC and payment of tax, interest, and penalty, the DGGI dropped the proceedings.

The Assessing Officer, however, proceeded to impose tax and penalties again on the same transactions for the same financial year, amounting to double taxation.

The Court emphasized that the Assessing Officer ought to have considered the prior reversal and payment made by the petitioner and the fact that the DGGI had closed the matter.

The State's counsel suggested that the matter be remanded to the Assessing Officer for reconsideration in light of the prior proceedings and payments.

3. Existence of Suppliers and Reflection in GSTR-2A:

The petitioner contended that the suppliers were not non-existent as alleged but had filed their returns and paid tax, which was reflected in the petitioner's GSTR-2A, corroborating the genuineness of the transactions.

The Assessing Officer's order did not adequately address this contention. The Court noted that the petitioner had produced evidence of the suppliers' GSTINs, invoices, and tax payments.

The State did not dispute the reflection of these transactions in GSTR-2A but maintained that the petitioner failed to substantiate the reversal claim adequately before the Assessing Officer.

The Court found that the Assessing Officer's failure to consider the petitioner's evidence and submissions on this point was a significant flaw in the impugned order.

4. Demand under Section 74 of BGST Act and Interim Relief:

The demand raised under Section 74 was challenged on the ground of non-consideration of material facts and double taxation.

The petitioner also sought interim relief restraining attachment of bank accounts.

The Court did not grant interim relief but disposed of the writ application with directions for fresh adjudication.

Application of Law to Facts and Treatment of Competing Arguments:

The Court applied the principles of natural justice and statutory interpretation, emphasizing that the Assessing Officer must consider all relevant materials and prior proceedings before passing an order under Section 74.

The petitioner's evidence of reversal of ITC and payment of tax, interest, and penalty under protest, and the closure of the DGGI proceedings, were critical facts that the Assessing Officer failed to consider.

The State's argument that the petitioner failed to substantiate the reversal claim before the Assessing Officer was noted but, given the documentary evidence on record, the Court found the impugned order unsustainable.

The Court balanced the competing contentions by remitting the matter to the Assessing Officer for fresh consideration, ensuring the petitioner's right to be heard and proper adjudication in accordance with law.

Conclusions:

The impugned order imposing tax, interest, and penalty on the petitioner without considering prior reversal of ITC and payment, and without appreciating the existence and tax compliance of the suppliers, cannot be sustained.

The matter requires fresh adjudication after considering all materials, including prior proceedings before the DGGI and the petitioner's documentary evidence.

Significant Holdings:

The Court held: "The impugned order contained in Annexure-P/10 cannot sustain as it has been passed without consideration of the materials available on the record."

It was established that double taxation on the same transactions is impermissible where prior tax, interest, and penalty have been paid and proceedings closed.

The Court directed: "We set aside the impugned order Annexure-P/10 and remit the matter to the respondent no.8 for passing of fresh order keeping in view the entire materials and the discussions hereinabove. Such order shall be passed after giving an appropriate opportunity of hearing of the petitioner through its authorised representative."

The core principle established is that adjudicatory authorities must consider prior proceedings and payments made by the taxpayer, and all relevant evidence, before passing orders under Section 74 of the BGST Act, to avoid unjust double taxation and ensure fair treatment.

Final determinations include quashing the impugned order and remitting the matter for fresh adjudication within two months, with due opportunity to the petitioner.