Case Law Details
Narayan Enterprise And Anr. Vs Union of India And 2 Ors (Gauhati High Court)
The Gauhati High Court considered a writ petition challenging an Order-in-Original dated 19.02.2024 passed by the Assistant Commissioner, Central Goods and Services Tax & Central Excise Division, Silchar, and an Order-in-Appeal dated 07.01.2025 passed by the Joint Commissioner, CGST, Central Excise and Customs, Guwahati. By the Order-in-Original, a demand of Rs.22,22,695 comprising IGST of Rs.22,14,393, CGST of Rs.4,151 and SGST of Rs.4,151 for the period from May 2018 to March 2019 had been confirmed against the petitioner. Interest under Section 50 of the CGST Act, 2017 and corresponding provisions of the SGST and IGST Acts had also been directed to be recovered, and a penalty equal to the demand amount had been imposed under Section 74(1) read with Section 122 of the CGST Act and Section 20 of the IGST Act. The appellate authority had rejected the petitioner’s appeal against the adjudication order.
The petitioner contended that, during the initial implementation of the GST regime, businesses faced practical difficulties in filing GSTR-1 and GSTR-3B returns, resulting in discrepancies relating to output tax liability, input tax credit (ITC), and invoice matching. It was submitted that the petitioner had purchased goods from suppliers in Kolkata during the financial year 2018-19 and had paid the value of goods along with applicable GST through banking channels supported by valid invoices.
The petitioner had been issued summons by the Directorate General of GST Intelligence (DGGI) on allegations of availing ineligible ITC without actual receipt of goods. In response, the petitioner appeared before the authorities and furnished documents including GSTR-1, GSTR-3B, and purchase invoices relating to the relevant period. Subsequently, the authorities conducted a search at the petitioner’s business premises on 09.07.2019. According to the petitioner, no incriminating material was recovered during the search. The petitioner’s statement was recorded, explaining the business activities, procurement process, transportation arrangements, storage practices, and the use of banking channels for making payments, while asserting that the goods covered by the invoices had actually been received.
The petitioner further asserted that all GST returns had been filed within the prescribed timelines and that output tax liabilities had been discharged after adjustment of eligible ITC. It was contended that ITC had been claimed strictly in accordance with Section 16(2) of the CGST Act after fulfilling the prescribed statutory conditions. However, a show cause notice dated 30.07.2022 alleged wrongful availment and utilisation of ITC amounting to Rs.22,22,695 in violation of Sections 16(2)(a) and 16(2)(b) of the CGST Act on the ground that goods had not actually been received. Recovery of tax, interest, and penalty was consequently proposed.
The petitioner argued that despite repeated requests and submission of relevant documents, no effective opportunity of hearing had been granted. It was also contended that the denial of ITC was based solely on the alleged failure of suppliers to discharge their tax liabilities, an event beyond the petitioner’s control. According to the petitioner, the entire tax amount, including GST, had been paid to suppliers through banking channels after receipt of goods and verification of invoices. The petitioner also relied upon a circular clarifying that where there is no supply of goods, tax cannot be demanded. Additional grounds relating to limitation and invocation of Sections 73 and 74 of the CGST Act were also raised.
FULL TEXT OF THE JUDGMENT/ORDER OF GUWAHATI HIGH COURT
Heard Ms. N. Hawelia, learned counsel for the petitioner. Also heard Dr. B. N. Gogoi, learned Standing Counsel, GST, for all the respondents.
2. Challenge made in the present writ petition is to the Order-in-Original No. 23/GST/AC/SIL/2023-24 dated 19.02.2024 passed by the Assistant Commissioner, Central Goods and Services Tax & Central Excise Division, Silchar, whereby a demand of Rs. 22,22,695/- comprising IGST of Rs. 22,14,393/-, CGST of Rs. 4,151/- and SGST of Rs. 4,151/- for the period from May, 2018 to March, 2019 on the petitioner is confirmed. By the said order, interest at the applicable rate under Section 50 of the CGST Act, 2017 and the corresponding provisions of the SGST Act and the IGST Act was also directed to be recovered for delayed payment of tax and a penalty of Rs. 22,22,695/- was imposed under Section 74(1) read with Section 122 of the CGST Act, 2017 and Section 20 of the IGST Act, 2017. The petitioner has also put to challenge the Order-in-Appeal No. GAPPL/ADC/GSTP/2032/2024-APPEAL-O/O COMMR-CGST-APPL-GUWAHATI dated 07.01.2025 passed by the Joint Commissioner, CGST, Central Excise and Customs, Guwahati, whereby the appeal against the Order-in-Original dated 19.02.2024, filed by the petitioner, has been rejected.
3. Having considered that the similar matter has already been decided by a Division Bench of this Court and as agreed to by the learned counsel for the parties, this writ petition is heard and dispose of at the motion stage itself.
4. The petitioner is the proprietor of M/s Narayan Enterprise, having its office at Graveyard Road, Madhurband Road, Madhurband, Silchar, Assam. It is the case of the petitioner that upon introduction of the GST regime, which replaced various indirect taxes such as VAT, excise duty and service tax, several practical difficulties were faced by the business entities during the initial phase of implementation, particularly in filing GSTR-1 and GSTR-3B returns as the sales return and the summary return of the monthly tax payment with liability details and input tax credit (ITC) claim and there were incorrect data entry discrepancies in reporting output tax liability and input tax credit (ITC) and also with the matching invoices.
5. The petitioner purchased goods from suppliers from Kolkata for the assessment year 2018-2019 and on receipt of the goods, the petitioner paid the value of goods along with applicable GST to the sellers through proper banking channels supported by proper invoices.
6. On the allegation of availing ineligible input tax credit (ITC) on the strength of invoices issued to some proprietorship firm without actual receipt of goods and without actual supply of goods, summons were issued by the DGGI, Guwahati Zonal Unit and accordingly, the petitioner appeared before the authorities on 05.04.2019 by submitting all the relevant documents including GSTR-1, GSTR-3B and purchase invoices for the period from May, 2018 to March, 2019 on the basis of which ITC was availed and utilized.
7. Thereafter, the respondent authorities issued a search authorization and conducted a search at the business premises of the petitioner on 09.07.2019, wherein no incriminating materials were recovered or seized during the said search. The statement of the petitioner was recorded wherein he has explained the nature of his business, the manner of procurement and sale of scrap/waste batteries, source of purchase, transportation arrangements, storage practices and the mode of payment through banking channels by stating that the goods covered under the invoices were actually received and that due payments including GST were made to the suppliers.
8. It is the further case of the petitioner that all GST returns were filed within the prescribed time and output tax liabilities were duly discharged after adjustment of eligible input tax credit. During the financial year 2018-19, the ITC was claimed strictly in accordance with Section 16(2) of the CGST Act, 2017 after fulfilling all statutory conditions prescribed thereunder. Subsequently, the respondent authority issued a Show Cause Notice dated 30.07.2022 for the assessment year May, 2018 to March, 2019 alleging that the petitioner had wrongly availed and utilized the ITC of Rs. 22,22,695/- in violation Section 16(2) (a)(b) of the CGST Act, 2017 without actual receipt of goods and thereby proposed recovery of tax along with interest and penalty.
9. It is the case of the petitioner that despite submission of all relevant documents and repeated request, no effective opportunity of hearing was granted and no notice was uploaded on the GST portal and were only manually served on the petitioner beyond the date of hearing. Consequently, the adjudicating authority proceeded to pass the impugned Order-in-Original dated 19.02.2024 without affording a meaningful opportunity of hearing and without issuance of Form GST DRC-07. The petitioner further contends that the sole basis for denial of ITC is the alleged failure of the suppliers to discharge their tax liability, a circumstance which is entirely beyond the control of the petitioner. The petitioner had paid full tax to the supplier and he had no involvement on the affairs of the said supplier and had acted in good faith by verifying tax invoices, receiving goods and making payment through proper banking channels including applicable GST. Even if the allegation of non-supply of goods is accepted, no tax can be levied in absence of actual supply as the GST is leviable only on supply of goods which is fortified by the Circular dated 06.07.2022, which clarifies that when there is no supply, no tax can be demanded.
10. It is the further case of the petitioner that Sections 73 & 74 of CGST Act, 2017 could not have been invoked as the time period for passing the assessment year under Section 73 has already expired and therefore, no order could have been passed under Section 74 and also the clubbing of multiple assessment years for passing a consolidated order under GST is not permissible. Therefore, the impugned orders of demand and the Order-in-Original dated 28.03.2024 as well as the Order-in-Appeal dated 07.01.2025 is time barred and passed by depriving the petitioner to avail the effective statutory remedy and as
11. Ms. N. Hawelia, learned counsel for the petitioner, while relying on the judgment of the Division Bench of this Court in the case of National Plasto Moulding Vs. State of Assam & Ors., reported in [2024] 129 GSTR 544 (Gauhati), submits that the controversy involved in the present writ petition is squarely covered by the said decision, as the purchasing dealer cannot be penalized for the failure of the selling dealer to deposit the tax collected from the purchaser.
12. Dr. B. N. Gogoi, learned Standing Counsel, GST, for the respondents, fairly submits that the issue raised in the present proceeding is squarely covered by the judgment of National Plasto Moulding (supra), relied by the learned counsel for the petitioner, as the Division Bench of this Court has, while relying on the judgment of the Hon’ble Delhi High Court in the case of On Quest Merchandising India Pvt. Ltd. Vs. Government of NCT of Delhi, reported in [2018] 56 GSTR 177 (Delhi), held that a bona fide purchasing dealer cannot be denied input tax credit merely because the selling dealer failed to deposit the tax with the Government and therefore, the writ petition can be disposed of by providing opportunity to the respondent authorities to take action where the purchase transactions are not bona fide in accordance with law.
13. I have considered the submissions of learned counsel for the parties and perused the materials available on record.
14. The Division Bench of this Court in National Plasto Moulding (supra) has examined and considered the issue as regards the input tax credit and failure of the selling dealer to deposit tax collected from the purchasing dealer and upon consideration of the law laid down by the Delhi High Court in On Quest Merchandising India Pvt. Ltd. (supra) has held that for failure of the selling dealer for depositing tax, purchasing dealer cannot be punished. In other words, a purchasing dealer cannot be punished for the act of selling dealer in case the selling dealer had failed to deposed the tax collected by it. The relevant paragraphs of the judgment are reproduced herein below:
“4. Before the Delhi High Court, the validity of Section 9(2)(g) of the Delhi Value Added Tax Act, 2004 was under challenge. The said provisions of the Delhi Value Added Tax Act are analogous to the provisions of Sections 16(2)(c) and 16(2)(d) of the Assam Goods and Services Tax Act, 2017 as well as Sections 16(2)(c) and 16(2)(d) of the Central Goods and Services Tax Act, 2017.
The Delhi High Court in the said judgment has observed as under:-
“39. Applying the law explained in the above decisions, it can be safely concluded in the present case that there is a singular failure by the Legislature to make a distinction between purchasing dealers who have bona fide transacted with the selling dealer by taking all precautions as required by the DVAT Act and those that have not. Therefore, there was need to restrict the denial of ITC only to the selling dealers who had failed to deposit the tax collected by them and not punish bona fide purchasing dealers. The latter cannot be expected to do the impossible. It is trite that a law that is not capable of honest compliance will fail in achieving its objective. If it seeks to visit disobedience with disproportionate consequences to a bona fide purchasing dealer, it will become vulnerable to invalidation on the touchstone of article 14 of the Constitution. …
41. The court respectfully concurs with the above analysis and holds that in the present case, the purchasing dealer is being asked to do the impossible, i.e., to anticipate the selling dealer who will not deposit with the Government the tax collected by him from those purchasing dealer and therefore avoid transacting with such selling dealers. Alternatively, what section 9(2)(g) of the DVAT Act requires the purchasing dealer to do is that after transacting with the selling dealer, somehow ensure that the selling dealer does in fact deposit the tax collected from the purchasing dealer and if the selling dealer fails to do so, undergo the risk of being denied the ITC. Indeed section 9(2)(g) of the DVAT Act places an onerous burden on a bona fide purchasing dealer. …
53. In light of the above legal position, the court hereby holds that the expression “dealer or class of dealers” occurring in section 9(2)(g) of the DVAT Act should be interpreted as not including a purchasing dealer who has bona fide entered into purchase transactions with validly registered selling dealers who have issued tax invoices in accordance with section 50 of the Act where there is no mismatch of the transactions in Annexures 2A and 2B. Unless the expression “dealer or class of dealers” in section 9(2)(g) is “read down” in the above manner, the entire provision would have to be held to be violative of article 14 of the Constitution.
54. The result of such reading down would be that the Department is precluded from invoking section 9(2)(g) of the DVAT to deny ITC to a purchasing dealer who has bona fide entered into a purchase transaction with a registered selling dealer who has issued a tax invoice reflecting the TIN number. In the event that the selling dealer has failed to deposit the tax collected by him from the purchasing dealer, the remedy for the Department would be to proceed against the defaulting selling dealer to recover such tax and not deny the purchasing dealer the ITC. Where, however, the Department is able to come across material to show that the purchasing dealer and the selling dealer acted in collusion then the Department can proceed under section 40A of the DVAT Act.”
6. The Hon’ble Supreme Court has dismissed the SLP preferred against the said judgment by passing the following order:-
“On hearing learned Additional Solicitor General appearing for the petitioner, we are not inclined to interfere with the impugned order. The special leave petition is dismissed.
Learned Additional Solicitor General, however, submits that a batch of petitions were decided by the impugned order and there are some of the cases where the purchase transactions are not bonafide like the present case and those cases ought to have been remitted back to the competent authority.
The learned Additional Solicitor General submits that the petitioner would move the High court with necessary particulars for directions in this behalf for which liberty is granted, as prayed for.
Pending application(s), if any, stand disposed of.”
7. Having gone through the above referred judgments, we are of the view that the controversy raised in this batch of writ petitions is squarely covered by the decision of the Delhi High Court in the case of On Quest Merchandising India Private Limited (supra). Hence, the show cause notices impugned in the present writ petitions and the consequential orders are set aside. However, the Department is free to act in those cases, where the purchase transactions are not bona fide, in accordance with law.
8. With these observations, these writ petitions are disposed of.”
15. A perusal of the aforesaid judgment shows that the Division Bench has categorically held that where a purchasing dealer has entered into transactions bona fide with a registered supplier and has complied with the statutory requirements, denial of input tax credit solely on account of failure of the supplier to deposit tax would not be justified. The remedy of the Department, in such circumstances, lies against the defaulting supplier and not against a bona fide purchaser. However, where materials exist to indicate collusion or lack of bona fides in the transactions, it would be open to the Department to proceed in accordance with law.
16. In the present case, both the learned counsel for the parties are consensus that the issue involved stands covered by the decision of the Division Bench in National Plasto Moulding (supra), to which this Court is in full agreement. Thus, I am of the considered opinion that no further adjudication is required in the present proceedings.
17. Accordingly, the impugned Order-in-Original No. 23/GST/AC/SIL/2023-24 dated 19.02.2024 passed by the Assistant Commissioner, Central Goods and Services Tax & Central Excise Division, Silchar, and the Order-in-Appeal No. GAPPL/ADC/GSTP/2032/2024-APPEAL-O/O COMMR-CGST-APPL-GUWAHATI dated 07.01.2025 passed by the Joint Commissioner, CGST, Central Excise and Customs, Guwahati, are hereby set aside and quashed. It is, however, made clear that the respondent authorities shall be at liberty to proceed in accordance with law in the event there are materials indicating that the transactions in question were not bona fide or were entered into in collusion with the suppliers, as observed by the Division Bench in National Plasto Moulding (supra).
18. Writ petition accordingly stands disposed of.
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