In the matter of : …… Vs. Additional Commissioner (CGST Delhi)
1. Background of the Appellant
The Appellant, M/s …………………………………….. , is a proprietorship concern operating for several years from Office No.- ……………………………… The Appellant has been diligent in filing returns and providing timely responses in compliance with tax regulations. Known as a reputed businessman, the Appellant follows strict internal controls to ensure the quality of goods before making any payments.
2. Issuance of Show Cause Notice (SCN)
A Show Cause Notice (SCN) under Section 74 of the CGST Act was issued for the period July 2017 to March 2018 on August 5, 2024, by the Additional Commissioner, Delhi North, CGST. However, the SCN did not include Relied Upon Documents (RUDs) to substantiate the allegations. Furthermore, DRC-01 was issued unsigned, making the notice procedurally defective.
3. Impugned Order and Tax Demand
The Impugned Order was passed on February 2, 2025, by the Additional Commissioner, CGST North, Delhi, imposing a tax liability of ₹84,32,435/- each in CGST and SGST, along with an equal penalty, resulting in a total demand of ₹84,32,435/- under Section 74 of the DGST Act, 2017, for the FY 2017-18 to 2018-19.
4. Lack of Nexus with the Appellant
The SCN and the impugned order are unrelated to the Appellant as the investigation was conducted against M/s R.R. Enterprises, Sonipat, a party with no connection to the Appellant. No transactions were established between the Appellant and the said entity.
5. Failure to Prove Allegations Against the Appellant
The respondent failed to establish any fraudulent activity or tax evasion on the part of the Appellant due to the following reasons:
- No fraud was proved against the Appellant.
- No intent to evade tax was established.
- No suppression of facts or willful misstatement was found, as all records were available on the GST portal.
6. Irregularities in Digital Identification Number (DIN)
A single DIN was issued to multiple taxpayers, making it difficult to ascertain whether it pertains to the Appellant. Additionally, the complete details of the DIN were not provided, leading to a potential misuse of legal provisions.
7. Compliance with Section 16 of CGST Act
The Appellant lawfully availed Input Tax Credit (ITC) in strict compliance with Section 16 of the CGST Act, 2017. Before claiming ITC, the Appellant ensured compliance with all the conditions stipulated under Section 16(2) and duly recorded the ITC in its books of accounts.
8. Issuance of SCN Beyond Limitation Period
As per Section 74(2) of the CGST Act, the SCN was required to be issued on or before August 4, 2024. However, it was issued on August 5, 2024, thereby violating the prescribed limitation period. Additionally, no detailed SCN was provided, failing to disclose the relevant facts and circumstances of the case.
9. Jurisdictional Violation in Issuance of SCN and Order
The SCN and the Order were issued by the Additional Commissioner, despite the tax amount being only ₹84,32,435/- in CGST and SGST each. As per Circular No. 31/05/2018-GST dated 09.02.2018, such matters fall within the jurisdiction of the Superintendent. Therefore, the issuance of the SCN and Order by the Additional Commissioner is a clear violation of jurisdictional limits.
10. Non-Provision of Relied Upon Documents (RUDs)
During the proceedings, the respondent failed to provide the Appellant with RUDs and a certificate as required under Section 145(2) of the DGST Act, 2017, read with Section 65B of the Indian Evidence Act, 1872. The non-disclosure of these documents is a serious procedural lapse, violating principles of natural justice.
11. Allegations Regarding Transactions with M/s (Party A)
The impugned order alleges that the Appellant obtained invoices without actual receipt of goods from M/s (Party A). However, there is no evidence on record to prove:
- That Party A was non-existent at the time of transactions.
- That the Appellant obtained invoices without goods.
- That such allegations were ever communicated to the Appellant with supporting documentation.
12. Violation of Natural Justice
- No copy of Panchnama or other RUDs related to Party A and Party B was provided to the Appellant.
- No opportunity for cross-examination was granted to the Appellant, violating the principles of natural justice.
13. Documentary Evidence Supporting the Appellant’s Claims
The Appellant availed ITC as per Section 16 of the CGST Act and has duly maintained:
- Stock registers
- Tax invoices
- Bank payment proofs
These records confirm the legitimacy of transactions, leaving no ground to deny ITC.
14. No Intent to Evade Tax
The Appellant has been a long-standing, reputed businessman and has always procured goods with proper invoices. Hence, the question of tax evasion does not arise.
15. Unlawful Clubbing of Multiple Years in a Single SCN and Order
The respondent combined multiple financial years in a single SCN and order, which is impermissible under law. Various High Court rulings have affirmed that such a practice is legally unsustainable.
16. Failure to Prove Malafide Transactions
The respondent failed to establish any malafide transactions intended to evade tax, as:
- All documentary evidence under Section 16 was duly placed on record.
- There was no proof of tax evasion amounting to ₹ 84,32,435/- each in CGST and SGST.
17. Failure to Establish the Source of Goods Sold
The respondent failed to prove that the goods sold by the Appellant were not sourced from Party A, thereby making the allegations baseless.
18. Issuance of Identical SCNs to Party A and the Appellant
The same SCN under Section 74 was issued to both Party A and the Appellant, which contradicts legal principles. The issuance of identical notices without distinct allegations is procedurally flawed.
19. Legitimacy of Transactions with Government-Registered Taxpayers
The Appellant purchased goods from a registered taxpayer, whose GSTIN was duly verified by the GST Department before issuance. On the date of transaction, the taxpayer was legally valid and operational. As the tax was paid via official banking channels, the validity of such transactions cannot be questioned.
20. Non-Existence of Fraud and Tax Evasion
As per Section 74, the precondition for levying tax, interest, and penalty is the establishment of:
- Fraudulent intent
- Collusion between parties
- Intentional tax evasion
However, in this case, no fraud was proven, and no intent to evade tax was established, rendering the impugned order legally untenable.
Legal Provisions, Sections, Rules and Judgements
1. Section 16. Eligibility and conditions for taking input tax credit.-
(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.
(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,-
(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed ;
[(aa) the details of the invoice or debit note referred to in clause (a) has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37 ;] [1]
(b) he has received the goods or services or both.
[Explanation- For the purposes of this clause, it shall be deemed that the registered person has received the goods or, as the case may be, services-
(i) where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;
(ii) where the services are provided by the supplier to any person on the direction of and on account of such registered person;
[(ba) the details of input tax credit in respect of the said supply communicated to such registered person under section 38 has not been restricted;
(c) subject to the provisions of [section 41 [***][7]][3]the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and
d) he has furnished the return under section 39:
Provided that where the goods against an invoice are received in lots or installments, the registered person shall be entitled to take credit upon receipt of the last lot or installment:
Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be [paid by him along with interest payable under section 50][9], in such manner as may be prescribed Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him [to the supplier][10] of the amount towards the value of supply of goods or services or both along with tax payable thereon.
(3) Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income-tax Act, 1961, the input tax credit on the said tax component shall not be allowed.
(4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the [thirtieth day of November][8] following the end of financial year to which such invoice or [***][4] debit note pertains or furnishing of the relevant annual return, whichever is earlier.
2. Section 74. Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any willful-misstatement or suppression of facts.-
(1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice.
(2) The proper officer shall issue the notice under sub-section (1) at least six months prior to the time limit specified in sub-section (10) for issuance of order.
(3) Where a notice has been issued for any period under sub-section (1), the proper officer may serve a statement, containing the details of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for such periods other than those covered under sub-section (1), on the person chargeable with tax.
(4) The service of statement under sub-section (3) shall be deemed to be service of notice under sub-section (1) of section 73, subject to the condition that the grounds relied upon in the said statement, except the ground of fraud, or any wilful-misstatement or suppression of facts to evade tax, for periods other than those covered under subsection (1) are the same as are mentioned in the earlier notice.
(5) The person chargeable with tax may, before service of notice under sub-section (1), pay the amount of tax along with interest payable under section 50 and a penalty equivalent to fifteen per cent. of such tax on the basis of his own ascertainment of such tax or the tax as ascertained by the proper officer and inform the proper officer in writing of such payment.
(6) The proper officer, on receipt of such information, shall not serve any notice under sub-section (1), in respect of the tax so paid or any penalty payable under the provisions of this Act or the rules made thereunder.
(7) Where the proper officer is of the opinion that the amount paid under sub-section (5) falls short of the amount actually payable, he shall proceed to issue the notice as provided for in sub-section (1) in respect of such amount which falls short of the amount actually payable.
(8) Where any person chargeable with tax under sub-section (1) pays the said tax along with interest payable under section 50 and a penalty equivalent to twenty-five per cent of such tax within thirty days of issue of the notice, all proceedings in respect of the said notice shall be deemed to be concluded.
(9) The proper officer shall, after considering the representation, if any, made by the person chargeable with tax, determine the amount of tax, interest and penalty due from such person and issue an order.
(10) The proper officer shall issue the order under sub-section (9) within a period of five years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within five years from the date of erroneous refund.
(11) Where any person served with an order issued under sub-section (9) pays the tax along with interest payable thereon under section 50 and a penalty equivalent to fifty per cent. of such tax within thirty days of communication of the order, all proceedings in respect of the said notice shall be deemed to be concluded.
3. Section 122. Penalty for certain offences. –
(1) Where a taxable person who-
(i) supplies any goods or services or both without issue of any invoice or issues an incorrect or false invoice with regard to any such supply;
(ii) issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act or the rules made thereunder;
(iii) collects any amount as tax but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due;
(iv) collects any tax in contravention of the provisions of this Act but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due;
(v) fails to deduct the tax in accordance with the provisions of sub-section (1) of section 51, or deducts an amount which is less than the amount required to be deducted under the said sub-section, or where he fails to pay to the Government under sub-section (2) thereof, the amount deducted as tax;
(vi) fails to collect tax in accordance with the provisions of sub-section (1) of section 52, or collects an amount which is less than the amount required to be collected under the said sub-section or where he fails to pay to the Government the amount collected as tax under sub-section (3) of section 52;
(vii) takes or utilises input tax credit without actual receipt of goods or services or both either fully or partially, in contravention of the provisions of this Act or the rules made thereunder;
(viii) fraudulently obtains refund of tax under this Act;
(ix) takes or distributes input tax credit in contravention of section 20, or the rules made thereunder;
(x) falsifies or substitutes financial records or produces fake accounts or documents or furnishes any false information or return with an intention to evade payment of tax due under this Act;
(xi) is liable to be registered under this Act but fails to obtain registration;
(xii) furnishes any false information with regard to registration particulars, either at the time of applying for registration, or subsequently;
(xiii) obstructs or prevents any officer in discharge of his duties under this Act;
(xiv) transports any taxable goods without the cover of documents as may be specified in this behalf;
(xv) suppresses his turnover leading to evasion of tax under this Act;
(xvi) fails to keep, maintain or retain books of account and other documents in accordance with the provisions of this Act or the rules made thereunder;
(xvii) fails to furnish information or documents called for by an officer in accordance with the provisions of this Act or the rules made thereunder or furnishes false information or documents during any proceedings under this Act;
(xviii) supplies, transports or stores any goods which he has reasons to believe are liable to confiscation under this Act;
(xix) issues any invoice or document by using the registration number of another registered person;
(xx) tampers with, or destroys any material evidence or document;
(xii) disposes off or tampers with any goods that have been detained, seized, or attached under this Act,
he shall be liable to pay a penalty of ten thousand rupees or an amount equivalent to the tax evaded or the tax not deducted under section 51 or short deducted or deducted but not paid to the Government or tax not collected under section 52 or short collected or collected but not paid to the Government or input tax credit availed of or passed on or distributed irregularly, or the refund claimed fraudulently, whichever is higher.
[(1A) Any person who retains the benefit of a transaction covered under clauses (i), (ii), (vii) or clause (ix) of sub-section (1) and at whose instance such transaction is conducted, shall be liable to a penalty of an amount equivalent to the tax evaded or input tax credit availed of or passed on.][1]
[(1B) Any electronic commerce operator who–
(i) allows a supply of goods or services or both through it by an unregistered person other than a person exempted from registration by a notification issued under this Act to make such supply;
(ii) allows an inter-State supply of goods or services or both through it by a person who is not eligible to make such inter-State supply; or
(iii) fails to furnish the correct details in the statement to be furnished under sub-section (4) of section 52 of any outward supply of goods effected through it by a person exempted from obtaining registration under this Act, shall be liable to pay a penalty of ten thousand rupees, or an amount equivalent to the amount of tax involved had such supply been made by a registered person other than a person paying tax under section 10, whichever is higher.][2]
(2) Any registered person who supplies any goods or services or both on which any tax has not been paid or short-paid or erroneously refunded, or where the input tax credit has been wrongly availed or utilised,-
(a) for any reason, other than the reason of fraud or any willful misstatement or suppression of facts to evade tax, shall be liable to a penalty of ten thousand rupees or ten per cent. of the tax due from such person, whichever is higher;
(b) for reason of fraud or any willful misstatement or suppression of facts to evade tax, shall be liable to a penalty equal to ten thousand rupees or the tax due from such person, whichever is higher.
(3) Any person who–
(a) aids or abets any of the offences specified in clauses (i) to (xxi) of sub-section (1);
(b) acquires possession of, or in any way concerns himself in transporting, removing, depositing, keeping, concealing, supplying, or purchasing or in any other manner deals with any goods which he knows or has reasons to believe are liable to confiscation under this Act or the rules made thereunder;
(c) receives or is in any way concerned with the supply of, or in any other manner deals with any supply of services which he knows or has reasons to believe are in contravention of any provisions of this Act or the rules made thereunder;
(d) fails to appear before the officer of central tax, when issued with a summon for appearance to give evidence or produce a document in an inquiry;
(e) fails to issue invoice in accordance with the provisions of this Act or the rules made thereunder or fails to account for an invoice in his books of account, shall be liable to a penalty which may extend to twenty-five thousand rupees.
4. Rule 142. Notice and order for demand of amounts payable under the Act.-
(1) The proper officer shall serve, along with the
(a) Notice issued under section 52 or section 73 or section 74 or section 76 or section 122 or section 123 or section 124 or section 125 or section 127 or section 129 or section 130, a summary thereof electronically in FORM GST DRC-01,
(b) statement under sub-section (3) of section 73 or sub-section (3) of section 74, a summary thereof electronically in FORM GST DRC-02, specifying therein the details of the amount payable.
[(1A) The [proper officer may][1], before service of notice to the person chargeable with tax, interest and penalty, under sub-section (1) of Section 73 or sub-section (1) of Section 74, as the case may be, [communicate][2] the details of any tax, interest and penalty as ascertained by the said officer, in Part A of FORM GST DRC-01A.][3];
(2) Where, before the service of notice or statement, the person chargeable with tax makes payment of the tax and interest in accordance with the provisions of sub-section (5) of section 73 or, as the case may be, tax, interest and penalty in accordance with the provisions of sub-section (5) of section 74, or where any person makes payment of tax, interest, penalty or any other amount due in accordance with the provisions of the Act [whether on his own ascertainment or, as communicated by the proper officer under sub-rule (1A),][4] [he shall inform the proper officer of such payment in FORM GST DRC-03 and an acknowledgement, in FORM GST DRC– 04 shall be made available to the person through the common portal electronically].[7]
[(2A) Where the person referred to in sub-rule (1A) has made partial payment of the amount communicated to him or desires to file any submissions against the proposed liability, he may make such submission in Part B of FORM GST DRC-01A][5][, and thereafter the proper officer may issue an intimation in Part-C of FORM GST DRC-01A, accepting the payment or the submissions or both, as the case may be, made by the said person][8]
[(2B) Where an amount of tax, interest, penalty or any other amount payable by a person under section 52 or section 73 or section 74 or section 76 or section 122 or section 123 or section 124 or section 125 or section 127 or section 129 or section 130, has been paid by the said person through an intimation in FORM GST DRC-03 under sub-rule (2), instead of crediting the said amount in the electronic liability register in FORM GST PMT –01 against the debit entry created for the said demand, the said person may file an application in FORM GST DRC-03A electronically on the common portal, and the amount so paid and intimated through FORM GST DRC-03 shall be credited in Electronic Liability Register in FORM GST PMT –01 against the debit entry created for the said demand, as if the said payment was made towards the said demand on the date of such intimation made through FORM GST DRC-03:
Provided that where an order in FORM GST DRC-05 has been issued in terms of sub-rule (3) concluding the proceedings, in respect of the payment of an amount in FORM GST DRC-03, an application in FORM GST DRC-03A cannot be filed by the said person in respect of the said payment.][9]
(3) Where the person chargeable with tax makes payment of tax and interest under subsection (8) of section 73 or, as the case may be, tax, interest and penalty under subsection (8) of section 74 within thirty days of the service of a Notice under sub-rule (1), or where the person concerned makes payment of the amount referred to in sub-section (1) of section 129 within [seven days of the notice issued under sub-section (3) of Section 129 but before the issuance of order under the said sub-section(3)][8], he shall intimate the proper officer of such payment in FORM GST DRC-03 and the [proper officer shall issue an intimation][9] in FORM GST DRC-05 concluding the proceedings in respect of the said Notice.
(4) The representation referred to in sub-section (9) of section 73 or sub-section (9) of section 74 or sub-section (3) of section 76 or the reply to any notice issued under any section whose summary has been uploaded electronically in FORM GST DRC-01 under sub-rule (1) shall be furnished in FORM GST DRC-06.
(5) A summary of the order issued under section 52 or section 62 or section 63 or section 64 or section 73 or section 74 or section 75 or section 76 or section 122 or section 123 or section 124 or section 125 or section 127 or section 129 or section 130 shall be uploaded electronically in FORM GST DRC-07, specifying therein the amount of [tax, interest and penalty, as the case may be, payable by the person concerned.][8]
(6) The order referred to in sub-rule (5) shall be treated as the notice for recovery.
(7) Where a rectification of the order has been passed in accordance with the provisions of section 161 or where an order uploaded on the system has been withdrawn, a summary of the rectification order or of the withdrawal order shall be uploaded electronically by the proper officer in FORM GST DRC-08.
summary of the rectification order or of the withdrawal order shall be uploaded electronically by the proper officer in FORM GST DRC-08.
5. Circular No. 31/05/2018-GST, Dated: 9th February 2018
The extract of above said circular issued by the Ministry of Finance on 09th February, 2018 with regard to power to issue notice and order by various authorities is attached.
Grounds of Appeal
1. That the impugned order passed by the learned GST Officer is bad in law and on facts and, therefore, deserves to be set aside.
2. That the Show Cause Notice (SCN) lacks the signature of the proper officer, rendering it legally unsustainable and liable to be quashed.
3. That both the SCN and the impugned order were issued by the Additional Commissioner instead of the Superintendent, in contravention of Circular 31/5/2018-GST, thereby exceeding his monetary jurisdiction. Consequently, the SCN and the order are void ab initio and must be set aside.
4. That the SCN was issued beyond the limitation period. The last date for passing the order was 5th February 2025, and as per law, the SCN should have been issued at least six months prior, i.e., on or before 4th August 2024. However, the SCN was issued on 4th August 2024, which is impermissible, making it liable to be quashed.
5. That the respondent failed to furnish the Relied Upon Documents (RUDs) along with the requisite certificate under Section 145(2) of the CGST Act and Section 65B of the Indian Evidence Act, 1872. The absence of such supporting documents vitiates the SCN and the order, making them unsustainable in law.
6. That the respondent failed to establish the fundamental conditions under Section 74 of the CGST Act, and as such, the demand for tax and interest is unwarranted and must be set aside.
7. That the appellant was denied the opportunity of cross-examination during the proceedings, and no proper order sheet was maintained. The order was passed based on conjectures, surmises, and a preconceived mindset, violating principles of natural justice. Thus, the impugned order deserves to be quashed.
8. That there is no evidence on record to establish fraud, collusion, or intent to evade tax between the appellant and Party A. Moreover, no willful misstatement or suppression of facts has been proved, thereby invalidating the allegations.
9. That the SCN and the impugned order were issued in an arbitrary and hasty manner, without due application of mind and without proper consideration of the appellant’s replies during the personal hearing. Such an approach vitiates the entire proceedings, warranting the quashing of the order.
10. That the SCN and the order suffer from vagueness and lack of reasoning as they fail to specify any clear allegations with appropriate amounts, making them non-speaking orders in gross violation of legal principles. Accordingly, they are liable to be set aside.
11. That the respondent failed to establish any direct nexus between the appellant’s sales to government organizations and the alleged purchases or fake invoicing. The liability was determined solely based on assumptions and presumptions, without any documentary evidence, making the order legally unsustainable.
12. That the transactions in FY 2017-18 were conducted with a government-approved and GST-registered taxpayer whose GSTIN was issued by the GST Department itself after due verification and physical inspection. As there exists no legal mechanism for a taxpayer to verify the legitimacy of another taxpayer beyond government authentication, the appellant’s reliance on the government-issued GSTIN was bona fide.
In light of various High Court and Supreme Court judgments, such transactions are legally valid, and the impugned order deserves to be declared nonest.
13. That the Appellant craves to amend, modify, alter, or forego any ground of appeal at any time before or during the appeal.
Prayer :-
In view of all the above facts and circumstances, your lordship may be please to :-
1) Issue an order to set aside the impugned order dated 02.02.2025 and delete the tax demand of Rs 84,32,435/- along with interest and penalty or ;
2) To pass any other order as deem fit.
Author Bio
SCN can be issued by assistent commsioner who is senior of superintendent.
He has all the power of superintentdent.