FAKE INVOICES IN GST
When you are preparing for the allegations of fake invoices in GST these case laws are helpful for you.
1. D.Y. BEATHEL ENTERPRISES V/S STATE TAX OFFICER (DATA CELL)
Based on the returns filed by the sellers, the petitioners herein availed input tax credit. Later, during inspection by the respondent herein, it came to light that Charles and his wife, did not pay any tax to the Government. That necessitated initiation of the impugned proceedings. There is no doubt that the respondent had issued shows cause notices to the petitioners herein. The petitioners submitted their replies specifically taking the stand that all the amounts payable by them had been paid to the said Charles and his wife Shanthi and that therefore, those two sellers will have to be necessarily confronted during enquiry. Unfortunately, without involving the said Charles and his wife Shanthi, the impugned orders came to be passed levying the entire liability on the petitioners herein.
It can be seen therefrom that the assessee must have received the goods and the tax charged in respect of its supply, must have been actually paid to the Government either in cash or through utilization of input tax credit, admissible in respect of the said supply.
Therefore, if the tax had not reached the kitty of the Government, then the liability may have to be eventually borne by one party, either the seller or the buyer. In the case on hand, the respondent does not appear to have taken any recovery action against the seller / Charles and his wife Shanthi, on the present transactions.
The learned counsel for the petitioners draws my attention to the order, dated 27.10.2020, finalising the assessment of the seller by excluding the subject transactions alone. I am unable to appreciate the approach of the authorities. When it has come out that the seller has collected tax from the purchasing dealers, the omission on the part of the seller to remit the tax in question must have been viewed very seriously and strict action ought to have been initiated against him.
Therefore, the impugned orders are quashed and the matters are remitted back to the file of the respondent. The stage upto the reception of reply from the petitioners herein will hold good. Enquiry alone will have to be held afresh. In the said enquiry, Charles and his wife Shanthi will have to be examined as witnesses. Parallely, the respondent will also initiate recovery action against Charles and his wife Shanthi.
2. SUNCRAFT ENERGY PRIVATE LIMITED AND ANOTHER V/S THE ASSISTANT COMMISSIONER
It is the case of the appellant that they have fulfilled all the conditions as stipulated under Sub-section (2) of Section 16 and they also paid the tax to the fourth respondent, the supplier and a valid tax invoice has been issued by the fourth respondent for installation and commission services and the appellant had made payment to the fourth respondent within the time stipulated under the provisions of the Act. Thus, grievance of the appellant is that despite having fulfilled all the conditions as has been enumerated under Section 16(2) of the Act, the first respondent erred in reversing the credit availed and directing the appellant to deposit the tax which has already been paid to the fourth respondent at the time of availing the goods/ services.
In the press release dated 4th May, 2018, it was clarified that there shall not be any automatic reversal of input tax credit from buyer on nonpayment of tax by the seller. In case of default in payment of tax by the seller, recovery shall be made from the seller however, reversal of credit from buyer shall also be an option available with the revenue authorities to address exceptional situations like missing dealer, closure of business by supplier or supplier not having adequate assets etc.
In the result, the appeal is allowed, the orders passed in the writ petition is set aside and the order dated 20.02.2023 passed by the first respondent namely the Assistant Commissioner, State Tax, Ballygaunge Charge, is set aside with a direction to the appropriate authorities to first proceed against the fourth respondent and only under exceptional circumstance as clarified in the press release issued by the Central Board of Indirect Taxes and Customs (CBIC), then and then only proceedings can be initiated against the appellant. With the above observations and directions the appeal is allowed.
3. ARISE INDIA LIMITED V/S COMMISSIONER OF TRADE & TAXES, DELHI AND ORS.
Whether input tax credit can be denied to a bona fide purchaser under Section 9(2)(g) of the DVAT Act because of default of the selling dealer over whom such purchasing dealer has no control?
SCT is a charitable organisation registered under the DVAT Act and engaged in the activity of providing food items in the Akshardham Temple complex. It states that it has paid Value Added Tax on its purchases and avails ITC of VAT paid on its purchases. SCT states that it has made purchases from selling dealers registered under the DVAT Act on the strength of tax invoices, which prove the collection of tax by the vendor from the seller and is a valid document for availing ITC.
SCT states that on June 1, 2012, a fire broke out in the premises of the one of selling dealers-M/s Vidya Polymers because of which they failed to deposit the VAT collected from its buyer including SCT. On August 17, 2012, the Value Added Tax Officer issued a default assessment order for the month of May, 2012 invoking provisions of Section 9(2)(g) of the DVAT Act.
SCT states that the above order is passed without affording an opportunity of being heard and solely on the basis that the ITC availed by SCT on the purchases did not match with the sale details of the vendor. The appeal filed by the SCT against the aforementioned default assessment orders were dismissed by the Objection Hearing Authority on March 25, 2013. This order has been challenged in W.P. (C) No.4086 of 2013.
Held That 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.
Resultantly, the default assessment orders of tax, interest and penalty issued under Sections 32 and 33 of the DVAT Act, and the orders of the OHA and Appellate Tribunal insofar as they create and affirm demands created against the Petitioner purchasing dealers by invoking Section 9 (2) (g) of the DVAT Act for the default of the selling dealer, and which have been challenged in each of the petitions, are hereby set aside.
4. DIYA AGENCIES V/S THE STATE TAX OFFICER
The Learned Counsel for the petitioner submits that the claim of input tax credit cannot be denied merely on the ground of amount mentioned in the GSTR 2A for which the petitioner does not have any control. Learned Counsel for the petitioner further submits that the assessing authority is required to independently examine the claim of input tax credit of the assessee irrespective of the amount mentioned in the GSTR 2A.
Learned Counsel for the petitioner submits that the petitioner has fulfilled all the conditions as stipulated under Sub section 2 of Section 16 and he has paid the tax to the seller dealer and valid tax invoice has been issued by the seller dealer.
The grievance of the petitioner is that despite having fulfilled all the conditions as per the conditions enumerated under Sub-section 2 of Section 16 of the Act, the assessing authority has reversed the credit availed and directed the petitioner to deposit the tax to the extent of disallowance of input tax credit.
Learned Counsel for the petitioner submits that the petitioner has supplier dealers and, if they have not deposited the tax paid by the petitioner, petitioner cannot be asked to pay the tax again.
In view thereof, I find that the impugned Exhibit P-1 assessment order so far denial of the input tax credit to the petitioner is not sustainable, and the matter is remanded back to the Assessing Officer to give opportunity to the petitioner for his claim for input tax credit. If on examination of the evidence submitted by the petitioner, the assessing officer is satisfied that the claim is bonafide and genuine, the petitioner should be given input tax credit. Merely on the ground that in Form GSTR-2A the said tax is not reflected should not be a sufficient ground to deny the assessee the claim of the input tax credit. The assessing authority is therefore, directed to give an opportunity to the petitioner to give evidence in respect of his claim for input tax credit. The petitioner is directed to appear before the assessing authority within fifteen days with all evidence in his possession to prove his claim for higher claim of input tax credit. After examination of the evidence placed by the petitioner/assessee, the assessing authority will pass a fresh order in accordance with law. With the above directions the writ petition is finally disposed of.
5. BRIGHT STAR PLASTIC INDUSTRIES V/S ADDITIONAL COMMISSIONER OF SALES TAX
The Petitioner had purchased G.P. Sheets from M/s. Pawansut Enterprises. The details of the bill numbers, the dates, the value of the goods and the CGST & SGST amounts paid and the total amount were set out in a tabular form. The three invoices were dated 11th April, 2018, 30th April, 2018 and 13th August, 2018. It was further pointed out that the Petitioner had reflected the purchases so made in the return 3B for the relevant showing the total tax paid purchases and tax collected messages and that no mismatch in the return had been intimated to the Petitioner. It was ascertained that the purchases had been made from a dealer, who is registered with the Department, and ITC was being claimed on the basis of the tax invoices that fulfilled the requirement of law.
To attribute fraud in such circumstances to the Petitioner, as a purchasing dealer, the Department would have to satisfy a high threshold of showing that the purchaser indulged in the transactions with the full knowledge that the selling dealer was non-existent. The Department would have to show that somehow the purchasing dealer and selling dealer acted in connivance to defraud the revenue. This threshold has not been made in the present case. In other words, the Department has failed to show that the Petitioner as a purchasing dealer deliberately availed of the ITC in respect of the transactions with an entity knowing that such an entity was not in existence.
6. THE STATE OF KARNATAKA V/S ECOM GILL COFFEE TRADING PRIVATE LIMITED
That the respondent herein – M/s Tallam Apparels (hereinafter referred to as the ‘purchasing dealer’) purchased readymade garments from other dealers for the purposes of further sale. The purchasing dealer claimed the ITC on such sale to the extent of Rs. 4,18,818/-. Vide order dated 26.12.2014, the Assessing Officer disallowed the ITC claim for the Assessment Year 2012-2013 on the ground that the dealers from whom M/s Tallam Apparels have purchased the readymade garments have either got their registration cancelled or have filed ‘NIL’ returns. Thus, the Assessing Officer doubted the sale and the payment of tax on such sale of which the ITC was claimed. An Appeal was filed by the purchasing dealer. The Appellate Authority dismissed the same by holding that the burden under section 70 of the KVAT Act, 2003 has not been discharged. However, the Karnataka Appellate Tribunal reversed the orders passed by the Assessing Officer as well as the first Appellate Authority on the ground that the purchasing dealer should not suffer due to default of seller. The revision application before the High Court has been dismissed by the impugned judgment and order.
In absence of any further cogent material like furnishing the name and address of the selling dealer, details of the vehicle which has delivered the goods, payment of freight charges, acknowledgement of taking delivery of goods, tax invoices and payment particulars etc. and the actual physical movement of the goods by producing the cogent materials, the Assessing Officer was absolutely justified in denying the ITC, which was confirmed by the first Appellate Authority. Both, the second Appellate Authority as well as the High Court have materially erred in allowing the ITC despite the concerned purchasing dealers failed to prove the genuineness of the transactions and failed to discharge the burden of proof as per section 70 of the KVAT Act, 2003. The impugned judgment(s) and order(s) passed by the High Court and the second Appellate Authority allowing the ITC are unsustainable and deserve to be quashed and set aside and are hereby quashed and set aside. The orders passed by the Assessing Officer denying the ITC to the concerned purchasing dealers, confirmed by the first Appellate Authority are hereby restored.
7. GARGO TRADERS V/S THE JOINT COMMISSIONER, COMMERCIAL TAXES (STATE TAX) & ORS.
The petitioner is aggrieved by the impugned order issued by the respondent authorities for not allowing the petitioner, who is the purchaser of goods in question and refusing to grant the benefit of Input Tax Credit (ITC) on purchase from supplier and also asking the petitioner to pay penalty and interest under the relevant provisions of GST Act.
The case of the respondents that on inquiry, they came to know that the supplier from whom the petitioner claimed to have purchased the goods in question are all fake and non-existing and the bank accounts open by the supplier is on the basis of fake document and the claim of the petitioner of Input Tax Credit are not supported by any relevant document.
This Court finds that without proper verification, it cannot be said that there was any failure on the part of the petitioner in compliance of any obligation required under the statute before entering into the transactions in question.
The respondent authorities only taking into consideration of the cancellation of registration of the supplier with retrospective effect have rejected the claim of the petitioner without considering the documents relied by the petitioner.
In view of the above, the impugned orders are set aside. The respondent no. 1 is directed to consider the grievance of the petitioner afresh by taking into consideration of the documents which the petitioner intends to rely in support of his claim.
8. LGW INDUSTRIES LIMITED & ANR. V/S ASSISTANT COMMISSIONER, SALT LAKE CHARGE
The appellants are aggrieved by the show cause notice issued by the respondent herein on the ground that the very same issue is now subject matter of consideration by the Assistant Commissioner, State Tax, Bureau of Investigation, South Bengal (HQ), who has issued notice dated 7th November, 2022.
In our considered view, if the subject issue is one and the same or if the subject is inter-related, it is always better that one authority adjudicates the matter. By directing the assessee to face multiple authorities may result in conflicting decisions. Therefore, not only in the interest of the assessee but in the interest of the revenue also, one authority should take the decision. In the result, the appeal as well as the writ petition are disposed of by directing the respondent to place the entire file pertaining to the show cause notice dated 29th December, 2022 to the Special Commissioner, State Tax, Bureau of Investigation, South Bengal, Headquarters, Kolkata, who shall in turn direct the said show cause notice and file be placed before the Assistant Commissioner, State Tax, Bureau of Investigation, South Bengal (HQ) and to adjudicate the show cause notice along with the proceedings already initiated pursuant to the notice dated 7th November, 2022.
9. SANCHITA KUNDU V/S THE ASSISTANT COMMISSIONER OF STATE TAX, BUREAU OF INVESTIGATION, SOUTH BENGAL & ORS.
The main contention of the petitioners in these writ petitions are that the transactions in question are genuine and valid by relying upon all the supporting relevant documents required under law and contend that petitioners with their due diligence have verified the genuineness and identity of the suppliers in question and more particularly the names of those suppliers as registered taxable person were available at the Government portal showing their registrations as valid and existing at the time of transactions in question and petitioners submit that they have limitation on their part in ascertaining the validity and genuineness of the suppliers in question and they have done whatever possible in this regard and more so, when the names of the suppliers as a registered taxable person were already available with the Government record and in Government portal at the relevant period of transaction, petitioners could not be faulted if the suppliers appeared to be fake later on. Petitioners further submit that they have paid the amount of purchases in question as well as tax on the same not in cash and all transactions were through banks and petitioners are helpless if at some point of time after the transactions were over, if the respondents concerned finds on enquiries that the aforesaid suppliers (RTP) were fake and bogus and on this basis petitioners could not be penalised unless the department/respondents establish with concrete materials that the transactions in question were the outcome of any collusion between the petitioners/purchasers and the suppliers in question. Petitioners further submit that all the purchasers in question invoices-wise were available on the GST portal in form GSTR-2A which are matters of record.
Considering the facts as recorded, without any further verification it cannot be said that that there was any failure on the part of the petitioners in compliance of any obligation required under the statute before entering into the transactions in question and that there was no verification of the genuineness of the suppliers in question by the petitioner during the relevant period.
