GST UPDATE

Hon’ble Court: HIGH COURT, ALLAHABAD
Case Title : Writ Tax No. - 1421 of 2022
Petition No. & Citation :M/S SHIV TRADING v STATE OF U.P. AND 2 OTHERS

Hon’ble Judge(s)	HON'BLE PIYUSH AGRAWAL,J
Date of Order	28/11/2023
Outcome	Writ Petition Dismissed, ITC Denied as Taxpayer Failed to Prove Actual Movement of Goods

Brief Facts of the Case

The petitioner, M/s Shiv Trading, is a proprietorship firm dealing in iron machinery parts and hardware. During the 2018-19 period, they claimed Input Tax Credit (ITC) based on purchases made from a supplier named M/s Krishna Trading Company, Mathura. However, during a department inspection on January 24, 2019, it was discovered that the selling dealer (M/s Krishna Trading Company) was completely non-existent. Based on this, the authorities department formed a view that the transactions were fictitious and that ITC had been wrongly availed.. Consequently, an order was passed under Section 74 of the GST Act, demanding Consequently, an order dated 22.11.2021 was passed raising a demand of ?45,21,097.75/- (including tax, interest, and penalty) for the period May to December 2018. The appeal filed by the petitioner was dismissed by the appellate authority vide order dated 01.06.2022 which led to the filing of the present writ petition before the High Court

Question before Hon’ble Court / Authority

Whether a taxpayer can legally claim ITC by merely producing tax invoices, E-way bills, Bilties (consignment notes), weighment slips, and proof of payment through banking channels, even if the actual physical movement of goods is not proved?

Brief Arguments by Petitioner

Erroneous Invocation of Section 74
The petitioner contends that initiation of proceedings under Section 74 is wholly unjustified, as there is no allegation or evidence of fraud, wilful misstatement, or suppression of facts. The transactions were undertaken in the normal course of business and hence do not warrant invocation of extended provisions.
Genuineness of Transactions and Compliance with Law
It is submitted that the petitioner, being a registered dealer, made genuine purchases from M/s Krishna Trading Company against valid tax invoices, and duly availed ITC in accordance with law. Payments were made through proper banking channels, establishing the bona fide nature of the transactions.
Unjustified Denial Based on Supplier’s Non-Existence
The petitioner argues that ITC has been denied solely on the ground that the supplier was found non-existent during a subsequent inspection, which is beyond the control of the petitioner. A bona fide purchaser cannot be penalized for the alleged default or non-existence of the supplier.
Reliance on Judicial Precedents
The petitioner has relied upon various judgments of High Courts and the Hon’ble Supreme Court to contend that:
ITC cannot be denied to a bona fide purchaser
Default of the supplier cannot be attributed to the purchaser
Documentary compliance should be given due weightage

Disregard of Documentary Evidence and Lack of Proper Inquiry
Despite submission of complete documentary evidence, including invoices, e-way bills, transport documents, and weighment slips, the authorities have arbitrarily rejected the same without conducting proper verification or bringing any conclusive evidence on record to disprove the transactions.
Violation of Natural Justice and Mechanical Order
The impugned orders have been passed in a mechanical manner without due consideration of the material placed on record and judicial precedents relied upon, thereby violating principles of natural justice and rendering the demand unsustainable.

Brief Arguments by Respondent

Transactions are Bogus and Unsupported by Genuine Evidence
The respondent contends that the documents relied upon by the petitioner, including weighment slips and bilty, are not genuine but fabricated, as upon inquiry neither the transporters nor the weighment entities were found to be in existence.
Absence of Actual Movement of Goods
It is submitted that there was no actual physical movement of goods, and the entire transaction is merely paper-based. In the absence of real movement, the claim of purchases and consequent ITC is liable to be rejected.
Failure to Discharge Burden of Proof
The respondent argues that the burden to prove the genuineness of ITC lies squarely on the purchasing dealer, and the petitioner has failed to establish the authenticity of the transactions with credible evidence.
Mere Documentation is Insufficient for ITC Claim
Relying on judicial precedents, it is contended that mere production of invoices, payment through banking channels, or other documents is not sufficient; the dealer must conclusively prove the actual transaction and movement of goods.
Reliance on Judicial Precedents Justifying Denial of ITC
The respondent has placed reliance on the Supreme Court judgment in State of Karnataka vs. Ecom Gill Coffee Trading Pvt. Ltd. and the High Court decision in M/s Malik Traders vs. State of U.P., to assert that in the absence of proof of actual movement of goods, ITC cannot be granted and the proceedings are legally justified.

Important Cases Relied Upon

Case Laws	Citation
Suncraft Energy Private Limited vs Assistant Commissioner	MAT No. 1218/2023, decided on 02.08.2018
Divya Agencies vs State Tax Officer	Writ Petition No. 29769/2023
The Commissioner of Central Excise & Customs Vs. M/s Juhi Alloys Limited	Central Excise Appeal No. 21/2014, decide don 15.01.2014
State of Karnataka vs Ecom Gill Coffee Trading Pvt Ltd	[Civil Appeal No. 230/2023, decided on 13.03.2023
M/s Malik Traders vs State of U.P.	[Writ Tax No. 1237/2021, decided on 18.10.2023]

Findings and Judgement

The Court found that although the petitioner claimed to have purchased goods from M/s Krishna Trading Company and submitted documents such as tax invoices, e-way bills, bilty, and weighment slips, these documents were not reliable. Upon verification, the selling dealer was found to be non-existent, and the transporters and weighment agencies mentioned were also not traceable.
The Court observed that this created serious doubt regarding the genuineness of the transactions. The petitioner failed to establish the actual physical movement of goods.
It was held that mere production of invoices and proof of payment through banking channels is not sufficient to claim Input Tax Credit (ITC).
The burden of proof lies on the purchasing dealer to prove the authenticity of the transaction and actual delivery of goods, which the petitioner failed to discharge.

The Court relied on the Supreme Court’s ruling in M/s Ecom Gill Coffee Trading Pvt. Ltd., which clearly states that the burden to prove the genuineness of ITC claims lies on the assessee. Since the petitioner could not prove the actual movement of goods or the genuineness of the transactions, the Court held that the action taken by the authorities was justified.
Accordingly, the Court dismissed the writ petition and upheld the tax, interest, and penalty imposed on the petitioner.

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Brief Facts of the Case

Question before Hon’ble Court / Authority

Brief Arguments by Petitioner

Brief Arguments by Respondent

Important Cases Relied Upon

Findings and Judgement

Opinion

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