Bhansali Engineering Polymers Limited

CASE STUDY

BRIEF FACTS OF THE CASE:

A letter was issued by DGGI, Mumbai that M/S Apra Enterprises was engaged in issuance of invoices without any actual movement of goods. Since M/s Bhansali Engineering Polymers Limited (hereinafter referred to as Appellant) supplied goods to the alleged firm by issuing five invoices, a Show Cause Notice was issued to the appellant. It was alleged in the Show Notice that the appellant has supplied goods under 5 consignments to the said buyer, therefore, the appellant is allegedly involved in passing of fake ITC without actual supply of goods and a penalty under Section 122(1)(ii) for issuance of invoices without actual supply of goods. The appellant filed a detailed reply to the Show Cause Notice along with the documentary evidence however the same were ignored based on hyper technical discrepancies like non production of toll receipts, FASTAG data or any third party transport verification, variation in e-way documents, minor discrepancies in weighment slips like inconsistencies in weighment slips for same consignment or non-production of the weighment slip for another invoice etc. Based on such dicrepencies, the demand was confirmed vide Order in Original. Aggrieved by such order, the appellant filed appeal before the learned Commissioner (Appeals).

CA Pradeep Jain, authorised representative of the appellant appeared for the personal hearing to present the submissions and relevant explanations on behalf of the appellant: -

Submissions by Appellant:

Section 122 lacks Statutory mechanism to initiate proceedings:

It was contended that the proceedings cannot be initiated by standalone invocation of Section 122(1)(ii) of the CGST Act. The said section is merely a penal provision which provides for imposition of penalty in certain offences are established, however, the said provision does not provide any independent authority upon the department to issue SCN or pass a demand order. The impugned proceedings have been initiated and concluded by invoking Section 122(1)(ii) without following the statutory mechanism prescribed under the Act for determination of the disputed tax liability and the ingredients of fraud, suppression or wilful misstatement.

Further, that such interpretation defeats the statutory scheme and limitation prescribed under Section 73 and 74 of the CGST Act. Hence, proceedings initiated solely under Section 122 are unsustainable.

Notice issued and order passed without application of mind is not tenable:

It was argued that though the show cause notice and order have invoked Section 122(1)(ii) of the CGST Act for confirming the demand against the appellant, a plain reading of the notice and the impugned order shows that while discussing the applicability of the provisions, the department has in fact merely reproduced and explained Section 122(2) of the CGST Act which is a distinct statutory provision. This shows that the authorities were not certain about the exact provision under which proceedings were sought to be initiated against the appellant. Thus, such confusion between two separate statutory provisions reflects non-application of mind and issuance of order in careless and casual manner.

Impugned notice and order issued without prior investigation is not tenable:

That the impugned notice has been issued solely on the allegation that the appellant had issued five invoices to the said buyer and the said purchaser/buyer might be engaged in acceptance and issuance of fake invoices. The said fact is substantiated from the fact that the impugned notice wherein the department has categorically used the word “may” while stating that the said purchaser may be involved in fake invoicing activities.

Furthermore, merely because the appellant had issued 5 invoices to the said purchaser, no automatic adverse inference can be drawn against the appellant unless proper and independent investigation is carried out with respect to those 5 invoices. Every transaction is required to be independently examined on its own facts. Furthermore, the registration continues to remain active even as on date as evidenced from the GST portal.

Reliance was placed upon judicial pronouncements in which it was held that show cause notice issued without conducting investigation is void ab initio.

Swastik Tin Works v. Collector of Central Excise, Kanpur [1986 (25) E.L.T. 798 (Tribunal)]

Sunil Alcop Industry v. Commissioner of C.Ex. & S.T., Jaipur [2020 (33) G.S.T.L. 428 (Tri.-Del.)]

Ashok Agarwal v. Commissioner of CGST & Central Excise, Delhi-I [2018 (362) E.L.T. 885 (Tri.-Del.)]

Commissioner of Customs, Mumbai v. A.Q. Sayyed [2003 (157) E.L.T. 584 (Tri.-Del.)]

Bhagwan R. Daswani v. Commissioner of Central Excise Mumbai [2010 (262) E.L.T. 822 (Tri.- Mumbai)]

Third party evidence like weighbridge slips are conclusive evidence of receipt of goods:-

Appellant produced weighbridge slips along with reply of the show cause notice. Such weighbridge slips substantially prove that the goods were transported and received at the factory of the assessee. For this, reliance has been placed upon the decision in the case of :

Akshay LPG Valves v. Commissioner of Cus. & C.Ex., Hyderabad-IV [2016 (337) E.L.T. 129 (Tri.-Hyd.)

In which it was held that weighment slips are conclusive evidence of the receipt of goods. Thus, the investigation should have been done to verify the weighment slips submitted by the appellant. Therefore, extending the benefit of the above referred decision, impugned order deserves to be set aside.

Section 155 does not cast burden on the taxpayer for transactions involving outward supply:

Appellant argued that Section 155 only imposes burden of proving eligibility to input tax credit claimed by a person. However, same cannot be invoked for imposing burden on a supplier to disprove the allegations of fictitious outward supply or clandestine transaction. Hence, the department is solely liable to prove its allegations.

Irrelevant and Hyper technical discrepancies wrongly relied upon while ignoring substantive evidence:

The adjudicating authority rejected the explanation made by the appellant while passing impugned order-in-original on the basis that the e-way bills mention place of dispatch as surat whereas the transporter documents mentions Hazira. In this regard, it is submitted that the objection is wholly misconceived as the Hazira is well known industrial suburb situated within Surat district only.

Further, in continuation of above, it was contended that the appellant had not submitted any agreement, work order or purchase order in support of the transactions. Appellant has dully submitted the copies of invoices, purchase orders becomes irrelevant as they are mainly for the quotation etc.

Non-production of toll receipts does not prove non-movement of goods:

Along with that, adjudicating authority alleged that toll receipts and weighment slip were not produced with regards to the invoice. In this regard, it was contended that appellant had furnished all documentary evidence which were available with him. Merely because as per the department some document were not available in respect of one invoice, same cannot be made a ground to discard the entire set of transactions. The learned adjudicating authorities has completely ignored the documentary records furnished for the other invoices. Furthermore, reliance was placed on the decision of M/S Raghuvansh Agro Farms Ltd. VS State of UP and Two Ors (Writ Tax No. 3827 of 2025) which clearly held that production of Toll Receipts is no where prescribed as mandatory.

Minor Printing issue in the weighment slip cannot be treated as inconsistent:

Further, with respect to one invoice, adjudicating authority has held that multiple weight bridge receipts pertaining to the same vehicle on the same date, details are contradictory and inconsistent. Department has totally misconceived the evidence and has drawn the conclusion without application of mind.

The alleged discrepancy in the weighbridge receipt with regard to one invoice was explained by the appellant as a printing issue and was explained to the adjudicating authority which was consistent with the recorded at other weighbridges. Further, minor variations in the weighment slips regarding difference in the weights of the same consignment were also pointed out by the department to which the appellant contended that variation of 50-60 kgs in total weight of approximately 15500 kgs is attributable to difference in weighing machines only and cannot be treated as evidence of non-movement of goods.

Absence of document with regards to one single transaction cannot justify rejection of all the transactions:

Appellant submitted that the missing lorry receipt or weighment slip with regards to a single invoice, cannot automatically render the other 4 independent transactions duly supported with genuine documents to be fictitious. Evidence pertaining to each transaction should be examined on individual basis.

Discrepancy in E-way bills cannot be treated as non-movement without supporting evidence:

That mere discrepancy found in the e-way bill does not establish that the goods were not supplied by the appellant. Independent evidence is required to be attributed retrospectively to the appellant’s genuine outward supplies.

Demand raised without substantiating allegations with cogent and corroborative evidence is not tenable:

It was contended that impugned demand has been confirmed merely on the basis of assumptions and presumptions without bringing on record any cogent, independent and corroborative evidence to substantiate the serious allegation of fake invoicing and fraudulent passing of ITC against the appellant. Merely a general allegation was made that the appellant had issued 5 invoices to the said buyer, however, no conclusive material was produced by the department to establish that no goods were actually supplied pursuant to such invoices.

Reliance was placed upon the following judicial pronouncements:

Commissioner v. Motabhai Iron and Steel Industries [2015 (316) E.L.T. 374 (Guj.)]

Kisco Castings India Ltd. v. Commissioner of C.Ex. & S.T., Chandigarh [2015 (329) E.L.T. 556 (Tri.-Del.]

Victoria Tools Engineers (P) Ltd. v. Commissioner of C.Ex., Delhi -IV [2015 (329) E.L.T. 864 (Tri.-Del.)]

Akshay LPG Valves v. Commissioner of Cus. & Ex., Hyderabad-IV [2016 (337) E.L.T. 129 (Tri.-Hyd.)]

Dhakad Metal Corporation v. Commissioner of C.Ex. & S.T. Daman [2015 (330) E.L.T. 561 (Tri.-Ahmd.]

SM Energy Teknik & Electronics Ltd. v. C.C.E. & S.T., Vaodara-II [2015 (328) E.L.T. 443 (Tri.-Ahmd.)]

Movement of goods proved by the appellant:

The show cause notice alleged that appellant has fraudulently passed on fake ITC without actual movement of the goods in respect of the 5 invoices in dispute ignoring the sufficient documentary evidence submitted with the reply to the show cause notice. Such approach shows the pre-determined mind of the adjudicating authority. While filing the reply to the SCN, appellant produced the documents:

• Valid tax invoice;

• Ledger account of party in appellant’s books;

• Weighment slips;

• Lorry receipts;

• Copies of E-way bills;

• Copy of bank statements depicting payment of invoice value received

Department did not question inward purchases of the appellant:

It was argued that the department failed to examine the entire evidentiary chain. As the department did not question the appellant’s inward purchases, availability of goods, stock records, payment of tax through GSTR-3B or the corresponding accounting records. Without examining the availability of goods with the appellant and the complete chain of transactions, the conclusion that the outwards supplied were fictitious is premature and unsustainable.

Penalty not imposable as the ingredients of the Section 122(1)(ii) have not been established:

Department failed to establish that the appellant issued invoices without actual supply of goods through cogent and corroborative evidence, thus, penalty under Section 122(1)(ii) cannot be imposed.

Judgement & Findings of the Appellate Authority:

The Learned Appellate authority observed and decided the matter in following manner:

• Proceedings not based on incriminating material obtained from investigation:

Appellate authority held that the entire case originated from the investigation initiated by the DGGI, Mumbai against the buyer on the basis of information received from income tax department, thus, foundation of the instant proceedings is not based on any incriminating material discovered against the appellant, but merely suspicion arising out of the appellant’s business dealings with an entity which was under investigation. Further, the registration details of the alleged entity was examined which was also found active.

Documents were found to be sufficient and appropriate evidence:

• Further, it was held that the documents produced by the appellant were examined and they were found to be a consistent and corroborative chain demonstrating that genuine commercial transactions. Transactions i.e. outward supplies supplied by the appellant for the period between November-2019 and December 2019 have been verified from GST portal filed under GSTR-1 which contains the details of all invoices.

• No independent investigation conducted by the department on its own:

Furthermore, adjudicating authority has not pointed out any discrepancy in the documents provided by the appellant during the adjudication proceedings. There was no allegation regarding the invoices that invoices are fabricated or that the consideration received by the transporter from the purchaser has flown back to the appellant. Department did not undertake any independent investigation with the consignee, transporter to establish that the goods were never delivered.

In continuation of above, allegation is required to be examined specifically with reference to the statutory ingredients of Section 122(1)(ii) of the CGST Act as the provision contemplates imposition of penalty where a taxable person “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”. Hence, to impose penalty there must be cogent and corroborative evidence establishing that the appellant issued the disputed invoices without corresponding supply of goods.

Appellate authority merely denied the allegations by rejecting the documents produced by the appellant:

• Appellate authority merely denied the allegation that has placed documentary evidence in support of the disputed transactions. Appellant has relied upon tax invoices, E-way bills, transportation documents/LRs and bank statements evidencing receipt of consideration through banking channels.

Documents produced substantiate the contentions of the appellant:

• Documents produced by the appellant constitutes contemporaneous records and cannot be discarded merely on the ground that they were generated in the course of transactions. Existence of transportation documents, E-way bills and receipt of sale consideration through banking channels. Moreover, invoice and transport documents submitted by the appellant states that the transport payment is to “pay basis” and “to be billed” which in commercial term means to be borne by the consignee. Further, the impugned order has not brought out any positive evidence demonstrating that the goods covered by disputed invoices were never transported.

Penalty cannot be invoked solely on assumptions and presumptions:

• Penalty provision cannot be invoked merely on the basis of suspicion or presumption. Department was required to establish, by cogent and corroborative evidence that the invoices were issued without the actual supply of goods. Further, the documentary evidence placed on record by the appellant creates a reasonable and substantial basis to hold the contentions of the appellant.

Penal provision ingredients should be satisfied independently:

• Further, it is a settled principle of law that penalty proceedings are distinct from assessment proceedings and the ingredients of the penal provision must be established independently. Penalty under Section 122(1) has to be founded upon the fact, which remains unsubstantiated in the present case.

Thus, based on the above observations, it was held that the impugned order is based on assumptions and lacks substantive evidentiary support and reliable evidence and the department failed to discharge the burden cast upon it to establish through positive and corroborative material. However, documentary evidence placed on record by the appellant establishes movement and supply of goods demonstrating generation of statutory tax invoices and e-way bills accounted the outward supplies in its returns, received consideration through banking channels and substantiated the transportation through transport documents.

Accordingly, penalty imposed under Section 122(1)(ii) is hereby set aside.

AUTHOR’s COMMENT:

The instant judgment reaffirms the well-settled principle emerging from various judicial pronouncements that the Department is required to undertake an independent investigation and verification of the facts and circumstances of a case, rather than placing sole reliance upon intelligence or information received from external sources. It further underscores that minor discrepancies or technical inconsistencies should not, by themselves, be sufficient to discredit an otherwise genuine transaction or render it fictitious. The Department is expected to adopt a pragmatic and judicious approach, apply its independent mind to the evidence placed on record, and examine the underlying substance and genuineness of the transaction instead of resorting to hyper-technical objections or adopting a predetermined approach to reject the contentions of the Taxpayer.

In the present case, the adjudication order evidently suffered from non-application of mind, as it failed to appropriately appreciate the explanations and documentary evidence furnished by the taxpayer. The appellate order, on the other hand, rightly reiterates that where an assessee provides a satisfactory explanation and places sufficient documentary evidence on record to substantiate its claim, the authorities are duty-bound to duly consider such material and arrive at a fair and reasoned conclusion. Where the evidence supports the taxpayer's claim, the benefit must necessarily follow in accordance with law. Such an approach not only safeguards the legitimate rights of taxpayers but also strengthens their trust in the fairness and integrity of the judicial system.

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PJ case study/2026-27/18

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