2023 (1) TMI 1224 - HC - GST

E-way Bill Fraud Exposed: Fictitious Dealer Caught Manipulating Tax Credits Under CGST Section 49

Amil And Another Versus State Of U.P. And 3 Others

The HC examined a case involving e-way bill irregularities under CGST Act, 2017. The Court found the selling dealer non-existent and the e-way bill ... Detention of goods - Movement of goods through valid e-way bill - Levy of penalty under Section 129(1)(b) - bogus firms - it is alleged that selling dealer was non existent at the place where his firm is said to have been registered and only through the e-way bill generated, goods were being sent from some other undisclosed place and ITC was to be claimed - HELD THAT:- Both the authorities have recorded a categorical finding to the effect that selling dealer, M/s. Sunshine Overseas was registered at Shri Ram Colony, Siya Wali Masjid, Rajeev Nagar, North East Delhi, Delhi. The e-way bill mentioned the goods to have been dispatched from the said place. The statement of the driver recorded disclosed that goods were loaded from Mayapuri, Delhi, which is 18 kms. away from Rajeev Nagar. On physical verification of the premises of M/s. Sunshine Overseas, it is clear that no business transaction was being done from that place and the GST registration was suspended on 04.05.2022. The selling dealer till date has not responded to the notice of the taxing authorities nor has come forward to state that goods were sent by him through the e-way bill alleged to have been generated from the portal from the address mentioned therein. The taxing authorities had also scrutinized the records of the selling dealer for the assessment year 2021-22 and found that it was not indulging in any sale and purchase and bogus transactions were only made for claiming ITC. Once, it is found that selling dealer was bogus firm, the goods carrying the e-way bill generated by such firm is of no benefit to the petitioners as the same has been used for transiting the goods from non bona fide dealer from undisclosed place. Thus, no interference is required in the orders passed by respondent nos. 3 and 4 - petition dismissed. ISSUES PRESENTED and CONSIDEREDThe core legal issue considered by the Court was whether the orders imposing a penalty on the petitioners under Section 129(1)(b) of the CGST Act, 2017, due to the alleged bogus nature of the selling dealer and the improper use of an e-way bill, required interference. The Court examined whether the authorities correctly determined that the selling dealer was non-existent at the registered address and whether the goods were dispatched from an undisclosed location to facilitate an inadmissible Input Tax Credit (ITC) claim.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe legal framework primarily involved Section 129(1)(b) of the Central Goods and Services Tax (CGST) Act, 2017, which deals with the detention, seizure, and release of goods and conveyances in transit. The relevant rules under the CGST Act, including Rule 138 concerning the generation and use of e-way bills, were also considered. The Court focused on the statutory requirements for valid e-way bills and the legitimacy of the selling dealer's registration.Court's Interpretation and ReasoningThe Court interpreted the provisions of the CGST Act to determine the validity of the e-way bill and the legitimacy of the selling dealer's operations. It emphasized that the e-way bill must reflect accurate information regarding the place of dispatch and the existence of the selling dealer. The Court noted the findings of the lower authorities that the selling dealer, M/s. Sunshine Overseas, was non-existent at the registered address and that the goods were loaded from an undeclared location, Mayapuri, Delhi, instead of the stated Rajeev Nagar, Delhi.Key Evidence and FindingsThe key evidence included the e-way bill and accompanying documents, the statement of the driver, and the physical inspection report of the selling dealer's premises. The authorities found that the selling dealer's registration was suspended, and no business activities were conducted from the registered address. The driver's statement corroborated that the goods were loaded from a location different from that mentioned in the e-way bill.Application of Law to FactsThe Court applied the provisions of the CGST Act to the facts, concluding that the e-way bill was improperly used to transit goods from a non-bona fide dealer. The absence of a response from the selling dealer to the notices and the lack of evidence of legitimate banking transactions further supported the authorities' findings of a bogus transaction aimed at claiming inadmissible ITC.Treatment of Competing ArgumentsThe petitioners argued that the goods were accompanied by a valid e-way bill and that the authorities should not have questioned the bona fides of the selling dealer, given its registration at the time of the transaction. The State countered that the selling dealer was non-existent, and the e-way bill was used to facilitate a bogus transaction. The Court sided with the State, emphasizing the non-existence of the selling dealer and the improper use of the e-way bill.ConclusionsThe Court concluded that the orders imposing penalties were justified as the selling dealer was found to be non-existent and the transaction was intended to claim inadmissible ITC. The Court found no grounds to interfere with the orders of the lower authorities.SIGNIFICANT HOLDINGSThe Court held that the existence of a valid e-way bill does not shield the parties from scrutiny if the selling dealer is found to be non-existent or if the goods are dispatched from an undisclosed location. The Court established the principle that the legitimacy of the selling dealer and the accuracy of the e-way bill are crucial for the validity of the transaction under the CGST Act.The Court's final determination was to dismiss the writ petition, upholding the penalties imposed by the authorities due to the bogus nature of the transaction and the improper use of the e-way bill.