2023 (11) TMI 664 - HC - GST

ITC disallowance under Section 74 upheld for bogus invoices and circular trading without goods movement

The Madras HC dismissed writ petitions challenging ITC disallowance under Section 74 for alleged bogus invoice creation and circular trading without goods ... Input tax credit - disallowance of ITC for bogus invoices / circular trading - eligibility for input tax credit under Section 16(2)(d) - constructive possession / constructive receipt - penalty and interest under Section 74 - efficacious alternative remedy by way of appeal - natural justiceInput tax credit - disallowance of ITC for bogus invoices / circular trading - penalty and interest under Section 74 - Validity of impugned orders disallowing input tax credit and imposing penalty and interest on the petitioners based on findings of bogus invoices and absence of business activity. - HELD THAT: - The Court upheld the factual conclusion reached by the respondents that search and seized documents showed the petitioners had indulged in creation of bogus invoices and had not conducted business activity at the registered premises, and that the cotton yarn alleged to be purchased and sold was not received at the petitioners' premises. The Court noted that only ITC was availed by the beneficiary (SKMPL) and that penalty and interest were fastened on the petitioners based on the departmental adjudication. The Court found no violation of principles of natural justice in the adjudication and recorded that opportunity had been afforded to the petitioners. On these factual and procedural bases the Court was not inclined to interfere with the impugned orders. [Paras 8]Writ petitions dismissed insofar as challenge to disallowance of ITC and imposition of penalty and interest; no interference with impugned orders.Eligibility for input tax credit under Section 16(2)(d) - constructive possession / constructive receipt - Whether absence of physical receipt at the petitioners' premises and lack of transport documents precluded entitlement to ITC under the doctrine of constructive receipt/possession. - HELD THAT: - Petitioners argued that constructive receipt/possession and transfer of title at supplier's premises would suffice for claiming ITC under Section 16(2)(d). The Court, however, proceeded on the basis of the departmental factual findings that goods were not received and that invoices were bogus; having accepted those findings and having found no breach of natural justice, the Court did not accede to the petitioners' contention and did not set aside the impugned orders on that ground. [Paras 8]Petitioners' contention based on constructive receipt and Section 16(2)(d) not accepted; challenge rejected on the facts.Efficacious alternative remedy by way of appeal - leave to appeal without insisting upon limitation - pre-deposit discretion of appellate authority - Whether writ jurisdiction should be exercised in presence of an efficacious statutory appeal and what relief to grant. - HELD THAT: - The Court observed that an efficacious remedy by way of appeal is available against the impugned orders. Accordingly, rather than granting substantive relief, the Court declined to entertain the writ petitions and granted liberty to the petitioners to prefer appeals within 30 days from receipt of the order without insisting on limitation. The Court declined to give any positive direction regarding pre-deposit, leaving the matter to the appellate authority to decide in accordance with law after affording opportunity to the petitioners. [Paras 9]Writ petitions dismissed with liberty to prefer appeals within 30 days without insisting on limitation; appellate authority to deal with pre-deposit as per law.Final Conclusion: The writ petitions challenging the disallowance of input tax credit and imposition of penalty and interest were dismissed for want of merit and in view of available statutory remedy; petitioners granted liberty to prefer appeals within 30 days without insistence on limitation, with pre-deposit to be considered by the appellate authority in accordance with law. Issues involved: Challenging impugned orders under CGST Act/SGST Act as arbitrary, illegal, and ultra vires Section 50 and 74. Common issue in both Writ Petitions.Details of the judgment:Issue 1:The petitioners engaged in buying and selling yarn faced show cause notices for irregular ITC availed under CGST and SGST. Respondents alleged circular trading without goods movement to avail ITC. Petitioners contended constructive delivery is relevant for ITC, not physical receipt. They argued penalties under Section 122 not invoked, making penalty under Section 74 impermissible.Issue 2:Similar situation for other petitioners buying and selling yarn. Allegations of no business activity, lack of proof for goods movement, and disallowed ITC. Petitioners requested abeyance due to interlinked transactions with a company in liquidation. Respondents passed orders disallowing ITC, assessing tax liability, and confirming tax demand under CGST/SGST Act.Judgment:The Court noted only ITC was disallowed, affecting the beneficiary in liquidation, not the petitioners. Penalties and interest were imposed based on search findings of bogus invoices and lack of business activities. No violation of natural justice principles found. Writ Petitions dismissed, with liberty to appeal within 30 days without limitation enforcement. Appellate authority to decide pre-deposit for appeals. No costs incurred.