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 movement. The court found that ITC disallowance affected the beneficiary company in liquidation, not the petitioners. Penalty and interest were imposed based on search evidence showing petitioners created false invoices without conducting actual business activities or receiving goods. The court found no violation of natural justice principles and noted availability of efficacious appeal remedy. Petitioners were granted liberty to file appeals within 30 days without limitation constraints.

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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.

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