2025 (4) TMI 676 - HC - GST

Petitioners' challenge to GST proceedings under sections 74 and 122 dismissed for Rs.4.34 crore input tax credit fraud

SHRI SHANKAR MUNDRA & ANR. Versus UNION OF INDIA & ANR.

Gujarat HC dismissed petition challenging proceedings under GST Act sections 74 and 122. Petitioners allegedly formed syndicate creating bogus firms to ... Availing of fraudulent Input Tax Credit on the strength of alleged fake invoices - HELD THAT:- On perusal of the common reply filed by the petitioners to the show cause notice along with other co-notices, the petitioners have tried to find fault with respondent no.2 by contending that the allegations are vague in nature and deserves outright denial without disclosing any fact about the petitioners in the reply. The petitioners have not stated anywhere that the allegations made against the petitioners that they are the founders of Ashok Creation who has provided funds to M/s. Poonam Creation in the bank account are correct or not so that the petitioners cannot be considered as part of the syndicate which is alleged in the show cause notice. In fact, by such common reply filed by the petitioners there is static admission by the petitioners that the petitioners are part of the syndicate who have availed the benefit of input tax credit to the tune of Rs.4,34,16,381/- during the period of August, 2017 to September, 2020 in contravention of the provisions of the GST Act by creating bogus firm of M/s. Poonam Creation and M/s. Ashok Creation and thereafter adopting the modus operandi as stated in the impugned order-in-original by availing the fake invoices from more than 67 suppliers without supply of the material goods. The contentions raised on behalf of the petitioners are required to be rejected outright which are based upon the legal provisions contrary the facts of the case which are emerging from the record as recorded in impugned order-in-original. With regard to the contention raised on behalf of the petitioners that notice under sections 74 and 122 of the GST Act could have been issued only against taxable person is concerned, it is pertinent to note that petitioners are only co-noticee along with the taxable person who has helped and who is part of the syndicate so as to evade tax and as such, as per the provisions of section 74 read with section 122 of the GST Act, the respondents were justified in initiating the proceedings against the petitioners who are part of the transactions of taxable person and who have aided the taxable person in defrauding the revenue. The petitioners have also not stated who are the taxable persons and only name of M/s.Poonam Creation is stated and the role of the petitioners with M/s. Poonam Creation or Ashok Creation is not denied at all after receipt of show cause notice from respondent no.2. As far as the decision of the Hon’ble Bombay High Court in Shantanu Hundekari [2024 (3) TMI 1277 - BOMBAY HIGH COURT] is concerned, the facts of the case were completely different from what has been presented in the instant case. In Shantanu Hundekari, the petitioner had rendered assistance to Maersk Lines in his capacity as “taxation manger” and on behalf of Maersk also volunteered to assist the investigation being conducted by the tax authorities in response to the summons issued to Maersk. The investigation against Maersk was that of wrongfully availing ITC - As far as the present petitioners are concerned, they are co-noticees in respect of an investigation into large scale fraud, being part of a syndicate and therefore, the decision of the Hon’ble Bombay High Court in Shantanu Hundekari is not applicable to the petitioners’ case. Conclusion - i) The proceedings under sections 74 and 122 of the GST Act are valid and applicable to the petitioners, given their alleged involvement in the fraudulent activities. ii) The petitioners' failure to deny the allegations effectively, combined with the detailed evidence presented in the show cause notice, justified the imposition of penalties. Petition dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:Whether the impugned order-in-original issued under sections 74 and 122 of the Central Goods and Services Tax Act, 2017 (CST Act) and Gujarat Goods and Services Tax Act, 2017 (GST Act) is valid, particularly regarding jurisdiction and applicability to the petitioners.Whether the petitioners, being non-taxable persons, can be subjected to proceedings under section 74 of the GST Act.Whether the penalty imposed under section 122 read with section 127 of the GST Act is tenable.Whether the allegations made in the show cause notice are vague and lack sufficient material evidence against the petitioners.Whether the issuance of notice under section 74 for multiple periods is permissible.2. ISSUE-WISE DETAILED ANALYSISJurisdiction and Applicability of Sections 74 and 122:The petitioners challenged the jurisdiction of the respondent authority to issue the impugned order, arguing they are not taxable persons. The Court examined the legal framework under sections 74 and 122 of the GST Act, which allows for proceedings against any person involved in fraudulent activities related to tax evasion.The Court noted that the petitioners were co-noticees along with the taxable person and were allegedly part of a syndicate involved in fraudulent activities. Thus, the proceedings were justified under the GST Act.The Court referenced prior judgments, including the decision in Shantanu Sanjay Hundekari v. Union of India, to distinguish the petitioners' case from cases where individuals were not directly involved in fraudulent activities.Penalty Imposition Under Section 122:The petitioners argued that the penalty under section 122 read with section 127 was not tenable as section 127 only provides procedural guidelines for penalty imposition.The Court clarified that section 122 provides for penalties against any person who aids or abets tax evasion, and the petitioners, being part of the syndicate, were liable under this provision.The Court dismissed the petitioners' argument, stating that the penalty was appropriately levied based on their involvement in the fraudulent activities.Allegations of Vagueness and Lack of Material Evidence:The petitioners contended that the allegations in the show cause notice were vague and lacked specific evidence against them. They cited the decision in Commissioner of Central Excise, Bangalore v. Brindavan Beverages (P) Ltd. to support their claim.The Court examined the show cause notice and found that the role of the petitioners was sufficiently detailed, indicating their involvement in the syndicate.The Court concluded that the petitioners failed to deny the allegations effectively, and their vague reply to the show cause notice amounted to an implicit admission of their involvement.Issuance of Notice for Multiple Periods:The petitioners argued against the issuance of notice under section 74 for multiple periods, citing various judgments to support their position.The Court noted that section 74 allows for proceedings against persons involved in fraudulent activities irrespective of the period, as long as the fraudulent intent is established.The Court dismissed the petitioners' argument, stating that the proceedings were justified based on the evidence of their involvement in the fraudulent activities.3. SIGNIFICANT HOLDINGSThe Court held that the proceedings under sections 74 and 122 of the GST Act were valid and applicable to the petitioners, given their alleged involvement in the fraudulent activities.The Court emphasized that the petitioners' failure to deny the allegations effectively, combined with the detailed evidence presented in the show cause notice, justified the imposition of penalties.The Court rejected the petitioners' reliance on prior judgments, distinguishing their case based on the specific facts and evidence of their involvement in the syndicate.The Court concluded that the petition lacked merit and dismissed it, affirming the validity of the impugned order-in-original and the penalties imposed.