2025 (8) TMI 851 - HC - GST

Petition dismissed; alternative remedy available under Section 107 GST Act; raise issues before Appellate Authority

M/s. Krupa Jewellers Versus Assistant Commissioner of State Tax-3.

M/s. Krupa Jewellers Versus Assistant Commissioner of State Tax-3. - 2025:GUJHC:46284 - DB 1. ISSUES PRESENTED and CONSIDERED Whether the impugned Order-in-Original passed under Section 74(9) of the Gujarat GST Act, disallowing Input Tax Credit (ITC) claimed by the petitioner, is liable to be quashed for non-application of mind and violation of principles of natural justice. Whether the show-cause notice issued under Section 74(1) of the GST Act was valid and within jurisdiction, particularly when there was no allegation of fraud, willful misstatement, or suppression of facts against the petitioner. Whether the respondent was justified in disallowing ITC on the ground that the suppliers from whom the petitioner claimed ITC had obtained GST registration by fraudulent means and were non-existent at their registered premises. Whether the petitioner was denied an opportunity to inspect or obtain copies of relied-upon documents, thereby violating principles of natural justice. Whether the petitioner's claim of bona fide purchase and entitlement to ITC, despite subsequent cancellation of supplier registrations, was properly considered. Whether the petitioner's failure to provide evidence of physical movement of goods justified disallowance of ITC, especially in light of Rule 138(14) of the GST Rules exempting e-way bill requirements for precious metals. Whether the High Court should exercise jurisdiction under Article 227 of the Constitution of India or relegate the petitioner to avail the alternative remedy under Section 107 of the GST Act. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity and Reasoning of the Impugned Order under Section 74(9) of the GST Act Relevant Legal Framework and Precedents: Section 74 of the GST Act deals with determination of tax not paid or short paid or input tax credit wrongly availed or utilized by reason of fraud, willful misstatement or suppression of facts. Section 75(6) mandates that the adjudicating authority must set out relevant facts and reasons in the order. Principles of natural justice require that the order must consider and deal with the submissions made by the party. Court's Interpretation and Reasoning: The petitioner contended that the impugned order failed to properly consider the replies filed on multiple dates and did not assign cogent reasons for disallowance of ITC. The Court observed that the impugned order did refer to the petitioner's responses but concluded that the petitioner failed to satisfy the authority regarding physical movement of goods and legitimacy of ITC claimed. The Court noted that although the petitioner raised material points such as 'Nil' liability of certain dealers and cancellation of supplier registrations after purchase, the respondent's order did not explicitly address these contentions in detail. Key Evidence and Findings: The impugned order relied on inspection reports and documentary evidence indicating that suppliers were non-existent and had obtained GST registrations fraudulently. The petitioner provided ledger copies, bills, and bank statements but did not satisfy the respondent on physical movement of goods. Application of Law to Facts: The Court found that the respondent applied mind to the facts and evidence, holding that the petitioner could not establish bona fide purchase and proper movement of goods, which is critical in cases involving precious metals. Treatment of Competing Arguments: The petitioner argued that the order ignored relevant submissions and violated natural justice; the respondent maintained that the order was justified given the fraudulent nature of suppliers and lack of evidence on goods movement. Conclusions: The Court did not find sufficient grounds to interfere with the impugned order on the basis of non-application of mind or violation of natural justice at this stage and observed that these factual issues need to be examined by the appellate authority. Issue 2: Validity of the Show-Cause Notice under Section 74(1) and Jurisdictional Competence Relevant Legal Framework and Precedents: Section 74 applies only when there is fraud, willful misstatement, or suppression of facts. The show-cause notice must specify such allegations to invoke Section 74 proceedings. Precedents establish that invoking Section 74 without such ingredients is invalid. Court's Interpretation and Reasoning: The petitioner argued that the show-cause notice lacked specific allegations against it and was based on a prior intimation under Section 74(5) which did not mention fraud or suppression. The Court observed that the show-cause notice did allege fraudulent procurement of GST registrations by suppliers, which triggered Section 74 proceedings against the petitioner for claiming ITC from such suppliers. Key Evidence and Findings: The notice referred to discrepancies in ITC claimed and non-existence of suppliers at registered premises. The petitioner's reliance on a decision holding that absence of fraud allegations renders Section 74 notice invalid was noted but distinguished on facts. Application of Law to Facts: The Court held that the respondent had jurisdiction to issue the notice under Section 74 as the basis was the fraudulent GST registrations of suppliers, which is an essential ingredient for invoking Section 74. Treatment of Competing Arguments: The petitioner's contention that the notice was vague and lacked specific allegations was rejected as the notice sufficiently indicated the fraudulent nature of suppliers' GST registrations. Conclusions: The show-cause notice under Section 74 was valid and within jurisdiction. Issue 3: Denial of Opportunity to Inspect or Obtain Documents and Violation of Natural Justice Relevant Legal Framework and Precedents: Principles of natural justice require that a party must be given an opportunity to inspect and obtain copies of documents relied upon by the adjudicating authority. Failure to provide such documents amounts to violation of natural justice. Court's Interpretation and Reasoning: The petitioner contended that inspection reports and other documents referred to in the impugned order were not furnished, preventing effective response. The Court noted that the petitioner did not specifically request copies of such documents during proceedings and that the adjudicating authority considered the evidence on record. Key Evidence and Findings: The impugned order referred to inspection reports and documentary evidence but the petitioner did not seek their supply. The Court observed that the petitioner had ample opportunity to file detailed replies and produce documents. Application of Law to Facts: The Court held that absence of a specific request for documents by the petitioner weakened the contention of violation of natural justice. The petitioner was not denied opportunity to be heard or to produce evidence. Treatment of Competing Arguments: The petitioner relied on precedents where failure to provide documents was held to be violation of natural justice; the Court distinguished these on facts due to lack of request by petitioner. Conclusions: No violation of natural justice was established on the ground of non-supply of documents. Issue 4: Entitlement to Input Tax Credit Despite Cancellation of Supplier Registrations Relevant Legal Framework and Precedents: ITC can be claimed only if the supplier has valid GST registration at the time of supply and the recipient has evidence of purchase and payment. Subsequent cancellation of supplier's registration does not automatically disentitle the recipient to ITC if purchases were made bona fide when registration was valid. Court's Interpretation and Reasoning: The petitioner submitted that ITC was claimed on bona fide purchases made before cancellation of supplier registrations. The Court noted the petitioner provided ledger confirmations, bills, and bank statements to support this claim. Key Evidence and Findings: The petitioner produced documents evidencing purchase and payment from suppliers whose GST registrations were cancelled suo moto after the transactions. Application of Law to Facts: The Court recognized that the petitioner's claim to ITC on bona fide purchases is a valid contention but emphasized that the respondent's concern was the fraudulent nature of suppliers and lack of evidence on physical movement of goods. Treatment of Competing Arguments: The petitioner argued for allowance of ITC based on bona fide purchase; the respondent relied on supplier fraud and non-existence to justify disallowance. Conclusions: The issue of entitlement to ITC despite cancellation of supplier registrations requires detailed examination by the appellate authority and cannot be conclusively decided at this stage. Issue 5: Requirement of Evidence of Physical Movement of Goods and Applicability of Rule 138(14) of GST Rules Relevant Legal Framework and Precedents: Rule 138(14) of the GST Rules exempts movement of precious metals such as gold and silver from e-way bill requirements. However, physical movement or delivery of goods remains a relevant factor in establishing genuineness of transactions and entitlement to ITC. Court's Interpretation and Reasoning: The respondent disallowed ITC partly due to failure of the petitioner to provide evidence of physical movement of goods. The petitioner argued that the exemption under Rule 138(14) negates the need for e-way bills or similar documents to prove movement. Key Evidence and Findings: The petitioner deals in precious metals and submitted that statutory exemption applies. The respondent held that absence of adequate documents demonstrating movement justified disallowance. Application of Law to Facts: The Court observed that while e-way bills may not be required, the petitioner must still satisfy the authority regarding physical delivery or movement of goods. The Court noted this factual aspect requires verification by the appellate authority. Treatment of Competing Arguments: The petitioner relied on Rule 138(14) exemption; the respondent emphasized need for proof of physical movement to prevent fraudulent claims. Conclusions: The question of sufficiency of evidence on physical movement in light of Rule 138(14) is a factual issue for appellate determination. Issue 6: Jurisdiction of the High Court under Article 227 and Availability of Alternative Remedy under Section 107 of the GST Act Relevant Legal Framework and Precedents: Section 107 of the GST Act provides an alternative remedy of appeal against orders passed under the Act. The Supreme Court has held that writ jurisdiction under Article 226 or 227 is to be exercised sparingly when alternative efficacious remedies exist, except in cases involving breach of fundamental rights, violation of natural justice, excess of jurisdiction, or challenge to vires of statute. Court's Interpretation and Reasoning: The Court observed that the petitioner had an alternative efficacious remedy of appeal under Section 107 and that none of the exceptional circumstances for invoking extraordinary jurisdiction were present. Key Evidence and Findings: The Court relied on the Supreme Court's precedent which held that writ petitions challenging GST orders should generally be dismissed if alternative remedy is available. Application of Law to Facts: The Court found no violation of natural justice or excess of jurisdiction warranting interference under Article 227. It noted that the petitioner could raise all contentions before the appellate authority. Treatment of Competing Arguments: The petitioner sought quashing of the order under Article 227; the Court emphasized the availability and adequacy of statutory appeal remedy. Conclusions: The petition was dismissed with directions to avail remedy under Section 107 of the GST Act.