Allahabad HC: Fraudulent GST ITC Claims Without Actual Supply Covered U/S 74 of CGST Act

Claiming input tax credit under the Goods and Services Tax without the actual supply of goods or services from a non-existent firm falls within the ambit of Section 74 of the Central Goods and Services Tax Act, 2017, the Allahabad High Court has ruled.

A writ petition was dismissed by the court contesting the Show Cause Notice (SCN) issued via the Joint Director (DGGI), Zonal Unit, Meerut, and the following order-in-original passed by the Additional Commissioner, CGST, Meerut.

The applicant, M/s Reliable Trading Company, is a proprietorship firm and is in the trade of heavy metals. It strived to quash the said proceedings while asking for exemption from the statutory 10% pre-deposit requirement u/s 107(6)(b) of the GST Act, quoting financial hardship.

On the applicant’s request, the GST application was cancelled wef 08.02.2021. Under Section 74 of the CGST Act, the department began proceedings claiming that the applicant was engaged in a bogus scheme of making fake firms to avail and pass on ineligible ITC without actual movement of goods.

From eight such non-existent firms, the petitioner had procured invoices via banking channels and kept them by e-way bills and transportation documents in a classic case of circular trading. In the investigation, the physical inspections specified that the business premises of these firms did not exist, the transferred funds were withdrawn or rerouted, and transporters were not tracked.

While refusing the charges, the applicant asked for cross-examination of the engaged parties.

The adjudicating authority denied the appeal of the applicant and recorded a finding of a fake claim of the input tax credit (ITC) based on non-genuine transactions.

The applicant said that the invocation of section 74 was unreasonable and no fraud or suppression was there, as the authorities hold the documents.

The Chief Justice bench kept the action of the department and said that there is an inappropriate ITC claim via bogus firms and without receipt of goods and draws section 74 of the act, which is related to the matter of fraud, wilful misstatement, or suppression of facts.

Read Also: Kerala HC Directs Adjudicating Authority to Respond to Taxpayer’s Reply U/S 74 of GST Act

On the Supreme Court’s ruling in State of Karnataka vs. Ecom Gill Coffee Trading Pvt. Ltd. and the Allahabad High Court’s decision in Shiv Trading vs. State of U.P, Chief Justice Arun Bhansali and Justice Kshitij Shailendra placed reliance where it was kept that only production of the invoices and payments via banking channels does not enough to prove actual supply.

It was concluded by the bench that “Given the above fact situation, we do not find any reason to entertain the present writ petition bypassing the availability of an alternative remedy. The alternative prayer made for exempting the mandatory deposit cannot be countenanced, as this prayer is contrary to the statute.”

Therefore, the petition was dismissed, asking the applicant to take another remedy.