Allahabad HC: Section 74 GST Proceedings Unjustified When Goods Movement Is Proven by Assessee

When the taxpayer has proved the actual movement of goods and it stayed unrebutted via authority, then the proceedings u/s 74 of the Goods and Services Tax Act, 2017 are not justified, Allahabad High Court cited.

U/s 74 of the GST Act, the proceedings could be initiated if the taxpayer has not paid or short paid or incorrectly refused or wrong claim of Input tax credit or used via fraud or any willful-misstatement or suppression of facts

Justice Piyush Agrawal ruled that, “Once actual movement of goods as well as payment of tax by the respondent authorities have been proved by the petitioner to which no rebuttal has been brought on record at any stage, proceedings under section 74 of the Act cannot be justified.”

As per the applicant, some transactions were conducted with M/s Unimax Pharma Chem, Purana Taluka Bhiwandi, Thane, for which invoices, e-way bills, and transport bills were generated. Transactions were performed via banking channels, and tax returns were submitted through the other company that specifies the transactions.

U/s 74 of the GST Act, a notice was issued to the applicant or incorrectly claiming the ITC based on the registration of another firm that had been cancelled. The applicant submitted a response, which was rejected. Also, the applicant’s appeal was rejected.

The applicant before the Allahabad High Court appealed that the GSTR-3B of the supplier exhibits that he had deposited the tax on the transaction with the applicant. Before the authorities, along with the court, all material supporting the transaction was also produced; it appealed.

As per the court, all documents were produced to the authorities, and all the claims were observed via the authorities; however, it was not given any weightage during the passing of the orders. On record, GSTR-3B of the supplier and the petitioner were carried out, specifying the transactions, and such were not refused by the department.

“The order of the first appellate authority has been passed only on the basis of the information sent by the office of the Pr. Chief Commissioner, Central Intelligence Unit, Central Excise & Central Tax Vadodara Zone, with closed eyes,” the Court cited, while carrying that the information needs to be verified before passing orders against registered dealers.

Between the applicant and the supplier, no irregularity in the transaction was recorded in the material available before the authority. Subsequently, it held that the material relied upon by the authority should be provided to the applicant.

The Court cited that, “The GST regime has been brought by the Central Government for ease of business in the country, but the revenue officers are bent upon acting against the very theme/intent of it. When it was noticed by the Government that under the garb of Section 74 of the Act, various dealers are being harassed, it issued a circular dated 13.12.2023, where it has specifically been stated that proceedings under section 74 of the Act can be initiated if there is a fraud or willful mis-statement or suppression of fact to evade payment of tax and not otherwise.”

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

On Continental Foundation Joint Venture Holding, Nathpa, H.P. vs. Commissioner of Central Excise, Chandigarh-I, reliance was placed on where the Supreme Court ruled that an incorrect statement cannot be considered a willful misrepresentation or suppression unless it is made with the knowledge that it is incorrect. Additionally, the Court stated that no adverse inference can be drawn if complete information has been revealed without any purpose to evade tax payment.

The court, therefore, permitted the writ petition.