Calcutta HC: The Particular Buyer is Not Responsible If the Seller Breaks the GST Law

In the case of Fairdeal Metals Limited Vs Asst. Commissioner Of Revenue, State Tax WPA/170/2024; Calcutta High Court has expressed that the buyer, who is in no way associated with any of the allegations that have been incurred against the seller, could not be made responsible to pay a penalty for incorrect doings of seller.

Case Facts

• The particular case of the applicant is that no allegation against the applicant is there however the whole allegation has been incurred against the supplier from whom the applicant buys the goods.
• The SCN specifies that the applicant’s supplier was enrolled under the GST Act. Post perusal of the supplier’s documents, the proper officer believed that he was engaged in obtaining and passing the fake ITC to the related parties. The mentioned company has been set up only to circulate the fake ITC under GST. the goods were noticed to be of suspicious origin and the purchase was only a paper sale for hiding the original supplier with the objective of tax payment evasion.
• The applicant asked for SCN after the computation of the penalty in 4 days as to why the proposed tax and penalty must not be liable to get paid failing which further proceeds to be executed.
• The alleged bogus input tax in the cash ledger has been paid via the supplier. Against the applicant, an order was issued rendering the penalty payment.

Applicants Contention

• The applicants contend that the applicant was not asked to know the ancestors of the supplier company.
• The petitioner did not have any data or any procedure to verify the details of the supplier Company since the supplier company was a registered taxable person in the state of Assam.
• No allegation of tax evasion against the applicant is there. In the same case, it was not effective for the respondent authority to render the penalty payment through the applicant.

Relevance:- Calcutta HC: No Pending Payable Taxes, Won’t Get Punished U/S 129 of the GST Act

Departments Contention

On the Standard Operating Procedure reliance was placed, which was posted via Commissioner, Central Board of Indirect Taxes and Customs, GST Investigation Wing, on May 12, 2019.

GST Frauds Comprising Bogus Invoices

• A GST fraud feature consists of bogus invoices stated in the mentioned SOP that in distinct cases dummy firms are credited/floated to do the fraud.
• The addresses are not correct and incomplete and the information shown in the registration forms is indeed not correct.
• As the entry restriction is lower and there is no proper system of scrutiny and verification of registration data, fraudsters can commit fraud with impunity.
• The respondents could avail that the supplier is a dummy firm made merely for doing fraud.

Read Also:- Calcutta HC Deletes Penalty, GST E-Way Bill Expired Due to Road Accident

Observations

• The non-existence of the supplier company was alleged to be directed to non-deposit of the ITC but before furnishing the SCN notice the supplier company already deposited the input tax.
• Assuming that there was an objective to evade the tax on the supplier’s end though subsequently through the tax payment, the allegation of the objective to evade the tax gets zero.
• No connection is there between the applicant and the allegations that have been levelled against the supplier company, which could not be incurred and obligated to file the penalty since it has been reviewed.

Order:

The order of detention and the following order levying penalty are liable to be set aside and quashed towards the aforesaid view.