The recipient cannot be deemed responsible for disseminating fraudulent invoices issued by the supplier.

The Calcutta High Court in Writ Petition Application No. 170 of 2024 dated February 01, 2024, ruled that the supplier, having obtained registration from the GST authority, should not have received it if any deficiencies existed. Once the supplier is registered and has paid taxes, allegations against them lose merit. Additionally, the petitioner, having no involvement in the supplier’s alleged wrongdoing, cannot be held accountable for wrongfully claiming Input Tax Credit (ITC) due to fraudulent invoices issued by the supplier. Consequently, the petitioner is not liable for penalties.

Facts:

Fairdeal Metals Ltd. (“the Petitioner”) obtained goods from M/s Navaraj Trading Company (“the Supplier”). The Supplier, registered under the Central Goods and Services Tax Act, 2017 (“the CGST Act”) in the State of Assam since October 9, 2023, claimed occupancy as ‘rented’ for its business location. However, essential documents such as electricity bills, municipal khata copy, or other required proofs of legal occupancy were not provided, as mandated by the West Bengal Goods and Services Tax Act, 2017 (“the WBGST Act”)/ the CGST Act and relevant regulations.

The Petitioner received a Show Cause Notice dated December 31, 2023 (“the Impugned SCN”), citing discrepancies in the Supplier’s FORM GSTR-3B for October 2023 and November 2023. The notice alleged that the transported goods lacked coverage according to their GST registration, suggesting the Supplier’s intention to circulate counterfeit Input Tax Credit (ITC).

The Impugned SCN further contended that the goods had a dubious origin, and the purchase was essentially a ‘paper sale’ to conceal the true supplier, aiming to evade tax payments.

Despite the Supplier paying input tax through the cash ledger on December 30, 2023, the Respondent issued an Order dated January 05, 2024 (“the Impugned Order”), instructing the Petitioner to pay tax and penalties. Additionally, the Revenue Department seized the vehicle and the goods.

Discontented with the Impugned Order, the Petitioner initiated the writ petition.

Issue:

Can the Recipient be held responsible for disseminating fraudulent invoices issued by the Supplier?

Held:

The Calcutta High Court, in Writ Petition Application No. 170 of 2024, ruled as follows:

Noted that the Supplier had already deposited the input tax on December 30, 2023, prior to the issuance of the Impugned SCN, which refuted the allegation of an intention to evade tax.

Emphasized that the GST authority of Assam granted registration to the Supplier, indicating that if there were any deficiencies in document submission, registration should not have been granted. Once registration is issued, and tax is paid, the allegations against the Supplier lose merit. The Petitioner, having no connection to the Supplier’s allegations, cannot be held responsible for the assessed penalty.

Ordered the Respondent to promptly release the vehicle and goods in favor of the Petitioner. Consequently, the penalty imposed by the Impugned Order was annulled and dismissed.

Our Remark:

This notable ruling from the Hon’ble Calcutta High Court deserves commendation. The court appropriately recognizes that once registration is granted, and taxes are duly paid by the Supplier, any allegations against them lose credibility.

Section 130 of the CGST Act addresses the “Confiscation of goods or conveyances and levy of penalty.” As per Section 130 (1)(iv) of the CGST Act, if any person violates the provisions of the Act or the rules with the intent to evade tax, then all such goods or conveyances are subject to confiscation, and the person is liable to penalties under Section 122 of the CGST Act.