The Goods and Services Tax Appellate Tribunal (GSTAT), Cuttack State Bench, has upheld recovery of input tax credit (ITC), interest and an equal penalty after finding that the supplier was a non-existent business and the disputed invoices represented paper transactions without actual supply of goods.
The Bench of Suchismita Misra (Judicial Member) and Ananda Satpathy (Technical Member) confirmed ITC recovery of ₹1,07,712, interest quantified at ₹26,913.24, and penalty of ₹1,07,712, aggregating to ₹2,42,337.24, with updated interest payable in accordance with the order.
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The bench held that invoices, e-way bills, weighment slips and the purchaser’s bank statement did not, in the circumstances of the case, establish actual receipt of goods or rebut the evidence concerning the supplier’s non-existence.
The dispute arose from ITC claimed by the assessee a manufacturer of rolling steel represented by its director, Ramniwas Agarwal.
The company availed ITC of ₹1,07,712 in its GSTR-3B return for September 2020 against purchases purportedly made from M/s Lakra Steel under two invoices dated September 27 and September 30, 2020.
An enforcement investigation reported that the supplier did not exist at its declared place of business and that no business had ever been conducted there.
Based on this information, the department issued an intimation in Form GST DRC-01A on April 26, 2021. The taxpayer responded by email, enclosing invoices, e-way bills and a bank statement.
The authorities subsequently sought purchase, sales and stock registers, along with transport documents and other records supporting receipt of goods. According to the order, the required primary records were not produced during adjudication.
A notice in Form GST DRC-01 was issued on September 1, 2021. During a personal hearing on September 15, 2021, the taxpayer furnished invoices, corresponding e-way bills, weighment slips relating to its own vehicle and a bank statement.
The adjudicating authority denied the credit and imposed tax, interest and penalty under Section 74. The first appellate authority upheld the demand, leading to the appeal before GSTAT.
The taxpayer argued that it had purchased goods from a registered dealer, paid the consideration inclusive of tax and disclosed the transactions in its statutory returns.
It maintained that a purchasing dealer should not be denied ITC because of the supplier’s failure to file returns or discharge tax liability. It also relied on the supplier’s registration being valid on the transaction dates and the reflection of supplies in the GST portal.
The taxpayer contended that denying credit would effectively impose tax twice and violate its constitutional rights.
It separately challenged invocation of Section 74, asserting that there was no fraud, wilful misstatement or suppression with intent to evade tax. It also alleged breach of natural justice and relied on decisions concerning supplier defaults and retrospective cancellation of registration.
The Tribunal examined the investigation involving the person in whose name Lakra Steel was registered and the owner of its declared business premises.
According to the findings recorded in the order, the registered proprietor denied establishing the business, obtaining GST registration or opening a bank account in its name.
The landowner also denied letting out the property for the business. When confronted with the rental agreement used to obtain registration, he stated that its purported signatories—his father and uncle—had died before the agreement’s date.
The Tribunal concluded that registration had been obtained through a forged rental agreement using another person’s credentials.
It noted that the supplier’s registration was granted in August 2020, while the disputed transactions occurred in September 2020. On the evidence before it, the Bench held that the allegation that no business existed at the registered premises had been established beyond reasonable doubt.
Examining Sections 2(62) and 16 of the Act, the Tribunal emphasised that ITC must arise from an underlying supply of goods or services. It specifically relied on Section 16(2)(b), which requires receipt of goods or services.
The Bench found that the taxpayer had repeatedly relied on the same invoices, e-way bills, weighment slips and bank statement without overcoming the central allegation concerning the supplier’s non-existence.
In the circumstances before it, these documents did not establish actual receipt of goods. The Tribunal therefore rejected the assertion that all statutory conditions for claiming ITC had been fulfilled.
It further held that the supplier’s registration status, filing of returns and reflection of transactions in GSTR-2B did not establish eligibility once the underlying transactions were found to be unsupported by actual supplies.
The Tribunal recorded that the taxpayer had subsequently furnished copies of a stock register showing receipt of the disputed goods, along with an affidavit affirming receipt.
However, no formal application had been made seeking admission of additional evidence and explaining the reasonable cause that prevented production of these records before the adjudicating authority and first appellate authority.
The Bench consequently declined to admit the stock register and affidavit as additional evidence.
This procedural finding formed part of its assessment that actual receipt of the goods had not been proved.
The Tribunal also examined the taxpayer’s claim that payment had been made through banking channels.
It recorded that the purchases were paid for through bearer cheques. Such payments could establish a debit from the purchaser’s bank account without proving a corresponding credit to the supplier’s account.
The Bench therefore regarded the purchaser’s bank statement as weak evidence in the absence of proof that the supplier received the money.
Its finding concerned the evidentiary value of the payments in these disputed transactions: the debit from the purchaser’s account did not, by itself, establish a genuine supply.
The Tribunal distinguished the Calcutta High Court’s decision in Gargo Traders, observing that the cited case concerned retrospective cancellation of a supplier’s registration.
The present case involved a finding that the supplier had never conducted business at the registered premises. The Bench therefore considered the factual foundation materially different.
It also distinguished a Supreme Court decision relied upon by the taxpayer under the Delhi VAT framework. In that decision, the genuineness of the transactions and invoices had not been doubted following inquiry.
Here, the very existence of the supplies was disputed, and the Tribunal had found the transactions to be paper transactions. It accordingly declined to extend the protection claimed under those decisions.
The Tribunal sustained invocation of Section 74 on its findings concerning fraudulent registration and absence of actual supplies.
It reasoned that, in the circumstances before it, claiming ITC against invoices issued by a fraudulent registrant having no business or place of business established the recipient’s complicity.
The Bench also referred to Section 122(1)(vi), concerning taking or utilising ITC without actual receipt of goods or services.
Rejecting the natural justice objection, it found that the taxpayer had received adequate opportunities to defend its claim before and during adjudication.
The Tribunal accordingly dismissed the appeal, upheld the impugned order and confirmed recovery of ITC, interest and an equal penalty.
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