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Department Is Not Bound To Give ITC Benefit To Buyer Merely Because Suppliers Were Registered At The Time Of Transaction: High Court

The High Court has ruled that the Department is not obligated to provide ITC benefits to the buyer simply because the suppliers were registered at the time of the transaction.

The court noted that the registration of firms on the day of the transaction does not necessarily require the department to grant the assessee the ITC benefit. This is especially true if it is later discovered that the supplier firms did not exist and were unable to make any real supplies.

The petitioner in question here is a manufacturer and seller of aluminium casting and machinery parts. During a survey of their business premises, it was discovered that they had claimed to have received inward supplies from three firms and had availed of Input Tax Credit (ITC) on said supplies. However, further investigation by the Special Investigation Branch (SIB) revealed that these firms were non-existent and bogus.

The petitioner, however, maintains that they did indeed receive inward supplies, as evidenced by the records they presented to the adjudicating authority. They also claim that the supplier firms had valid GSTIN registration at the time of supply. The petitioner argues that they should not be penalised if the GSTIN registration of the supplier firms is cancelled subsequently.

It is clear that this case raises important questions about the validity of claims for ITC and the responsibility of businesses to ensure the authenticity of their suppliers. The petitioner's argument, while understandable, must be weighed against the need to prevent fraudulent practices in the GST system. Ultimately, it will be up to the adjudicating authority to determine the validity of the petitioner's claims and decide on an appropriate course of action.

During the hearing of the writ petition, the Additional Chief Standing Counsel brought forth his opposition. He firmly stated that this was not a case where the petitioner was denied the I.T.C. benefit and was subsequently burdened with liabilities due to the cancellation of supplier firm registrations. Rather, the petitioner had been penalized for falsely portraying inward supply from non-existent and bogus firms, and for fraudulently claiming I.T.C. without any actual inward supplies.

It is clear that the orders against the petitioner were passed with due consideration of his fraudulent actions. Therefore, it is not justifiable to claim that the petitioner was wrongly punished due to the cancellation of supplier firm registrations. It is important to uphold the integrity of the system and to ensure that fraudulent activities are not overlooked.

The High Court has rejected a petition filed by a firm challenging the penalty and interest imposed on it, as well as the reversal of input tax credit (ITC) on inward supplies of goods by non-existent firms. The court has upheld the order passed by the GST Authority in this regard.

The court has emphasized that fraud vitiates even the most solemn proceedings, and the mere fact that the ITC benefit had been granted to the assessee earlier, simply because the firms were then registered, would not create any estoppel against the authority for taking appropriate action to claim the refund of the benefit wrongly availed.

In other words, the court has made it clear that the firm cannot escape the consequences of its fraudulent activities. This ruling is a reminder that the law will always catch up with those who try to cheat the system, and that there is no escaping the consequences of such actions. The court's decision is a victory for justice and the rule of law.

Written By: Suraj Nihal

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