Court rules against tax, interest, and penalty demands due to lack of fraud evidence in ITC claim reversal
In a landmark judgment, the Orissa High Court has quashed the tax, interest, and penalty demands levied by the GST authorities on M/s. Manoja Kumar Nayak. The petitioner had voluntarily reversed the Input Tax Credit (ITC) availed on fake invoices before any official notice was issued by the authorities. The court found the proceedings under Section 74 of the Central Goods and Services Tax Act, 2017, unjustified due to the absence of fraud, wilful misstatement, or suppression of facts.
The judgment was delivered by Chief Justice Harish Tandon and Justice Murahari Sri Raman, who examined the claims made by the petitioner. The petitioner had reversed the ITC worth Rs. 4,39,970 voluntarily, filing returns for the months of April 2023 and June 2024, in response to a letter from the Superintendent (Anti-Evasion) of the CGST and Central Excise, Rourkela Commissionerate.
The court noted that the proceedings initiated under Section 74, which requires evidence of fraudulent intent, were based solely on an alert notice from the Directorate General of Goods and Services Tax Intelligence (DGGI) alleging fake invoices from a non-existent supplier, Auxesia Traders. The adjudicating authority failed to conduct an independent inquiry or verify the petitioner's complicity in the alleged fraud.
The judges emphasized that the mere existence of fake invoices does not suffice to establish fraud on the part of the recipient without substantial evidence. They underscored that the petitioner's voluntary reversal of ITC and surplus balance in the Electronic Credit Ledger negated any liability for interest and penalty.
Furthermore, the court highlighted the retrospective amendment to Section 50 of the GST Act, which stipulates that interest is chargeable only on ITC "wrongly availed and utilized," not just "wrongly availed." Consequently, the demand for interest was quashed.
The imposition of penalty was also deemed unsustainable, as raising a demand equivalent to the reversed ITC amounted to double taxation. The court asserted that such actions are not permissible under the law.
In conclusion, the Orissa High Court's ruling has reinforced the requirement for substantial evidence before initiating proceedings under Section 74 for fraudulent ITC claims. The judgment is expected to have significant implications for similar cases involving alleged fraudulent ITC claims.
Bottom line:-
GST - Input Tax Credit (ITC) wrongly availed on fake invoices - Voluntary reversal of ITC before issuance of notice - Demand for tax, interest, and penalty under Section 74 of CGST Act, 2017, quashed due to absence of fraud, wilful misstatement, or suppression of facts.
Statutory provision(s): Central Goods and Services Tax Act, 2017 Section 74, Section 50(3), Integrated Goods and Services Tax Act, 2017 Section 20, Central Goods and Services Tax Rules, 2017 Rule 88B
