The Hon’ble High Court of Allahabad vide its order dated 06.12.2022 in the matter of M/s Ashish Trading Company Vs. State of U.P. and 3 Others in Writ Tax No. – 228 of 2021, 229 of 2021, 230 of 2021, 231 of 2021, held that the finding recorded by the first Appellate Authority for denying the claim of ITC to the assessee is cryptic and therefore, not sustainable and liable to be set aside.

The petitioner filed the writ petitions before the Hon’ble High Court challenging the order passed by the Assessing Authority reversing the ITC and also the order passed by the Additional Commissioner, Grade – II in appeal dated 20.10.2020, whereby the order passed by the Assessing Authority was upheld.

Facts of the Case: –

• That the petitioner is a proprietorship firm and engaged in a business of purchasing and selling of empty tin boxes and registered with the taxing under Goods and Service Tax Act, 2017.
• That a show cause notice under Section 74 was issued to the petitioner on 09.12.2019, for the period in dispute i.e., assessment year 2019-20, to which the petitioner duly replied.
• That considering the reply, the Deputy Commissioner vide its order dated 23.01.2022, rejected the contention raised by the petitioner.
• Aggrieved by the said order, the petitioner preferred an appeal before the Appellate Authority, specifically raising a contention that all the required GST was deposited timely and the relevant documents were placed before the authorities. Therefore, the claim of ITC was wrongly denied by the Assessing Authority.
• However, the Appellate Authority dismissed the appeal filed by the petitioner vide its order dated 20.10.2020, mainly on the ground that the firm which had supplied the goods to the petitioner's firm, i.e., M/s Riddhi Siddhi Enterprises, Agra, its registration was already cancelled and moreover the petitioner has not mentioned any amount for loading and unloading of the goods.

Petitioner’s Submissions: –

• It was submitted on the behalf of the petitioner that the Appellate Authority has recorded a categorical finding in the order that all the documents such as tax invoice, e-way bill, bilty, supply ledger accounts as well as transporter bilty has been submitted and all the documents submitted were verified by the Appellate Authority. However, solely on the ground that no amount of loading and unloading of goods has been mentioned in the accounts, the claim of ITC was rejected.
• The finding recorded by the Appellate Authority is not correct, as the registration of the supplier firm M/s Riddhi Siddhi Enterprises, Agra was cancelled on 13.08.2019 subsequent to the date of transaction of goods.

On the other hand, it was submitted on the behalf of the respondents that the Appellate Authority has given a categorical finding that the registration of the supplier firm was cancelled, so the petitioner could not avail the benefit of ITC.  Further, referring to Section 16 and Section 74 of the Act, it was submitted that the transaction in question was fake and no goods had passed on from the supplier to the purchaser and the ITC has been claimed on the exchange of documents.  Thus, the authorities have rightly rejected the claim of ITC.

Held: –

• The Hon’ble Court after considering the submissions made, facts of the case and the documents placed on record, took note of the provisions of Section 16 & Section 74 of the Act and found that from the perusal of Sub-section (1) of Section 16 it is clear that input tax credit can be claimed only on fulfilment of certain conditions. Sub-section (2) of Section 16 provides that no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless the conditions as mentioned in Sub-clauses (a) and (b) of Sub-section (2) of Section 16 is fulfilled.
• Further Section 74 provides for determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts. Sub-section (1) empowers the officer to issue a show cause notice that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax, and upon the adjudication, the assessee is required to pay the amount specified in notice along with interest, and penalty may be imposed in view of Section 50 of the Act.
• It was found by the Hon’ble Court that from the reading of Section 16 with Section 74 of the Act, it is clear that the Legislature has provided the benefit of input tax credit to those assessees who had supplied goods or services and are registered dealers and fulfils the requirement provided in the provisions. Though, Section 74 places a restriction and gives power to the authorities that in case of availing the benefit wrongfully or by reasons of fraud or wilful mis-statement of the fact a notice is issued to the assessee and upon adjudication amount is recovered and ITC claimed is reversed.
• It was found by the Hon’ble Court that the Appellate Authority while rejecting the claim has given a categorical finding that all the documents have been place on record, however no evidence was placed on record in regard to the payment made for loading and unloading of the goods. It has been also recorded in the order that the registration of supplier of the goods M/s Riddhi Siddhi Enterprises, Agra has been cancelled and said firm was not carrying on any business from the premises as alleged in the documents placed before the authority.
• That with the aforesaid discussions, the Hon’ble Court found the findings recorded by the first Appellate Authority is cryptic as it only states in its order that the registration of the supplier was cancelled, but no date of cancellation has been mentioned so as to show whether transaction took place prior to cancellation or subsequently. Moreover, the first Appellate Authority had discarded the claim of ITC on the ground that no records of payment of loading and unloading of goods were not submitted by the petitioner.

The Hon’ble Court with the above findings, held that findings recorded by the Appellate Authority are not sustainable and the same are set aside.  The matter is remanded to the first Appellate Authority to record specific finding as to when the registration of supplier i.e., M/s Riddhi Siddhi Enterprises, Agra was cancelled.  The first Appellate Authority shall also record as to when the inquiry was conducted as to whether any business activity was carried out by the supplier firm.  It is made clear that in case the first Appellate Authority requires any further information either from the assessee or in regard to the registration of the firm M/s Riddhi Siddhi Enterprises, Agra, it shall be done within two weeks.