ITC denied if buyer having knowledge of investigation going on against his supplier

The High Court of Madhya Pradesh has ruled that Input Tax Credit (ITC) can be denied if a buyer is aware that their supplier is under investigation. In this case, Dhara Enterprises attempted to claim ITC on supplies from V.K. Enterprises, but the court found that Dhara Enterprises had sufficient knowledge of the transactions being investigated. Therefore, their appeal to quash the tax liability and penalty was dismissed.

The Hon'ble High Court of Madhya Pradesh in the matter of M/s Dhara Enterprises v. Appellate Authority & Joint Commissioner [Writ Petition No.27676 of 2019 dated May 12, 2022] has upheld the order passed by the Revenue Department imposing the tax liability on the assessee is valid on the ground that the assessee was well aware with the transaction alleged as ineligible on which the benefit of Input Tax Credit ("ITC") was availed by him.

Facts:

M/s Dhara Enterprises ("the Petitioner") has engaged in the business of Ferrous waste and scrap and is registered under the provisions of the Goods and Services Tax Act, 2017 ("the CGST Act"). A Show Cause Notice ("SCN") was served imposing the tax liability along with the penalty on the Petitioner. Thereafter, the Petitioner preferred an appeal before the Appellate Authority ("the Respondent") who vide order ("the Impugned Order") dismissed the appeal. Hence the Petitioner had filed this Petition praying to quash the Impugned order.

Petitioner's Contention:

• There is gross violation of the principle of natural justice, while issuing the SCN, when the authorities alleged that the Petitioner had availed some ineligible ITC, then they should have disclosed the transactions on which such benefit was availed by the Petitioner.
• It came to know for the first time, on passing of Impugned order that the transactions were in respect of inward supply received from one M/s V.K. Enterprises, Chhatarpur ("the Supplier") and liability under Section 74 of the CGST Act was fastened upon the Petitioner.

Respondent's Contention:

• The Petitioner had availed the benefit of some ineligible ITC on inward supply from the Supplier and accordingly in the SCN the amount of the ITC availed by the Petitioner were clearly mentioned.
• The Petitioner was well aware about the details of transaction for which, the liability was being fastened upon the Petitioner and hence present Petition deserves to be dismissed.

Issue:

• Whether the Petitioner was right in availing credit when he was having the knowledge that the transactions with its supplier were under investigation?

Held:

The Hon'ble High Court of Madhya Pradesh in Writ Petition No.27676 of 2019 dated May 12, 2022 has held as under:

• The Petitioner did not file any reply to the SCN but has made an attempt to demonstrate that he sought documents from the Respondent to have some clarity on the issue, but those documents were not supplied to the Petitioner and hence for want of those documents, the Petitioner could not file reply.
• Noted that, before passing the Impugned order, the Petitioner had submitted his reply in which, the Petitioner itself had disclosed the transaction with regard to the Supplier and along with the reply, the Petitioner had also annexed the relevant documents pertaining to transactions i.e. copy of bill, e-way bill.
• The Petitioner was well aware about the transaction for which the notice was issued toit. Thus, apparently, the Petitioner has made futile attempt to lay foundation by raising a ground that he was not informed regarding the transactions.
• Opined that the petition filed by the Petitioner is grossly misconceived as the grounds are ill founded. The Petitioner was in the knowledge that the transactions with Ssupplier were under scanner.
• Held that, there is no substance in the present writ petition and accordingly the same stands dismissed with cost of Rs.2000/- in favour of the Respondent.