Reasoned order to be passed against the accused taxpayer involved in passing on fake ITC without actual movements of goods

The Hon'ble Gauhati High Court in Krit Kunal Dhawan v. State of Assam and Ors. [WP(C)/5642/2021, dated October 29, 2021] held that in a case where assessee is accused of passing on fake Input Tax Credit ("ITC") without actual moment of goods, a reasoned order must be passed by Joint Commissioner of State Tax, after acknowledging all the relevant material and contentions that the assessee may produce to satisfy the authorities.

Facts

Kriti Kunal Dhawan ("the Petitioner") is engaged in carrying on business in the name and style of eco fuel industries. An investigation was conducted and it was found that the taxpayer has utilized ITC from dubious firms. It has been reported in print and electric media that these dubious firms are involved in bill trading and passing on fake ITC without movement of actual goods therefore, ITC claimed from these firms by the Petitioner are sought to be reversed with levy of interest and penalty as per Assam Goods and Services Tax Act 2017 ("AGST Act").

The Petitioner was summoned on September 10, 2021 for further investigation and consequently the Petitioner appeared on September 23, 2021 and requested time up-to September 30, 2021. The request made by the Petition was agreed by the authorities but even on September 30, 2021 however, the Petitioner failed to appear.

Therefore a Show Cause Notice in form DRC-01 was issued on October 8, 2021 ("the SCN") as per Rule 142(1)(a) of the Assam Goods and Service Tax Rules, 2017 ("AGST Rules").

Issues

• Whether SCN can be issued on the basis of certain report in print and electronic media?
• Whether the Petitioner should be given an opportunity to appear before the department to produce relevant material and contentions?

Held

The Hon'ble Gauhati High Court in W.P. No. 5642 of 2021 decided on October 29, 2021 held as under:

• Observed that, the department before issuing a SCN to the Petitioner has not only relied upon print and electronic media, as alleged by the Petitioner, but also found during their investigation that the tax payers had utilized dubious ITC forms.
• Observed that, the department gave time and opportunity to the Petitioner during the investigation to justify the alleged charges against him but the Petitioner had failed to satisfy the authorities and the department had no option but to rely upon the fact that the Petitioner has utilized ITC From dubious firms and further issued a SCN against the Petitioner.
• Held that, though the Petitioner has failed to provided appropriate material and document at the time of the investigation but it would be against the principles of natural justice if the Petitioner would not be given an opportunity to appear before the department with all relevant materials that he may desire to rely upon and satisfy the authorities in their investigation.
• Ordered that, the petitioner shall appear before the Joint Commissioner of State Taxes, Guwahati, on November 8, 2021 at 11 a.m., and the above mentioned authority shall give the Petitioner appropriate consideration upon his attendance and acknowledge all relevant items as well as arguments that he may offer to justify the allegations against him.
• Further ordered that, by following the above mentioned procedure the department shall pass a reasoned order either accepting or rejecting the contentions of the petitioner and further ordered that the SCN shall be kept in abeyance till the reasoned order is not passed.
• Held that, if the reasoned order comes in favor of the Petitioner, the SCN would not be valid but if comes against the Petitioner than a fresh SCN may be issued against the Petitioner.

Relevant Provision

Rule 142(1)(a) of the AGST Rules

"142. Notice and order for demand of amounts payable under the Act.

(1) The proper officer shall serve, along with the

(a) notice issued under section 52 or section 73 or section 74 or section 76 or section 122 or section 123 or section 124 or section 125 or section 127 or section 129 or section 130, a summary thereof electronically in FORM GST DRC-01."