Blog No. 43: Non-Existent or fraudulent ITC cannot be ground for confiscation

A bonafide issue which is subject matter of assessment under the Act cannot be a ground to proceed under Section 130 of the Act unless the same falls within four corners of Section 130(1) of the 2017 Act.

Observing the same, Hon’ble HC of P&H in the case of Shiv Enterprises vs State of Punjab and Ors 2022 (2) TMI 296 directed to release the goods sought to be confiscated. Read more about the case below:

Facts in brief

1. The goods were detained along with vehicle on 30.08.2021. Despite the documents being in order, the same were detained on the pretext that the ‘genuineness of the tendered documents needs verification from regular bills of A/c’.
2. Form MOV-02 dated 30.08.2021 was issued and the petitioner was directed to station the conveyance carrying goods at the office of Assistant Commissioner.
3. The petitioner received a communication dated 11.09.2021 whereby he was informed that on verification, it has been found that inward supply to the sellers/suppliers of the petitioner is from one Balbir Enterprises. Said Balbir Enterprises is not having inward supply and is only engaged in outward supply without paying any tax. Thus, the petitioner is liable to be proceeded under Section 130(1) of the PGST/CGST Act, 2017.

Decision

4. A person cannot be held liable under Section 130 for contravention of the provision of law by other person in the supply chain.
5. Wrongful claim of input tax credit may be result of a bonafide claim as well and does not necessarily involve intent to evade payment of tax. Moreover, wrongful claim of input tax credit is not one of the conditions enumerated under Section 130(1) of the 2017 Act that could entail confiscation of the goods. Section 130 being penal in nature has to be construed strictly.
6. Once a person cannot be compelled to do something not possible, definitely he cannot be penalized for not doing so.
7. There is no allegation on the petitioner that he has contravened the provisions of the Act. The only contravention of the provision alleged is against M/s. Balbir Enterprises, who is shown to have indulged in outward supply without having any inward supply. It has been alleged that he has not been paying any tax and thus, the successor dealers in the said supply chain are guilty of availing input tax credit wrongfully.
8. The authorities are well within their power to check the goods in transit. In case of goods in transit are being transported in contravention of any provision of the Act or the rules framed thereunder, the goods are liable to be seized and detained as per provision of Section 129 of the Act.
9. However, in case the goods in transit are accompanied by the documents as prescribed under the Act, authorities need not proceed under Section 129 of the 2017 Act.
10. In case, the authorities find that the action of the person falls within four corners of Section 130(1), the authorities have the right to proceed under Section 130 of the Act.
11. A bonafide issue which is subject matter of assessment under the Act cannot be a ground to proceed under Section 130 of the Act unless the same falls within four corners of Section 130(1) of the 2017 Act.
12. Hence the petition was allowed and goods were released.