Blog No. 55: Interest of revenue is protected where output tax paid is more than alleged bogus ITC

CGST Act

Sec 83

CGST Rule

 

The industry had been flooded with cases of bogus claim of ITC, passing on the same by way of a no supply transaction to the ultimate end user of transaction. The revenue authorities have knocked at the door of every person involved in the chain and invoked various powers on them to secure the interest of revenue like attaching the bank accounts, arresting the accused persons, issuing show cause notices and demand orders.

 

Irrespective of claims and counterclaims , the reality is what had been settled in pre-GST law i.e., even if duty stands paid on goods which did not even amount to manufacture, the credit stands reversed when the same was utilized for the payment of duty.  Appreciating the above reasoning, Hon’ble Gujarat High Court lifted the attachment of bank account as interest of the revenue stands secured where output tax paid is more than alleged bogus ITC. Read about the case [Additional Director General vs Pranit Hem Desai (2022); Misc Civil Application (for Recall) No. 2 of 2019] below:

 

Observations of the Court

1.   Though the headnote of blog clears the air over issue, we reiterate the observations of Hon’ble court for immediate reference:

2. ……………

“23. Without entering into any other controversy, we are inclined to allow all the six writ applications on the short ground that during the period between July 2017 and May 2019, the total input tax credit availed by the writ applicants aggregates to ₹ 59,49,18,103/- .., whereas the total tax paid during this period aggregates to ₹ 63,62,41,525/- … The same is indicative of the fact that against the availment of credit of ₹ 59,49,18,103/- .., an amount of ₹ 63,62,41,525/- .. came to be paid by way of tax. It appears that an amount of ₹ 4,13,23,422/- .. has been paid in excess than the amount of credit availed. In such circumstances, it cannot be said that the interest of the government revenue is at a stake.

24. We are at one with Mr. Trivedi that even if it is assumed that the allegations as levelled by the department are correct and the credits though not available were wrongly availed since the tax had been paid, though it was not payable having regard to the fact that there was no supply of goods, the availment of credits could be said to be justified on two counts: (1) it is a revenue neutral satisfaction and (2) payment of tax although not payable yet is to be treated if unavailable credits are reversed if they were wrongly paid.”

2.   On recall application filed by the revenue, it was highlighted that even though the output tax paid is more than bogus ITC, the same is not a revenue neutral transaction; that they have issued a show cause notice. Hon’ble High Court on being vehemently requested permitted revenue department to take a stance, if at all they intend to, that the payment of tax shall not absolve the opponents of liability for wrongful availment of the input tax credit.

Paksh Remarks

  1. CBIC vide Circular No. 171/03/2022-GST dated 06th July 2022 have issued clarification in light of the reasoning upheld by Hon’ble High Court in the above case. Therefore, the actions of provisional attachment should not be invoked in such type of case i.e., where output tax paid is more than alleged bogus ITC.
 

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