GST authorities cannot detain goods on ground of inadmissible ITC where issue has gone into assessment: HC

In the present case, the goods and conveyance in transit were accompanied with the documents as prescribed under Rule 138A, i.e. the invoice and the e-way bill. No discrepancy has been pointed out in the said documents even in the reply filed by the respondents.

The notice dated 14.09.2021 reveals that the same has been issued on the basis of :-

“On subsequent verification of the inward supply of the sellers for the subsequent period it is found that:-
a) S.D. ENTERPRISES (03GBQPK0612B1Z7) – The Dealer is having inward supply from M/s K.S ENTERPRISES 03MGFPS4269EIZ3 whose subsequent inward supply is from BALBIR ENTERPRISES 03GWYPS4252J1ZR. M/s Balbir Enterprises is not having any inward supply and is just doing outward supply and is not paying any Tax as is evident from his returns for the preceding periods.

b) ROYAL METAL (03FVZPS9476P1ZX) – The dealer is having inward supply from two firms namely GLOBAL
IMPEX 031AIPK9969NIZO and EKAM STEELS 03CTTPB3824M1ZH. The subsequent inward supply of GLOBAL IMPEX 03IAIPK9969NIZO is from M/S K.S ENTERPRISES 03MGFPS426EIZ3 whose subsequent inward supply is from BALBIR ENTERPRISES 03GWYPS4252J1ZR. M/s Balbir Enterprises is not having any inward supply and the subsequent inward supply of the second firm EKAM STEELLS 03CTTPB3824MIZIH is also from M/s K.S ENTERPRISES 03MGFPS4269EIZ.

(c) GLOBAL IMPEX (031AIPK9969NIZO) – The subsequent inward supply of GLOBAL IMPEX 031AIPK9969NIZO is from M/s K.S ENTERPRISES 03MGFPS4269E1Z3 whose subsequent inward supply is from BALBIR ENTERPRISES 03GWYPS4252J1ZR. M/s Balbir Enterprises is not having any inward supply. The supply chain has been created for the purpose of transfer of ITC without paying the same at any Stage. The Initial dealer i.e. M/s BAIBIR ENTERPRISES 03GWYPS4252J1ZR has made outward supply of more than 33 cr. and transferred ITC of more than Rs 6 cr. to various beneficiaries thus contravening the provisions of Section 132 (1) (b) of the Act which says that “Issues any invoice or Bill without supply of goods or services or both in violation of the provisions of this act or the rules made there under leading to wrongful availment or utilization of Input Tax Credit” where as the rest of the dealers in the said supply chain have contravened the provisions of section 132 (1) (c) of the act which says, “avails input Tax credit using such invoices or bills as referred to in clause 132(1)(b)”.

There is no finding with respect to contravention of any provision of the Act by the petitioner. 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.

From the pleadings on record, it is clear that there is no allegation that the petitioner has contravened any provision of the Act or the rules framed thereunder much less with an intent to evade payment of tax. It is also not the case of the State that the petitioner did not account for any goods on which he is liable to pay tax under the Act or that he supplied any goods liable to tax under the Act without having applied for registration or that he supplied or received any goods in contravention of any of the provisions of the Act. From the perusal of show cause notice issued to the petitioner under Section 130, the case alleged against the petitioner is that of wrongful claim of input tax credit. The petitioner or for that matter any registered person shall be entitled to tax credit of input tax on any supply of goods or services, only when he shall is able to show that the tax in respect of such supply has been paid to the Government either in cash or through utilization of input tax credit admissible in respect of the said supply. Needless to reiterate any person can claim input tax credit under the provisions of the 2017 Act only if the same has been actually paid to the Government. Thus, the action of the respondents in initiating proceedings under Section 130 on the basis of show cause notice dated 14.09.2021 cannot be sustained.

In view of the discussion above, we find that question No.2 posed in para No. 12, deserves to be answered in favor of the petitioner. Having found that the authority committed error manifest on the record, we do not feel it appropriate to non-suit the petitioner on the ground of alternate remedy. Guided by the law laid down by Supreme Court in Whirlphool Corpration vs. Registrar of Trade Mark, Mumbai, reported as 1998 Vol. 8 SCC 1:-

“20. Much water has since flown beneath the bridge, but there has been no corrosive effect on these decisions which though old, continue to hold the field with the result that law as to the jurisdiction of the High Court in entertaining a writ Petition under Article 226 of the Constitution, in spite of the alternative statutory remedies, is not affected specially in a case where the authority against whom the writ is filed is shown to have had no jurisdiction or had purported to usurp jurisdiction without any legal foundation.”

We hold the present writ maintainable rejecting the objection raised by the respondent.

Thus, we hold that the authorities are well within their power to check the goods in transit. In case 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. However, in case the goods in transit are accompanied with the documents as prescribed under the Act, authorities need not proceed under Section 129 of the 2017 Act. The provisions prescribing time limit to conclude inspection in circular dated 13.04.2018 are mandatory. The goods/conveyance cannot be detained without passing appropriate orders in accordance with law. In case, the authorities find that action of the person falls within four corners of Section 130(1), the authorities have right to proceed under Section 130 of the Act. However, the opinion of the authorities which forms basis of proceedings under Section 130 must have reasonable nexus with the action of the person against whom proceedings are being initiated. Such nexus must be manifest from the record and conveyed to the person in compliance of Section 130(4) of the Act. 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.

Resultantly, the order dated 30.08.2021 (Annexure P-3) issued by office of Assistant Commissioner, State Tax, Mobile Wing, Chandigarh-2 and notice dated 14.09.2021 issued under Section 130 of the CGST Act are hereby quashed and set aside. Respondent No.4 is directed to release conveyance and goods in question forthwith. However, we need to clarify that the fact that the goods and conveyance have been ordered to be released will not in any manner come in the way of the respondent to proceed against the petitioner in connection with the contravention of any provision of the Act.

Since the main case has been decided, the pending miscellaneous application, if any, also stands disposed off.

To Read Judgement Download PDF Given Below: