Facts of the Case

This writ petition, WRIT TAX No. 909 of 2022, was filed by M/S Rama Brick Field before the Allahabad High Court, challenging an order dated 15.07.2020 passed under Section 74 of the UP GST Act for the period May 2018 to June 2018 (A.Y. 2018-19), the consequential rectification order dated 20.07.2021 under Section 161, and the first appellate order dated 26.10.2021 upholding the demand. The petitioner had opted for the composition scheme for the period 1.10.2017 to 21.3.2019, which was accepted by the respondent authorities. During this period, the petitioner purchased coal from Rohit Coal Traders, a registered dealer at the time of transaction, against tax invoices charging CGST, SGST, and GST compensation cess. The department later found that Rohit Coal Traders was non-existent at the time of a subsequent survey and, on that basis, raised a demand of Rs. 2,00,235/- in tax and penalty against the petitioner, alleging the purchases were bogus. The petition was entertained directly by the High Court because the GST Appellate Tribunal was not functional in Uttar Pradesh at the relevant time, per the Central Government's gazette notification dated 14.09.2023.

Issues Involved

  1. Whether a Section 74 demand can be sustained against a purchaser solely on the ground that the selling dealer was subsequently found non-existent, without examining the selling dealer's own GSTR-1 and GSTR-3B filings and tax deposits.
  2. Whether the petitioner, having opted for the composition scheme and therefore not claiming input tax credit, could still be proceeded against under Section 74 for the disputed purchases.

Petitioner's Arguments

  • Since the petitioner had opted for composition and was not availing input tax credit at all, the non-existence of the selling dealer at a later survey could not by itself justify action against the petitioner.
  • Both the petitioner and Rohit Coal Traders had filed their returns in GSTR-1 and GSTR-3B for the relevant period, which could not have been filed without payment of tax, and this record was not disputed by the authorities below.
  • The finding that Rohit Coal Traders had not deposited legitimate tax was perverse, since the GSTR filings themselves evidenced tax payment.

Respondent's Arguments

  • Opting for composition did not bar the department from initiating proceedings under Section 74 where the underlying purchases were shown to be bogus.
  • Since Rohit Coal Traders was found non-existent at the time of survey, the purchases shown by the petitioner from that dealer were bogus, and the legitimate tax due to the State on those purchases had not been deposited.
  • The petitioner had failed to discharge the burden of showing that tax had actually been deposited on the alleged purchases.

Court Order/Findings

  • The disputed purchases from Rohit Coal Traders fell within the composition period already accepted by the department, and the petitioner had produced tax invoices, e-way bills, GRs, and payment receipts to show the purchases were genuine.
  • Rohit Coal Traders was a registered dealer under the GST Act at the time of the transaction; its registration was cancelled only later, on 24.10.2019.
  • The Court held that once GSTR-1 and the consequent GSTR-3B had been filed by the selling dealer — a fact undisputed by the authorities — the impugned orders could not simply ignore this record while concluding that no tax had been deposited; the authorities had failed to verify the GST portal to check how much tax the selling dealer had actually deposited.
  • The impugned orders could not be sustained in law; the writ petition was allowed, the orders were set aside, and the matter was remanded to the first appellate authority for a fresh order within two months of production of a certified copy.

Important Clarification

  • Where a purchaser has been under the composition scheme and is not claiming input tax credit, the mere subsequent non-existence of a selling dealer, discovered at a later survey, does not automatically render the underlying purchases bogus.
  • Under the GST regime, GSTR-1 and GSTR-3B filings by the selling dealer, along with GSTR-2A available to the purchaser, are verifiable through the GST portal — authorities are expected to check this record before concluding non-deposit of tax, rather than shifting the entire burden onto the purchaser.

Sections Involved

  • Section 74, UP GST Act — determination of tax not paid or short paid, or input tax credit wrongly availed, by reason of fraud or wilful misstatement.
  • Section 161, UP GST Act — rectification of errors apparent on the face of the record.
  • Composition Scheme under the GST Act — an alternate tax payment mechanism under which registered persons pay tax at a fixed rate and do not avail input tax credit.

Decision – In Favour of

The decision is in favour of the Assessee. The Allahabad High Court set aside the Section 74 demand and the appellate order upholding it, and remanded the matter for fresh adjudication with directions to complete the exercise within two months.

Related Case Laws

No directly on-point case notes are currently published on this site.

Case Details

  • Court: Allahabad High Court
  • Case No.: WRIT TAX No. 909 of 2022
  • CNR: Not available on record
  • Coram: Hon'ble Piyush Agrawal, J.
  • Decision Date: 06 November 2023
  • Disposal Nature: Writ petition allowed; impugned orders set aside and matter remanded

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