Abhay Traders vs Commissioner Commercial Tax, U.P. Lucknow

Can Tax, Interest and Penalty be levied on the basis of report of the Special Investigation Branch without independent inquiry by the ‘Proper Officer?’ Allahabad High Court favours the Justice. The case revolves around a writ petition by M/s Abhay Traders, the petitioner, who received a notice on June 22, 2022, from the tax authorities concerning two purchases made on June 12, 2018, from M/s Raghav Enterprises. The tax authorities alleged that no goods were supplied and that M/s Raghav Enterprises was a bogus firm, leading them to question the Input Tax Credit claimed by M/s Abhay Traders. The petitioner argued that the notice was vague and baseless, asserting that goods were actually purchased.

The respondent counsels argued that the tax authorities had rightfully initiated the proceedings based on the provisions of the UPGST Act, 2017. The court considered the arguments and past judgements, finding that the notice did indeed detail the foundational elements of the case, and thus the petitioner should reply to it. High Court further directed that the report of the Special Investigation Branch shall not be considered a final report and shall be subject to the decision by the Assessing Authority. The order shall be passed after considering the petitioner’s reply, the evidence it might submit and the evidence it may offer. Dated: 14-Jul-2023 In my view: This case underscores the importance of clear and detailed tax notices, enabling businesses to understand and contest the allegations against them. The outcome could impact future GST related disputes, emphasizing the need for thoroughness in tax authority notices. This Judgement can also be used in cases where the Registered Person wants to dispute the findings of Special Investigation Branch (SIB) as its report cannot be considered final and it’s subject to independent observation/fact finding of the ‘Proper Officer’.

1. Heard Sri Aloke Kumar, learned counsel for the petitioner, Sri Ankur Agarwal, learned counsel for respondent nos.1 & 2 and Sri Gopal Verma, learned counsel for respondent no.3.

2. Controversy in the present writ petition is that for the A.Y. 2018-19, a notice was served to the petitioner-M/s Abhay Traders on 22.06.2022 indicating that with regard to two purchases made from M/s Raghav Enterprises vide Invoice Detail Nos.94 and 95 on 12 June, 2018 of the value of Rs.2,64,022/- and Rs.8,00,088/-, it was found that there had been no actual supply of goods from M/s Raghav Enterprises to the petitioner. It was also found that M/s Raghav Enterprises was a bogus firm. Under such circumstances, a notice was issued to the petitioner on 22 June, 2022 asking it to reply as to why tax, penalty and interest be not imposed upon the petitioner. It was stated that because the petitioner had made a bogus supply, the Input Tax Credit, which the petitioner had claimed, was wrongly claimed.

3. Learned counsel for the petitioner has submitted that the notice itself was vague and bad in law and, therefore, be quashed and set aside. He further submits that on the basis of the Special Investigation Branch report, it was concluded that no goods had been supplied from M/s Raghav Enterprises to the petitioner-M/s Abhay Traders and, therefore, the conclusion itself was wrong. However, the Department came to the conclusion that the report submitted by Special Investigation Branch was correct. A notice to that effect was also to have been given to the petitioner so that the petitioner could have replied that in fact, goods were purchased by the petitioner from M/s Raghav Enterprises and, therefore, the Input Tax Credit which the petitioner had claimed was in accordance with law.

4. To substantiate his point, Sri Aloke Kumar, learned counsel for the petitioner, heavily relied upon the judgement and order dated 06.10.2021 passed in W.P. (T) No. 2444 of 2021 (M/s Nkas Services Private Limited Vs. State of Jharkhand & Others) of the High Court of Jharkhand at Ranchi.

5. Sri Ankur Agarwal, learned counsel appearing for respondent nos.1 & 2 and Sri Gopal Verma, learned counsel for respondent no.3, essentially made their submissions relying upon Section-74 of the Uttar Pradesh Goods And Services Tax Act, 2017 (hereinafter referred to as the ‘Act, 2017’). Relying upon Section 74 (1) of the Act 2017, learned counsel for the respondents stated that the proper officer had yet to conclude to initiate the proceedings. If only it “appeared” to the proper officer that tax had not been paid or short paid or erroneously refunded or where Input Tax Credit had been wrongly availed or utilized by reason of fraud or any wilful statement or suppression of fact, the proceeding could be initiated.

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Abhay Traders

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