North End Food Marketing (P.) LTD. VS State Of Uttar Pradesh

M/s North End Food Marketing Pvt. Ltd. has filed a writ petition against an order dated March 26, 2021, issued by the Commissioner of Commercial Tax in Lucknow, Uttar Pradesh. This order accepted a proposal for revision submitted by the Additional Commissioner, Grade-1, Commercial Tax, Moradabad Zone, Moradabad. This proposal sought to stay the effect and operation of an earlier order dated March 10, 2021, passed by the Additional Commissioner, Grade-II (Appeal)-1st, Commercial Tax, Moradabad.

The earlier order, which the petitioner company had appealed, was favorable to them. It was passed by the Additional Commissioner, Grade-II (Appeal)-1st, and it overturned the decision of the Assessing Officer, the Deputy Commissioner, Sector-1, State Tax, Chandausi, Sambhal. The decision communicated to the petitioner through emails dated July 23, 2020, and August 6, 2020, had originally blocked credit.

The petitioner, M/s North End Food Marketing Pvt. Ltd., is a company incorporated under the provisions of the erstwhile Companies Act, 1956. It operates a unit in Shaktinagar, Chandausi, District Sambhal, Uttar Pradesh. It is a subsidiary of M/s Sohanlal Commodity Management Pvt. Ltd., which is involved in procuring commodities on behalf of its customers across India. M/s North End Food Marketing Pvt. Ltd. stores these commodities in warehouses owned and operated by M/s Sohanlal Commodity Management Pvt. Ltd. The petitioner then supplies these commodities to various individuals based on customer instructions. M/s Sohanlal Commodity Management Pvt. Ltd. primarily provides warehousing services and is duly registered for the same.

The Warehouse (Development and Regulation) Act, 2007, is a legislation aimed at regulating the development, maintenance, and management of warehouses in India. Under this Act, the petitioner company, operating in the state of Uttar Pradesh, primarily deals with “Mentha” oil and is registered under the U.P. Value Added Tax Act, 2008.

The petitioner company follows electronic bookkeeping practices, using a centralized system as prescribed under Rule 10 of the erstwhile Central Excise Rules, 2002, and Section 35 of the GST Act, along with Rules 56 & 57 of the Central Goods and Services Tax Rules, 2017. This system ensures efficiency and compliance with tax regulations.

Prior to the enactment of the Central Goods and Services Tax Act, 2017, and the U.P. Goods and Services Tax Act, 2017, the petitioner availed input tax credit on purchases made from dealers registered in Uttar Pradesh under the UP VAT Act. This credit was then deducted from the output tax payable, aligning with the provisions of the UP VAT Act.

After the implementation of the Central Goods and Services Tax Act, 2017, and the U.P. Goods and Services Tax Act, 2017, the petitioner obtained a GSTIN (Goods and Services Tax Identification Number) on 23rd June 2018, signaling compliance with the new tax regime.

Section 16 of the State Goods and Services Tax (SGST) Act delineates the eligibility criteria and conditions for claiming input tax credit. Definitions for crucial terms such as “input tax,” “input tax credit,” and “output tax” are provided within the Act, ensuring clarity and consistency in tax-related transactions.

Overall, the petitioner company operates within the legal framework established by various tax laws and regulations, ensuring compliance with tax obligations while leveraging input tax credit mechanisms to manage tax liabilities effectively.

6. Section 16 (1) provides that every registered person shall,subject to such conditions and restrictions as may be prescribed and inthe manner specified in Section 49, be entitled to take credit of inputtax charged on any supply of goods or services or both to him, whichare used or intended to be used in the course or furtherance of hisbusiness and the said amount shall be credited to the electronic creditledger of such person. Sub-section (2) provides that no registeredperson shall be entitled to take input tax credit unless he is inpossession of a tax invoice, debit note or any other prescribed dutypaying documents and he has received the goods or services or both.Section 17 of SGST Act provides for apportionment of credit andblocked credits. Sub-sections (1), (2), (3) & (4) provide for restrictedcredit, whereas sub-section (5) provides for circumstances in whichcredit is not admissible. Sub-section (6) confers powers onGovernment to prescribe the manner in which credits referred to insub-section (1) and (2) may be attributed. Section 49 provides thatevery deposit made towards tax, interest, penalty, fee etc. shall becredited to the electronic cash ledger, whereas input tax credit as self-assessed in the return of registered person shall be credited to hiselectronic credit ledger. Section 49 also provides that the amountavailable in the electronic cash ledger may be used for making anypayment towards output tax in such manner and subject to suchconditions and within such time, as may be prescribed.
7. Section 164 confers power on the State Government to makerules for carrying out the provisions of the Act and in exercise of suchpowers, ‘Uttar Pradesh Goods & Services Tax Rules, 20176 werenotified by the State Government. Chapter-V of the UPGST Rulesprovides for ‘Input Tax Credit’. Rule 36 (1) provides for thedocuments on the basis of which input tax credit shall be availed,whereas Rule 36 (3) provides that no input tax credit shall be availedin respect of any tax that has been paid in pursuance of any orderwhere demand has been confirmed on account of any fraud, willfulmisstatement or suppression of facts. Rule 37 provides for reversal 

The input tax credit mechanism under the Goods and Services Tax (GST) regime is pivotal for businesses to offset the tax paid on inputs against their output tax liability. However, there are specific conditions and procedures laid out for claiming and utilizing this credit. Rule 86 of the GST rules mandates the maintenance of an electronic credit ledger in Form G.S.T.P.M.T.-02 for every registered person eligible for input tax credit. This ledger serves as a record for crediting any claimed input tax credit.

In the case described, the petitioner company is engaged in trading Mentha oil, which is extracted from Mentha herbs grown in various districts of Uttar Pradesh. The Mentha oil is considered an agricultural produce under the U.P. Krishi Utpadan Mandi Adhiniyam, 1964. As per the regulations, the exit of specified agricultural produce from the market area requires the issuance of a gate pass in Form V-A by the Market Committee, along with a bill in Form IXR by the seller to the purchaser.

The petitioner company purchases Mentha oil from different suppliers based on tax invoices issued by them. Additionally, e-way bills are generated for the movement of goods from the suppliers to the warehouses operated by SCMPL, a warehousing service provider used by the petitioner company. These supplies are further supported by gate passes in Form V-A and bills in Form 9R issued by the suppliers.

Upon receipt of Mentha oil at SCMPL’s warehouses, samples are drawn for quality testing, and after receiving the test reports, the Mentha oil is warehoused with appropriate entries made in the stock register.

However, there seems to be a discrepancy regarding the payment of consideration to the suppliers. If the consideration for the supplied Mentha oil is not paid to the suppliers, it could impact the input tax credit claimed by the petitioner company. Non-payment of consideration could potentially lead to disputes and affect the eligibility of input tax credit claimed by the petitioner company.

To safeguard against such issues, it’s crucial for the petitioner company to ensure timely payment of consideration to the suppliers in accordance with the GST regulations. Failure to do so may result in compliance issues and could affect the seamless flow of input tax credit within the supply chain.

The case revolves around a petitioner company in the State of Uttar Pradesh (U.P.) which maintains its accounts electronically online and conducts transactions involving the purchase and sale of goods, particularly Mentha oil. The petitioner purchased Mentha oil from various suppliers, including M/s Jai Balaji Trading Company, during the fiscal year 2018-19, amounting to Rs. 20188.39 lacs, inclusive of SGST & CGST. Subsequently, the petitioner sold the Mentha oil to different buyers. In its tax returns, the petitioner claimed input tax credit of Rs. 1211.30 lakhs each of CGST & SGST, which was credited to its electronic credit ledger as per the provisions of Section 49 of the SGST/CGST Act.

During the period from September 2017 to March 2019, M/s Jai Balaji Trading Company made cash payments totaling Rs. 5,83,15,039/- to the Government exchequer. Similarly, the petitioner made cash payments of Rs. 11,86,94,500/-, apart from adjusting input tax credit against its output tax liability.

On 13th September 2019, warehouses operated by SCMPL located in Chandausi and Barabanki were subjected to search operations by State tax officers. During these searches, 133 drums of Mentha oil at the Chandausi warehouses and 1397 drums at the Barabanki warehouse, belonging to six firms, were detained and prohibited for disposal via an order in Form GST INS-03. Subsequently, on 28th February 2020, 161 drums of Mentha oil belonging to the petitioner were seized by the Deputy Commissioner (Special Investigation Branch), Unit-B, Ayodhya. Notably, 1236 drums belonging to five firms had been released before this seizure without any tax or penalty being levied.

During the search at the Barabanki warehouse on 13th September 2019, various electronic devices, 15 loose papers, and other documents were seized, but nothing adverse was communicated to the petitioner from these materials. Therefore, the petitioner contends that, as per the provision of sub-section (3) of Section 67 of the SGST Act, these documents should have been returned to them within 30 days. However, apart from a few electronic devices, the documents have not been returned.

The petitioner argues for the return of the seized documents and contends that their actions have been in accordance with the tax laws. They seek relief from the court in this matter.

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