Allahabad High Court quashes penalty order stating details on GST department’s portal should have been verified

Allahabad High Court quashes penalty order stating details on GST department’s portal should have been verified

Proceedings under Section 74 were initiated on the grounds that the seller Rohit Coal Traders did not exist

The Allahabad High Court has held that in the Goods and Services Tax (GST), 2017 regime, all details and returns filed are available on the GST department’s portal. The authorities can verify the amount of tax deposited after filing Goods and Services Tax Return-1 and GSTR-3B.

Thus, while quashing the penalty order, Justice Piyush Agrawal held “The authorities could have verified whether after filing GSTR-1 and GSTR-3B how much tax was deposited by the selling dealer. But the authorities failed to do so.”

The petitioner purchased various materials for which tax invoices were issued and after paying the tax, the goods were received.

The petitioner filed a compounding for the period of 1.10.2017 to 21.3.2019, after which he was not entitled to claim the benefit of an input tax credit (ITC). The petitioner submitted that during the assessment period, coal was purchased from Rohit Coal Traders for which a tax invoice was issued in which Central GST and State GST were charged. Additionally, the GST composition cess was also charged but ITC was not claimed.

However, proceedings under Section 74 were initiated on the grounds that Rohit Traders did not exist. Thereafter, an order was passed imposing a tax and penalty of Rs.2,00,235. In the rectification application, even as relief was not granted to the petitioner, its appeal was also dismissed.

The petitioner contended that the purchaser and the selling dealer filed their returns in GSTR-1 and GSTR-3B. Since the petitioner had not availed any ITC, action could not be initiated against it merely because at the time of survey, it was found non-existent.

The respondent argued that opting for the composition did not create a bar on the initiation of proceedings under Section 74 of the GST Act. Since Rohit Traders was found non-existent, purchases shown by the petitioner were bogus. This meant that the State was deprived of the tax to be received from the purchases.

The High Court observed that at the time of the transaction, the seller was registered under the GST Act. The registration of Rohit Traders was canceled in October 2019.

The Bench held, “It is a matter of common knowledge that after filing GSTR-1, an auto pop-up window opens for filing Form GSTR-3B for payment of tax, and Form GSTR-2A can be viewed by the purchaser of the goods.”

The Judge noted that the authorities never disputed the forms issued to Rohit Traders. This meant that at the time of the transaction, the purchaser and supplier was registered.

The Court stated that if Rohit Trader was found non-existent during the survey, the proceedings could be initiated. However, the authorities erred in ignoring the fact that GSTR returns were filed by the seller about which “not a single word was whispered while passing the impugned order.”

On the contrary, the proceedings were justified on the grounds that the petitioner failed to bring on record any cogent material to show that Rohit Traders deposited the tax.

The Bench held that the authorities could have verified the amount of tax deposited from its portal, as all information was available online. Thus, it quashed the penalty order and remanded the matter back to the first appellate authority to pass fresh orders.