There is bad news for entities that availed of input tax credit (ITC) for GST based on bogus invoices without receiving the goods. The Allahabad high court has dismissed a petition and ruled that evidence of payment of toll and freight is required to be submitted to prove genuineness of a transaction.
The order came in a case filed by Malik Traders, which deals in waste materials and scrap, and had claimed input tax credit of over Rs 6 lakh from April to September 2019. Tax authorities in Uttar Pradesh had rejected the claim and penalty of over Rs 6 lakh was imposed for incorrectly availing ITC, which was challenged by Malik Traders.
The state argued that to avail ITC certain conditions had to be met and it could not be claimed without actual physical movement of goods or the genuineness of transaction. It said that the petitioner was duty bound to prove beyond any reasonable doubt and establish that actual transaction took place and simply furnishing the details of tax invoices and e-way bills are not sufficient. “The petitioner was required to give details i.e. vehicle numbers which were used for transportation of goods, payment of freight charged, acknowledgement of taking delivery of goods and payment etc,” it contended.
Relying on a Supreme Court ruling and other similar cases, the high court rejected the petition.
Tax experts said that the order can have implications for several other cases. “GST demands of over Rs 1 lakh crore have been issued by DGGI (Directorate General of GST Intelligence) and the GST department on ground that ITC was claimed on invoices without receipt of goods. As per HC ruling, the burden of proof is on the receiver of goods and they need to establish physical movement of goods. If CBIC circulates this ruling to formations, the demands will be confirmed. The issue involves not only GST evasion but also income tax evasion. Many parties follow this illegal practice for booking bogus expenses under income tax and jacking turnover for bank loans,” he said.