2025 (6) TMI 1791 - HC - GST

Cancellation of Petitioner s registration - violation of provisions of Section 16 since the ITC benefit is taken without there being any genuine transactions of buying and selling - HELD THAT - The Order-In-Original does not refer to any subclauses of Section 29(2) but it only refers to Section 29(2) of the CGST Act 2017 read with Rule 21 of CGST Rules 2017. The submission of the learned counsel for the Petitioner that only provisions of Section 29(2) (e) are invoked not accepted. On a reading of paragraphs 6 and 7 of the Order-In-Original it is very clear that the provisions of Section 29(2) (a) are invoked read with Rule 21 which deals with fake Input Tax Credit and non-conducting of the business from the address mentioned to the GST Authorities. The Appellate Authority has dismissed the Appeal since the Petitioner could not produce any documentary evidence in support of his submission although he undertook before both the authorities and in the previous round of litigation before this Court to produce all the documents. The Commissioner (Appeal) has followed the decision in the case of State of Karnataka vs Ecom Gill Coffee Trading Pvt Ltd 2023 (3) TMI 533 - SUPREME COURT and the said decision read with Section 155 of the CGST Act requires the Petitioner to discharge the onus of proving the claim which in the instant case the Petitioner has miserably failed. Conclusion - No interference is required by this Court since there is no documentary evidence furnished before the authorities in support of the claim that the transactions of purchase and sale are genuine. There are concurrent findings of fact by both the authorities that on physical verification of the supplier they were found to be non-existence and therefore consequently the ITC claim was bogus. No perversity is brought to our notice in the impugned order. Petition dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court were:

(a) Whether the cancellation of the Petitioner's GST registration under Section 29(2) of the CGST Act, 2017 was justified, particularly whether the provisions of Section 29(2)(e) alone applied or whether other sub-clauses, including Section 29(2)(a), were also invoked;

(b) Whether the Petitioner had obtained registration by means of fraud, willful misstatement, or suppression of facts as required for cancellation under Section 29(2) of the CGST Act, 2017;

(c) Whether the Petitioner discharged the burden of proof regarding the genuineness of Input Tax Credit (ITC) claimed and transactions of purchase and sale, including production of relevant documentary evidence such as invoices, bank statements, and e-way bills;

(d) Whether the physical verification of the principal place of business and suppliers' existence supported the cancellation of registration;

(e) The applicability and interpretation of Rule 21 of the CGST Rules, 2017 in the context of cancellation of registration for availing fake ITC and non-conduct of business from the registered address;

(f) The relevance of the Supreme Court's decision in State of Karnataka vs Ecom Gill Coffee Trading Pvt Ltd (2023) regarding the burden of proof on the dealer claiming ITC;

(g) Whether the Petitioner's failure to produce documentary evidence after undertaking to do so in previous proceedings warranted dismissal of the Petition.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Validity of Cancellation under Section 29(2) of the CGST Act, 2017

The Petitioner contended that cancellation was wrongly effected under Section 29(2)(e) of the CGST Act, 2017, which requires registration to be obtained by fraud, willful misstatement, or suppression of facts. The Petitioner denied such allegations and argued that the registration was not obtained on such grounds. The Respondents countered that the original Order-In-Original (OIO) did not limit cancellation to Section 29(2)(e) but invoked Section 29(2) generally along with Rule 21 of the CGST Rules, 2017.

The Court examined the OIO and found that it did not specify any sub-clause of Section 29(2) but referred broadly to Section 29(2) read with Rule 21. The Court noted that paragraphs 6 and 7 of the OIO clearly invoked Section 29(2)(a) as well, which pertains to cancellation where the business is not conducted from the declared place or is found to be non-existent, and Rule 21, which prescribes grounds for cancellation including fake ITC claims and non-conduct of business at the registered address.

The Court rejected the Petitioner's narrow interpretation limiting cancellation to Section 29(2)(e), clarifying that multiple grounds under Section 29(2) were invoked. The Adjudicating Authority's finding that major suppliers were non-existent on physical verification supported cancellation under Section 29(2)(a) and Rule 21.

Issue (c) and (g): Burden of Proof and Failure to Produce Documentary Evidence

Central to the dispute was whether the Petitioner discharged the burden of proving the genuineness of ITC claimed and transactions. The Petitioner failed to produce critical documents such as invoices, bank statements, and e-way bills despite undertaking to furnish them in earlier proceedings and before the authorities.

The Appellate Authority emphasized that mere claims of bona fide purchase are insufficient to discharge the burden under Section 70 of the KVAT Act, 2023 (analogously applied here) and Section 155 of the CGST Act. The burden lies squarely on the dealer claiming ITC to prove the transactions' authenticity.

Paragraphs 14, 16, and 17 of the appellate order were pivotal, stating:

"The appellant at appeal stage has not submitted any documentary evidence to substantiate their claim i.e. invoices, bank statement, e-way bill etc."

"The burden of proving that the ITC claim is correct lies upon the purchasing dealer claiming such ITC. Merely because the dealer claims to be bona fide is not enough."

"The appellant during proceedings didn't produce any of the above said documents. Therefore, the appeal filed by the appellant is liable to be rejected."

The Court concurred with these findings and noted the Petitioner's failure to comply with the Court's earlier directions to produce documents. This failure was fatal to the Petitioner's claim.

Issue (d): Physical Verification of Business and Suppliers

The Adjudicating Authority conducted physical verification of the Petitioner's principal place of business and major suppliers. The verification revealed that several suppliers were non-existent at their declared addresses. This fact was critical in concluding that the ITC claimed was bogus and that the Petitioner violated Section 16 of the CGST Act, which governs the eligibility and conditions for claiming ITC.

The Court found no error or perversity in this factual finding, which was supported by tangible evidence from physical inspections. This supported cancellation under Section 29(2)(a) and Rule 21.

Issue (e): Applicability of Rule 21 of the CGST Rules, 2017

Rule 21 prescribes circumstances under which registration can be cancelled, including cases where ITC is availed fraudulently or business is not conducted from the declared address. The Respondents argued that the Petitioner's case fell squarely within Rule 21(b) and (e), which deal with fake ITC and non-conduct of business respectively.

The Court agreed, noting that the OIO and appellate orders relied on Rule 21 in conjunction with Section 29(2). The Petitioner's failure to demonstrate genuine business transactions or existence of suppliers justified cancellation under these provisions.

Issue (f): Reliance on Supreme Court Precedent and Section 155 of the CGST Act

The Commissioner (Appeal) relied on the Supreme Court's decision in State of Karnataka vs Ecom Gill Coffee Trading Pvt Ltd (2023), which held that the burden of proof to establish the correctness of ITC claims lies with the dealer claiming such credit. The Court applied this principle strictly, noting that the Petitioner failed to discharge this burden.

Section 155 of the CGST Act, which relates to the burden of proof in proceedings, was also invoked to emphasize that the Petitioner must prove the legitimacy of the ITC claimed. The Court found that the Petitioner's failure to produce evidence was fatal to the claim.

3. SIGNIFICANT HOLDINGS

The Court upheld the cancellation of the Petitioner's GST registration under Section 29(2) of the CGST Act, 2017 read with Rule 21 of the CGST Rules, 2017, on the following grounds:

"The Adjudicating Authority has verified major suppliers and found to be non-existent on physical verification of their principal place of business. Therefore, the Adjudicating Authority has come to a conclusion that the Petitioner has violated the provisions of Section 16 since the ITC benefit is taken without there being any genuine transactions of buying and selling."

"The appellant at appeal stage has not submitted any documentary evidence to substantiate their claim i.e. invoices, bank statement, e-way bill etc. ... The burden of proving that the ITC claim is correct lies upon the purchasing dealer claiming such ITC."

"The appellant during proceedings didn't produce any of the above said documents. Therefore, the appeal filed by the appellant is liable to be rejected."

Core principles established include:

(i) Cancellation under Section 29(2) of the CGST Act can be based on multiple grounds, including but not limited to fraud, non-existence of business, and fake ITC claims;

(ii) The burden of proof to establish the genuineness of ITC claimed lies on the dealer claiming such credit, and mere assertions without documentary evidence are insufficient;

(iii) Physical verification of business premises and suppliers is a valid and significant method to ascertain the genuineness of transactions;

(iv) Failure to comply with directions to produce documents and failure to discharge the burden of proof justifies dismissal of the Petition and confirmation of cancellation.

Accordingly, the Court dismissed the Petition without costs, affirming the concurrent findings of fact and law by the authorities below and finding no perversity or illegality in the impugned order.