Raj Metal Industries & Anr vs. Union Of INDIA & Ors

Held

The Court held that based on the recorded facts and subject to further verification, it could not be definitively stated that the petitioners failed to comply with their statutory obligations regarding the verification of suppliers' genuineness before entering into the transactions. The Court considered the submissions of both parties and the available records. It found that the petitioners had presented arguments and documents suggesting they had exercised due diligence, and their suppliers were registered and appearing as valid on the government portal at the time of the transactions. The revenue's contention that the suppliers were fake and their registrations were cancelled retrospectively was also noted. The Court decided not to definitively rule on the entitlement to ITC at this stage but instead remanded the cases back to the respondents. The respondents are directed to re-examine the petitioners' claims for ITC, considering all supporting documents for the genuineness of transactions, whether payments (including GST) were made to the suppliers, whether transactions occurred before or after supplier registration cancellation, and the extent of the petitioners' compliance with statutory obligations for supplier verification. If, after this re-examination, the purchases are found to be genuine, supported by valid documents, and made before registration cancellation, and considering relevant judicial precedents, the petitioners shall be granted the benefit of ITC. The respondents must pass a reasoned and speaking order after providing an effective opportunity of hearing to the petitioners and dealing with the judgments relied upon by the petitioners.

Facts

The petitioners, M/s LGW Industries Limited & Ors., Anmol Industries Ltd. & Anr., Surya Alloy Industries Ltd. & Anr., Raj Metal Industries & Anr., and Victoria Global & Anr., are aggrieved by notices issued by GST authorities. These notices proposed to deny them Input Tax Credit (ITC) on purchases from certain suppliers and demanded payment of penalty and interest. The revenue contended that the suppliers were fake, non-existent, and operated with fake documents. Furthermore, the suppliers' registrations were cancelled retrospectively, and the petitioners allegedly failed to verify the genuineness and identity of these suppliers before transacting. The petitioners argued that their transactions were genuine, supported by valid documents, and that they had exercised due diligence. They pointed out that the suppliers were listed as Registered Taxable Persons (RTP) on the government portal at the time of the transactions, and all payments were made through banking channels, not cash. The invoices were also available on the GST portal in Form GSTR-2A.

Key Issues

1. Whether the petitioners, as purchasers, are entitled to the benefit of Input Tax Credit (ITC) when their suppliers are subsequently found to be fake or non-existent, and their registrations have been cancelled retrospectively, despite the petitioners having conducted transactions in good faith and verified supplier details on the government portal? (Question of mixed law and fact, turning on Section 16(2)(c) of the CGST/WBGST Act and principles of due diligence). Petitioner's arguments: The transactions were genuine and valid, supported by all required documents. The petitioners exercised due diligence and verified the suppliers' identity and registration status on the government portal, which showed them as valid and existing at the time of the transactions. They argued that they had limited means to ascertain the ultimate genuineness of suppliers who later turned out to be fake. They also contended that payments for purchases and taxes were made through banking channels, not cash, and that the invoices were available on the GST portal (Form GSTR-2A). They relied on several High Court and Supreme Court decisions, including Commissioner of C. Ex. East Singhbhum v. Tata Motors Ltd., R.S. Infra-Transmission Ltd. v. State of Rajasthan, and Commissioner of Trade & Taxes, Delhi & 66 Ors. v. Arise India Limited & Ors. Revenue's arguments: The suppliers were fake and non-existent, operating with fake documents. The petitioners failed to verify the genuineness and identity of these suppliers before entering into transactions. The suppliers' registrations were cancelled retrospectively covering the transaction period. The revenue relied on decisions such as P. R. Mani Electronics v. Union of India, ALD Automotive Pvt. Ltd. v. The Commercial Tax Officer, and Jayram & Co. v. Assistant Commissioner & Ors.