Neutral Citation No.

- 2023:AHC:201260
Reserved
Court No. - 5

Case :- WRIT TAX No. - 1237 of 2021

Petitioner :- M/S Malik Traders
Respondent :- State Of U.P. And 2 Others
Counsel for Petitioner :- Pradeep Kumar Srivastava,Pavan Kumar
Srivastava
Counsel for Respondent :- C.S.C.
HON’BLE PIYUSH AGRAWAL, J.

1. Heard Mr. Pradeep Kumar Srivastava for the petitioner and Mr. Rishi
Kumar, learned Additional Chief Standing Counsel for the respondents.

2. The instant Writ Tax is being entertained by this Court in view of the
fact that G.S.T. Tribunal is not functional in the State of Uttar Pradesh
pursuant to the Gazette notification of the Central Government bearing
number CG-DL-E-14092023-248743 dated 14.09.2023.

3. By means of this writ petition, the petitioner is assailing the order

dated 4.10.2019 passed by the Commercial Tax Officer, Sector 2 Meerut by
which the proceedings of Section 74 of UP GST Act was initiated
demanding Rs. 12,32,148/- as wrong availment of input tax credit which was
confirmed by the impugned order dated 6.3.2021 passed by Additional
Commissioner, Grade – 2 (Appeal) First, Commercial Tax, Meerut.

4. Brief facts of the case as stated, are that the petitioner being a
registered dealer having GSTIN No. 09ACLPU9404D1ZA is engaged in the
purchase and sale of waste materials, plastic scrap, paper scrap and metal
scrap. The petitioner from April 2018 to September 2019 has disclosed the
turnover of Rs. 34,22,634/- on which input tax credit of Rs. 6,16,074.12/-
was availed. Thereafter a show cause notice was issued on 23.1.2019 under
Section 74 of UP GST Act on the ground of wrong availment of input tax
credit to which a reply was submitted by the petitioner. Being not satisfied
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with the reply of the petitioner, tax liability to the tune of Rs. 6,16,074/- along
with penalty of Rs. 6,16,074/- total amount Rs. 12,32,148/- was demanded from
the petitioner by the order dated 4.10.2019. Thereafter an appeal has been
preferred which has been rejected by the impugned order dated 6.3.2021. Hence
the present writ petition.

5. Learned counsel for the petitioner has submitted that petitioner has
purchased the goods / scrap from various parties through tax invoices for which
e-way bills were also generated. The said goods were transported through trucks
along with bilties and payments were made through cheques or RTGS / NEFT.
On the basis of selling dealer having not shown the said purchases in its return or
not deposited tax, the action cannot be taken against the petitioner. He further
submitted that if the selling dealer have not paid the tax / deposited the tax with
the Government, the benefit of input tax credit cannot be denied to the petitioner.

6. It was argued that the benefit of tax credit in the G.S.T. regime is being
brought with intention to avoid cascading effect and once the tax has been
charged on the bill and paid by the petitioner through banking channel, the
benefit of input tax credit cannot be denied, legally. He submitted that petitioner
has rightly discharged its tax liability by paying the tax charged on the bills
raised by the selling dealer and if the selling dealer have not deposited the tax so
charged from the petitioner, the selling dealer shall be penalized and not the
petitioner. It has been further argued by the petitioner that in the event the
amount of input tax credit claimed by the petitioner is being recovered that
would amount to double taxation, which is not the spirit of G.S.T. regime.

7. In support of his claim, learned counsel for the petitioner has relied upon
the judgement of this Court in Ashish Trading Company Vs. State of UP, Writ
(Tax No. 228 of 2021) 2023 (113) UPTC 6 and Calcutta High Court in M/s
LGW Industries Limited and others Vs. Union of India and others (WPA
No. 23512 of 2019) decided on 13.12.2021 as well as Sanchita Kundu and
another Vs. Assistant Commissioner of State Tax and others (WPA No.
7231 of 2022 dated 5.5.2022) 2022 (111) UPTC 1268 and prays for allowing the
writ petition or in alternative remanding the same for re-consideration of the
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claim of the petitioner.

8. Per contra, Mr. Rishi Kumar, learned A.C.S.C. has supported the
impugned orders and submitted that under Section 16 of UP GST Act it has been
provided that input tax credit can be availed with certain conditions stipulated
therein, in the event of non-fulfilment of such conditions as enumerated therein,
the benefit of input tax credit cannot be accorded. He further submitted that
without actual physical movement of goods or genuineness of transaction, the
input tax credit cannot be availed. He further submitted that for availment of
input tax credit, the petitioner is duty bound to prove beyond any reasonable
doubt and establish that actual transaction took place and merely furnishing the
details of tax invoices, e-way bills, GR is not sufficient. The petitioner was
required to give details i.e. vehicle number which were used for transportation of
goods, payment of freight charged, acknowledgement of taking delivery of
goods and payment etc. He further submitted that petitioner was required to
prove and establish beyond doubt the actual physical movement of goods and
genuineness of transportation by furnishing details as referred above and in the
event such details are not being furnished, the benefit of input tax credit cannot
be accorded.

9. In support of his submissions, he has relied upon the judgement of

Hon’ble the Apex Court in the case of State of Karnataka Vs. M/s Ecom Gill
Coffee Trading Private Limited (Civil Appeal No. 230 of 2023, decided on
13.03.2023) as well as Patna High Court in M/s Aastha Enterprises Vs. State
of Bihar (Civil Writ Jurisdiction Case No. 10395 of 2023) decided on
18.8.2023 in which it has been held that the burden to prove the actual physical
movement of the goods is upon the purchasing dealer for availament of input tax
credit. He further relied upon the judgement of this Court in Commissioner
Commercial Tax Vs. M/s Ramway Foods Ltd (Sales / Trade Tax Revision
No. 26 of 2023) decided on 23.8.2023 and prays for dismissal of the writ
petition.

10. After hearing learned counsel for the petitioner, the Court has perused the
records.
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11. Admittedly, the concept of input tax credit has been introduced in the tax
regime prior to G.S.T. which is being followed in the current regime also. The
scheme of input tax credit is being introduced with an object to avoid cascading
effect of tax. The purchasing dealer can avail the input tax credit on tax paid on
its purchase whereas manufacturer can avail the same on purchase of its raw
material used for manufacturing or selling of its final product which will avoid
double taxation. The benefit of concession / I.T.C. under the tax statute can be
availed only on fulfilment of certain conditions or restrictions as stipulated under
the Act. In the event of breach of any of the conditions as enumerated under the
Act, no benefit can be conferred to the dealer.

12. Before proceeding further, it will be appropriate to extract the relevant

provision of U.P. G.S.T. Act :-

Section 16 :- Eligibility and conditions for taking input tax credit;

1) Every registered person shall, subject to such conditions and restrictions

as may be prescribed and in the manner specified in section 49, be entitled to
take credit of input tax charged on any supply of goods or services or both to
him which are used or intended to be used in the course or furtherance of his
business and the said amount shall be credited to the electronic credit ledger
of such person.
(2) Notwithstanding anything contained in this section, no registered person
shall be entitled to the credit of any input tax in respect of any supply of
goods or services or both to him unless,-
(a) he is in possession of a tax invoice or debit note issued by a supplier
registered under this Act, or such other tax paying documents as may be
prescribed;
[(aa) the details of the invoice or debit note referred to in clause (a) has been
furnished by the supplier in the statement of outward supplies and such
details have been communicated to the recipient of such invoice or debit note
in the manner specified under section 37;]40
(b) he has received the goods or services or both.
[EXPLANATION.-For the purposes of this clause, it shall be deemed that the
registered person has received the goods or, as the case may be, services-
(i) where the goods are delivered by the supplier to a recipient or any other
person on the direction of such registered person, whether acting as an agent
or otherwise, before or during movement of goods, either by way of transfer
of documents of title to goods or otherwise;
(ii) where the services are provided by the supplier to any person on the
direction of and on account of such registered person.]41;
(c) subject to the provisions of [section 41 or section 43A] 42, the tax charged
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in respect of such supply has been actually paid to the Government, either in
cash or through utilisation of input tax credit admissible in respect of the said
supply; and
(d) he has furnished the return under section 39:
Provided that where the goods against an invoice are received in lots or
installments, the registered person shall be entitled to take credit upon receipt
of the last lot or installment:
Provided further that where a recipient fails to pay to the supplier of goods or
services or both, other than the supplies on which tax is payable on reverse
charge basis, the amount towards the value of supply along with tax payable
thereon within a period of one hundred and eighty days from the date of issue
of invoice by the supplier, an amount equal to the input tax credit availed by
the recipient shall be added to his output tax liability, along with interest
thereon, in such manner as may be prescribed: Provided also that the
recipient shall be entitled to avail of the credit of input tax on payment made
by him of the amount towards the value of supply of goods or services or both
along with tax payable thereon.
(3) Where the registered person has claimed depreciation on the tax
component of the cost of capital goods and plant and machinery under the
provisions of the Income-tax Act, 1961 (Act No. 43 of 1961), the input tax
credit on the said tax component shall not be allowed.
(4) A registered person shall not be entitled to take input tax credit in respect
of any invoice or debit note for supply of goods or services or both after the
due date of furnishing of the return under section 39 for the month of
September following the end of financial year to which such invoice or
[Omitted]43 debit note pertains or furnishing of the relevant annual return,
whichever is earlier.
[PROVIDED that the registered person shall be entitled to take input tax
credit after the due date of furnishing of the return under section 39 for the
month of September, 2018 till the due date of furnishing of the return under
the said section for the month of March, 2019 in respect of any invoice or
invoice relating to such debit note for supply of goods or services or both
made during the financial year 2017-18, the details of which have been
uploaded by the supplier under sub-section (1) of section 37 till the due date
for furnishing the details under sub-section (1) of said section for the month
of March, 2019.]”
On perusal of the aforesaid section, it is clear that every registered dealer
can claim the benefit of input tax credit only on fulfilment of certain conditions
as enumerated under the Act. Section 16 (2) further provides that no registered
dealer shall be entitled to the credit of any input tax in respect of any supply of
goods or services or both to him unless the conditions mentioned therein is
fulfilled. In other words, Section 16 specifically provides the registered dealer to
fulfil the conditions as provided therein for availment of input tax credit.
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13. Further Section 74 of UP GST Act is extracted hereunder:-

Section 74: Determination of tax not paid or short paid or erroneously
refunded or input tax credit wrongly availed or utilised by reason of fraud
or any wilful misstatement or suppression of facts :
(1) Where it appears to the proper officer that any tax has not been paid or
short paid or erroneously refunded or where input tax credit has been
wrongly availed or utilised by reason of fraud, or any wilful misstatement or
suppression of facts to evade tax, he shall serve notice on the person
chargeable with tax which has not been so paid or which has been so short
paid or to whom the refund has erroneously been made, or who has wrongly
availed or utilised input tax credit, requiring him to show cause as to why he
should not pay the amount specified in the notice along with interest payable
thereon under section 50 and a penalty equivalent to the tax specified in the
notice.
(2) The proper officer shall issue the notice under sub-section (1) at least six
months prior to the time limit specified in subsection (10) for issuance of
order.
(3) Where a notice has been issued for any period under sub-section (1), the
proper officer may serve a statement, containing the details of tax not paid or
short paid or erroneously refunded or input tax credit wrongly availed or
utilised for such periods other than those covered under subsection (1), on
the person chargeable with tax.
(4) The service of statement under sub-section (3) shall be deemed to be
service of notice under subsection (1) of section 73, subject to the condition
that the grounds relied upon in the said statement, except the ground of fraud,
or any wilful misstatement or suppression of facts to evade tax, for periods
other than those covered under subsection (1) are the same as are mentioned
in the earlier notice.
(5) The person chargeable with tax may, before service of notice under sub-
section (1), pay the amount of tax along with interest payable under section
50 and a penalty equivalent to fifteen per cent. of such tax on the basis of his
own ascertainment of such tax or the tax as ascertained by the proper officer
and inform the proper officer in writing of such payment.
(6) The proper officer, on receipt of such information, shall not serve any
notice under sub-section (1), in respect of the tax so paid or any penalty
payable under the provisions of this Act or the rules made there under.
(7) Where the proper officer is of the opinion that the amount paid under sub-
section
(5) falls short of the amount actually payable, he shall proceed to issue the
notice as provided for in sub-section (1) in respect of such amount which falls
short of the amount actually payable.
(8) Where any person chargeable with tax under subsection (1)pays the said
tax along with interest payable under section 50 and a penalty equivalent to
twenty five per cent. of such tax within thirty days of issue of the notice, all
proceedings in respect of the said notice shall be deemed to be concluded.
(9) The proper officer shall, after considering the representation, if any, made
by the person chargeable with tax, determine the amount of tax, interest and
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penalty due from such person and issue an order.

(10) The proper officer shall issue the order under sub-section (9) within a
period of five years from the due date for furnishing of annual return for the
financial year to which the tax not paid or short paid or input tax credit
wrongly availed or utilised relates to or within five years from the date of
erroneous refund.
(11) Where any person served with an order issued under sub-section (9)
pays the tax along with interest payable thereon under section 50 and a
penalty equivalent to fifty per cent. of such tax within thirty days of
communication of the order, all proceedings in respect of the said notice shall
be deemed to be concluded.
On perusal of said section, it is clear that determination of tax not paid or
short paid or erroneously refunded or input tax credit wrongly availed or utilised
by reason of fraud or any wilful misstatement or suppression of facts empowers
to issue notice that tax has not been paid or short paid or erroneously refunded or
input tax credit has wrongly been availed or utilized by any reason or wilful
misstatement or suppression of fact. Upon adjudication the assessee is required
to show cause as to why he should not pay the amount specified in the notice
along with interest payable thereon under section 50 and a penalty equivalent to
the tax specified in the notice.

14. Thus on brief reading of the aforesaid two sections, it is evident that in the
event of wrong availment of input tax credit, the proceedings can be initiated
against the registered person or registered dealer but at the same time,
restrictions has been imposed upon the authorities that without putting notice to
the dealer, no adjudication proceeding can be initiated.

15. In the case in hand, the petitioner has only brought on record the tax
invoices, e-way bills, GR and payment through banking channel, but no such
details such as payment of freight charges, acknowledgement of taking delivery
of goods, toll receipts and payment thereof has been provided. Thus in the
absence of these documents, the actual physical movement of goods and
genuineness of transportation as well as transaction cannot be established and in
such circumstances, further no proof of filing of GSTR 2 A has been brought on
record, the proceeding has rightly been initiated against the petitioner.

16. The Apex Court in the case of State of Karnataka Vs. M/s Ecom Gill
Coffee Trading Private Limited (Civil Appeal No. 230 of 2023, decided on
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13.03.2023), while considering the pari materia of section 70 of the Karnataka

Value Added Tax Act, 2003, where the burden was upon the dealer to prove
beyond doubt its claim of exemption and deduction of ITC, has observed as
under:

9.1 Thus, the provisions of Section 70, quoted hereinabove, in its plain terms
clearly stipulate that the burden of proving that the ITC claim is correct lies
upon the purchasing dealer claiming such ITC. Burden of proof that the ITC
claim is correct is squarely upon the assessee who has to discharge the said
burden. Merely because the dealer claiming such ITC claims that he is a
bona fide purchaser is not enough and sufficient. The burden of proving the
correctness of ITC remains upon the dealer claiming such ITC. Such a
burden of proof cannot get shifted on the revenue. Mere production of the
invoices or the payment made by cheques is not enough and cannot be said to
be discharging the burden of proof cast under section 70 of the KVAT Act,
2003. The dealer claiming ITC has to prove beyond doubt the actual
transaction which can be proved by furnishing the name and address of the
selling dealer, details of the vehicle which has delivered the goods, payment
of freight charges, acknowledgement of taking delivery of goods, tax invoices
and payment particulars etc. The aforesaid information would be in addition
to tax invoices, particulars of payment etc. In fact, if a dealer claims Input
Tax Credit on purchases, such dealer/purchaser shall have to prove and
establish the actual physical movement of goods, genuineness of transactions
by furnishing the details referred above and mere production of tax invoices
would not be sufficient to claim ITC. In fact, the genuineness of the
transaction has to be proved as the burden to prove the genuineness of
transaction as per section 70 of the KVAT Act, 2003 would be upon the
purchasing dealer. At the cost of repetition, it is observed and held that mere
production of the invoices and/or payment by cheque is not sufficient and
cannot be said to be proving the burden as per section 70 of the Act, 2003.
In the said judgement Hon’ble the Apex Court has held that primarily
burden of proof for claiming the input tax credit is upon the dealer to furnish the
details of selling dealer, vehicle number, payment of freight charges,
acknowledgement of taking delivery of goods, tax invoices and payment
particulars etc. to prove and establish the actual physical movement of the goods.
Further by submitting tax invoice, e-way bill, GR or payment details is not
sufficient.

17. Patna High Court in the case of M/s Astha Enterprises (supra) has held
as under :-

“9. …. It was held that the dealer who claims Input Tax Credit has to prove
beyond doubt, the actual transaction by furnishing the name and address of
selling dealer, details of the vehicle delivering the goods, payment of freight
charges, acknowledgement of taking delivery of goods, tax invoices and
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payment particulars etc. It was also held that to sustain a claim of Input Tax
Credit on purchases, the purchasing dealer would have to prove and establish
the actual physical movement of the goods and genuineness of transactions, by
furnishing the details referred to above and mere production of tax invoices
would not be sufficient to claim ITC.”
18. Similarly, this Court in the case of the Commissioner Commercial Tax
Vs. M/s Ramway Foods Ltd. (supra) has held that the primary responsibility of
claiming the benefit is upon the dealer to prove and establish the actual physical
movement of goods, genuineness of transactions, etc. and if the dealer fails to
prove the actual physical movement of goods, the benefit cannot be granted.

19. The judgement relied upon by the counsel for the petitioner of Calcutta
High Court in the cases of M/s LGW Industries Limited and others (supra)
and Sanchita Kundu and another (supra) is of no aid to the petitioner as
recently Hon’ble the Apex Court in the case of M/s Ecom Gill Coffee Trading
Private Limited (supra) has specifically held that onus is to be discharged by
the petitioner to prove and establish beyond doubt the actual transaction and
physical movement of goods. But in the case in hand, the petitioner has failed to
prove and establish actual physical movement of goods and genuineness of
transaction as such the proceedings has rightly been initiated.

20. Further, the case law relied upon by the counsel for the petitioner of this
Court in Ashish Trading Company (supra) is also of no aid to the petitioner as
in that case in para 14, the Court has recorded a finding of fact that order of the
first appellate authority is cryptic as no details were provided. But the facts of
the present case is different as stated in previous paras and recent judgement of
Apex Court in the case of Ecom Gill Coffee Tradiving Pvt. Ltd. (supra) is
squarely applicable in the facts of the present case.

21. In view of the facts as stated above, no interference is called for by this
Court in the impugned orders. The writ petition fails and is dismissed
accordingly.

Order Date :- 18.10.2023

Rahul Dwivedi/-

Digitally signed by :-
RAHUL DWIVEDI
High Court of Judicature at Allahabad