Bright Star Plastic Industries Vs Additional Commissioner of Sales Tax

Case Covered:

M/s. Bright Star Plastic Industries 

Versus

Additional Commissioner of Sales Tax & others

Facts of the Case:

• The Petitioner is carrying on the business of manufacturing and trade of Poly Vinyl Chloride (PVC) pipes, high-density polyethylene and low-density polyethylene pipes, scrap iron angles, iron scraps, etc.
• The CT & GST Officer, Bhubaneswar issued a show-cause notice (SCN) in Form GST REG-17 under Rule 22(1) of the OGST Rules, 2017 for cancellation of Petitioner’s registration on the ground that. In case, Registration has been obtained by means of fraud, willful misstatement, or suppression of facts.
• After the Petitioner filed a reply on 19th august 2020, the CT & GST Officer, Bhubaneswar dropped the proceedings for cancellation of the registration. However, on the same day, they issued another SCN for cancellation of registration, this time on the ground that: You have claimed ITC (Input Tax Credit) of Rs.2,04,650,06 against fake invoices issued by the non-existent supplier.
• A detailed reply was sent by the Petitioner to the aforesaid SCN & it was pointed out that the Petitioner had purchased G.P. Sheets from M/s. Pawansut Enterprises. The details of the bill numbers, the dates, the value of the goods and the CGST & SGST amounts paid and the total amount were set out in a tabular form. It was further pointed out that the Petitioner had reflected the purchases so made in the return 3B for the relevant showing the total tax paid purchases and tax collected messages and that no mismatch in the return had been intimated to the Petitioner. It was ascertained that the purchases had been made from a dealer, who is registered with the Department, and ITC was being claimed on the basis of the tax

Observations of the Court:

• It was ascertained that the purchases had been made from a dealer, who is registered with the Department, and ITC was being claimed on the basis of the tax invoices that fulfilled the requirement of law.
• Reliance was placed on a decision of the Delhi High Court in On Quest Merchandising India Pvt. Ltd. v. Government of NCT of Delhi (2017) 64 GST 623 (Delhi), wherein it was observed that the buyer cannot be put in jeopardy when he has done all that the law requires him to do and further that the purchasing dealer has no means to ascertain and secure compliance of the selling dealer.  
• Transactions of purchase made by the Petitioner during the relevant period, it is only the purchase from one dealer viz., M/s. Pawansut Enterprises, which has attracted the SCN issued to the Petitioner by Opposite Party No.2 on the ground that ITC had been claimed against a fake invoice.
• The fraud committed by the selling dealer, which resulted in the cancellation of a selling dealer’s registration, there cannot be an automatic cancellation of the registration of the purchasing dealer.
• The decision of the Gujrat High Court dated 10th December 2020 in Special Leave Application No.15508 of 2020 (Vimal Yashwantgiri Goswami v. the State of Gujarat) supports the case of the Petitioner.
• On the date the purchases took place there was no means for the Petitioner to know that entity that had a valid GST number, was in fact non-existent. 

The judgment of the Court:

The impugned order of the LPO rejecting the Petitioner’s application for revocation of its cancellation of registration and the impugned appellate order dated 5th April 2021 rejecting the Petitioner’s appeal is hereby set aside. The Department is now directed to restore the Petitioner’s registration forthwith by issuing appropriate orders/directions not later than one week from today. The Petitioner will correspondingly now be permitted to file all the returns which it could not file on account of the cancellation of the registration.

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