After Arecanut Trader Admitted Issuing Fake Invoices, GSTAT Restores Penalties Despite Dropped ITC Demand

The department investigated Shrinivas Traders as part of an inquiry into alleged fake-invoice transactions.

The adjudicating authority dropped the ITC demand and interest but imposed penalties of ₹4,28,42,308 each under Sections 122(1)(vii) and 122(1)(x) of the CGST Act.

The Commissioner (Appeals) set aside both penalties. The department appealed to the Tribunal.

The Tribunal recorded that the taxpayer did not appear at the listed hearings despite notice and proceeded on the department’s submissions and the record

Section 122(1)(x) penalises a taxable person who falsifies or substitutes financial records, produces fake accounts or documents, or furnishes false information or returns with intent to evade tax; Section 122(1)(vii) penalises taking or utilising ITC without actual receipt of goods or services.

Under Sections 16(2)(b)–(c) and 155, the taxpayer bears the burden of establishing receipt of goods and the supplier’s payment of tax to support ITC.

Section 70 permits a proper officer to summon persons to give evidence or produce documents; the Tribunal applied principles concerning the evidentiary use of statements made before tax or customs officers, including Commissioner of Customs (Imports), Mumbai v. Ganpati Overseas and Commissioner of Customs, Mangaluru v. Imtiaz Ahmed.

Circular No. 171/03/2022-GST concerns fake-invoice scenarios but does not restrict the statutory power to impose penalties under applicable clauses of Section 122(1).

Rule 112 of the CGST Rules restricts the production of evidence before the appellate authority that was not produced before the adjudicating authority, absent the prescribed basis for admitting it.

The Tribunal found that the taxpayer’s statements described issuing and receiving invoices without actual supplies, using false vehicle details in e-way bills, and operating premises without business records; it also found no timely retraction or finding of coercion.

It held that the circular did not preclude penalty under Section 122(1)(x), and that the adjudicating authority had specified the conduct supporting that penalty.

For Section 122(1)(vii), the Tribunal relied on the taxpayer’s statements together with evidence that suppliers’ and recipients’ registrations had been cancelled before invoice dates, vehicle details were unavailable or inconsistent, and the taxpayer had not established actual receipt of goods or payment of tax by suppliers.

It also held that the appellate authority should not have relied on a ledger document submitted at the appeal stage without addressing Rule 112.

It further ordered that the appropriation of ₹22,00,400 and the attachment of bank balances stand.