Vacant Premises Alone Don’t Prove Scrap Trading Was Fake, GST Tribunal Sends ₹44.26-Lakh Penalty Case Back for Reconsideration

The Department appealed under Section 112(3) of the applicable GST Act against the First Appellate Authority’s order setting aside a penalty of ₹44,26,603 imposed under Section 122(1) on the respondent for alleged invoice-only transactions without actual movement or supply of goods.

An inspection on 3 February 2022 found the declared business premises closed, marked “Vacant for Rent,” and without stock.

The respondent’s case was that it had discontinued business about two months earlier and disposed of its stock before closing.

The Department challenged the genuineness of the transactions, relying on the premises, alleged lack of infrastructure, missing supporting records and e-way bill discrepancies; the respondent relied on its business records, machinery, and the circumstances of closure.

The judgment identifies the appellate order as dated 23 May 2025 in its factual account, but the operative direction refers to 13 April 2024; the text therefore contains an inconsistency in the date of that order.

The appeal was brought under Section 112(3) of the applicable GST Act, and the penalty at issue had been imposed under Section 122(1).

The Tribunal referred to Rule 138 of the applicable GST Rules in considering the e-way bills.

It applied the principles that a closed or vacant business premises and absence of stock on the inspection date do not, without more, conclusively prove that earlier business was fictitious; evidence must be assessed collectively, and the absence of any single document is not automatically conclusive.

Supplier-registration cancellation after a transaction likewise does not, by itself, prove that an earlier supply was fictitious.

An ex parte order is not set aside merely because it was passed in the taxpayer’s absence, but a reasonable and effective hearing is warranted where necessary for proper adjudication.

The inspection evidence raised legitimate questions about the business’s premises, stock, infrastructure and transactions, but did not conclusively establish that no genuine business had been conducted before the premises were vacated.

Conversely, the respondent’s assertion that it had traded and disposed of its stock was not enough, without verification of its books, invoices, transport and weighment records, bank records, machinery and e-way bills.

Because the First Appellate Authority had not adequately examined those materials, and the Proper Officer’s order appeared to have been made ex parte, the Tribunal found that the factual dispute could not properly be resolved on the existing record and required fresh adjudication after an effective hearing.

The Proper Officer was directed to give the respondent a reasonable and effective personal hearing, permit it to produce relevant records and evidence, consider the explanation and evidence, comply with applicable statutory requirements, and issue a fresh, reasoned and speaking order in accordance with law.