M/S. Bright Star Plastic Industries v Additional Commissioner of Sales Tax: Protection of Purchaser’s Rights: Cancellation of GST Registration Due to Seller’s Fraud”
Introduction:
This case involves M/S. Bright Star Plastic Industries challenging two orders. The company’s registration cancellation was rejected by the Proper Officer and the Additional Commissioner of CT and GST (Appeal). The company is in the business of making PVC pipes and other materials. The Revenue Department issued a notice to cancel the company’s GST registration due to alleged fraud.
Facts of the Case:
The company responded to the first notice, and it was dropped. However, another notice was issued claiming the company had claimed Input Tax Credit (ITC) using fake invoices. The company provided details of its transactions and tax payments to the Revenue Department. Despite this, the department issued a demand notice for tax, interest, and penalty. The company’s registration was cancelled based on insufficient clarifications.
The company applied to revoke the cancellation, but the department rejected it. The company’s appeal was also rejected by the Additional Commissioner.
Issues Raised:
The main issue is whether a purchaser’s GST registration can be canceled due to the seller’s fraud, even when the purchaser is unaware of the fraud.
Observations Made and Judgment Given:
The court observed that the company had conducted genuine transactions with most sellers and had availed ITC following tax payment. The cancellation was based on the actions of one seller, but the company wasn’t aware of the seller’s fraudulent activities. The court stated that a buyer can’t be punished for a seller’s actions. The cancellation should have been targeted at the seller.
The court ruled in favor of the company, stating that the cancellation of its registration was unjustified. The company had fulfilled its obligations and was penalized for the seller’s misconduct. The orders rejecting the company’s application for revocation and the subsequent appeal were set aside. The court directed the department to restore the company’s registration within a week, allowing the company to file returns that were delayed due to the cancellation.
Conclusion:
In conclusion, M/S. Bright Star Plastic Industries, a legitimate purchaser, faced the cancellation of its GST registration due to a seller’s fraud. The court recognized the unfairness of penalizing the purchaser for the seller’s actions. The company’s persistence in pursuing the case ultimately led to a favorable outcome, highlighting the importance of safeguarding innocent buyers in such situations.
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