The Allahabad High Court recently ruled in favor of M/s Subhash Chand & Co. in a case concerning the incorrect imposition of tax and penalties under the GST framework. The case arose when the petitioner, M/s Subhash Chand & Co., sold sugar to M/s Shiv Trading Co. in December 2018. The Department alleged that the petitioner had engaged in a bogus inward supply from Shiv Trading, which was later found to be non-existent. Consequently, the authorities imposed a tax and equal penalty on the petitioner under Section 73, which was upheld in an appeal.
The core issue was whether the tax and penalty under Section 73 were justified when the transaction in question was an outward supply, as documented by the petitioner, rather than an inward supply. The petitioner provided substantial evidence, including invoices, e-way bills, and bank records, to demonstrate that it was a seller, not a purchaser, and that the transaction was an outward supply.
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The High Court found that the authorities erred by not verifying the records and mistakenly assuming an inward purchase from a non-existent firm. The court noted that the imposition of an equal penalty under Section 73 was not appropriate, as the statute limits penalties to 10% and only applies when a short payment is admitted. Consequently, the court quashed the orders dated February 15, 2020, and July 22, 2021, allowing the writ petitions filed by M/s Subhash Chand & Co.
Order date: 01 Sep 2025
Parties: M/s Subhash Chand & Co. v. State of U.P. & Ors.
Facts -
- Petitioner sold sugar in Dec 2018 to M/s Shiv Trading Co., Delhi (valid GSTIN). Department alleged petitioner had taken inward supply from Shiv Trading, which was later found non-existent.
- Proceedings under Section 73 resulted in tax + equal penalty order dated 15.02.2020, later upheld in appeal on 22.07.2021. Petitioner consistently argued it was a seller, not purchaser, producing invoices, e-way bills, and bank records to show outward supply.
Issue -
- Whether tax and penalty under Section 73 can be sustained when the transaction was an outward supply duly recorded, and not an inward supply as alleged by the authorities?
Order -
- The single bench of the Hon’ble High Court noted clear documentary evidence (invoices, e-way bills, banking proofs) establishing outward supply by petitioner, with tax duly deposited.
- Authorities failed to verify records and instead wrongly presumed an inward purchase from a non-existent firm; this error went uncorrected in appeal.
- Imposition of equal penalty under Section 73 was contrary to statute, since penalty under Section 73 is limited to 10% and applies only where short payment is admitted. The impugned orders dated 15.02.2020 and 22.07.2021 were quashed, writ petitions allowed.
