Standard Operating Procedure (SOP) for outstanding demands created against such person (firms) who have not made any sale and / or purchase of goods

To give effect to the same, the Committee constituted in this regard prescribes the following procedure for the disposal of outstanding demands which are created against such person who have not made any sale and /or purchase of goods.

1. Background of creation of such demands:

> It has been brought into the notice that a huge amount of demand has been created by field officials against such persons who have been involved in issuing invoices without actual supply of goods (hereinafter referred to as "fake invoices"). Such persons have not made any actual sale and / or purchase of goods.

> As per the information received from field officials, a huge demand have been created against such non-existing firms who have got registration fraudulently and shown paper transactions; wherein no sale and / or purchase of goods have taken place, the details of same is given below:-

(Rs. in crore)

> The field officials have opted two approaches in such matters.

(a) In one approach, Assessing Authority has established that the transactions shown in returns are fictitious and are only paper transactions, wherein no sale and / or purchases of goods have taken place. The persons have obtained registration through fraudulent means and thereby, they have cancelled the registration ab-initio and treated the turnover shown in returns /as null and void.

(b) In other instance, Assessing Authority has assessed the turnover by accepting the outward sale of person and by disallowing of the Input Tax Credit (ITC) on purchases shown in return, thereby a huge demands has been created as narrated above in such matters at multiple points in the series of such paper transactions.

> It is observed that the intent of such persons for issuing fake invoices have been either to pass on bogus Input Tax Credit (ITC) in the series of sales, showing inflated turnover for the purpose of seeking or enhancing limit of loan from the Banks or issuing declaration Form C / Form F, for extending concessional tax benefit to the dealers of other States.

2. Legal Position:

The basic examination for taxation of any incidence is the existence of "SALE", as defined in "The Sale of Goods Act, 1930", "Rajasthan Value Added Tax Act, 2003" or "Central Sales Tax, 1956", which can be examined under following points:-

The Sales of Goods Act, 1930:

"Section 4 Sale and agreement to sell.-

> A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another.

> A contract of sale may be absolute or conditional.

> Where under a contract of sale the properly in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell.

> An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred. "

Thus there are 4 mandatory ingredients for 'Sale', which are as follows-

> There should be two parties.

> There should be an agreement.

> There should be a transfer of property in goods.

> There should be consideration.

If out of these 4 ingredients, any one of elements is missing then sale can not be happened.

Similar provisions regarding 'sale' are provided in RVAT Act, 2003 and CST Act, 1956, which are as given below:-

As per Section 2 (35) of Rajasthan Value Added Tax Act, 2003, the term "sale" refers to.-

2(35) "Sale" with all its grammatical variations and cognate expressions means every transfer of property in goods by one person to another for cash, deferred payment or other valuable consideration and includes.-

(i) ........................;

(ii) ........................;

(iii) ........................;

(iv) .........................;

(v) .........................; and

(vi) ...........................;

and such transfer, delivery or sale shall be deemed to be a sale and the word "purchase" or "buy" shall be construed accordingly;

As per Section 2 (g) of The Central Sales Tax Act, 1956, the term "sale" refers to.-

2(g) "Sale" with all its grammatical variations and cognate expressions means every transfer of property in goods by one person to another for cash, deferred payment or other valuable consideration and includes.-

(i) ........................;

(ii) .......................;

(iii) ......................;

(iv) .......................;

(V) .......................;

(vi) ...........................;

but does not include a mortgage or hypothecation of or a charge or pledge on goods;

Other provisions of RVAT Act, 2003:

Following provisions under RVAT Act, 2003 are provided for Incidence and Levy of Tax, which are given below:-

Section 3 Incidence of Tax.- (1) Subject to the provisions of this Act, every dealer-

(a) who is an importer of goods; or

(b) who is a manufacturer of goods and whose annual turnover exceeds rupees five lacs; or

(c) whose annual turnover exceeds rupees ten lacs,

shall be liable to pay tax under this Act.

The words 'dealer' & 'turnover' used in above section are defined in RVAT Act, 2003 as below:-

Section 2 (11) "dealer" means any person, who carries on business in any capacity, of buying, selling, supplying or distributing goods directly or otherwise, or making purchases or sales as defined in clause (35) for himself or others, whether for cash or deferred payment, or for commission, remuneration or other valuable consideration and shall include-

(i) ........................;

(ii) .......................;

(iii) .......................;

(iv) ......................;

(V).....................;

(vi).................; and

(vii).....................

Section 2(36) "sale price" means the amount paid or payable to a dealer as consideration for the sale of any goods less any sum allowed by way of any kind of discount or rebate according to the practice normally prevailing in the trade, but inclusive of any statutory levy or any sum charged for anything done by the dealer in respect of the goods or services rendered at the time of or before the delivery thereof, except the tax imposed under this Act.

Section 2(41) "turnover" means the aggregate amount of sale price received or receivable by a dealer including purchase price of the goods which are subject to tax under sub-section (2) of section 4 "but shall exclude the sale price or part of sale price, if any, in respect of sales of goods which were purchased in the State by the dealer upon payment of tax on the maximum retail price of such goods or, where tax on maximum retail price of such goods were paid in the State on an earlier occasion".

Thus if all things taken in consideration together i.e. definition of 'dealer' 'Sale', 'Sale Price', 'turnover' in respect of incidence & levy of tax; then it is pretty clear that transactions pertaining to fake invoices are not covered by definition of 'Sale' & 'Turnover'. Hence such transactions should not be validated by passing assessment orders of such firms.

3. Identification of such cases:-

> In such cases, Godown facility for storage of goods corresponding to the turnover of commodities is generally not found.

> The commodities shown in turnover are generally evasion prone like iron and steel, ghee, copper, mustard, edible oil, cotton seed etc.

> Rental deeds and correspondingly evidences submitted like ID proof, electricity bill etc. are generally found fictitious.

> In such eases registration are obtained in the name of dummy person like Labour / Accountant / Driver / Servant etc. as a dummy firm for extending benefit to someone else.

> In such eases liability of output tax is mainly discharged by utilization of fictitious input tax credit and negligible amount of tax is deposited in cash.

> In such cases differential treatment of transaction of purchase and sale are given by assessing authority, wherein input tax credit shown in return is disallowed and output tax shown in the return is admitted and assessed, which have resulted in creation of huge amount of fictitious demand in the series of sales at multiple points.

4. Possible scenarios in such eases and possible legal action at the level of Assessing Authority:-

1. Where there is merely an issuance of invoice and no 'sale' of goods have been established against such dealers then tax, interest and penalty cannot he imposed as there was no 'sale ' and as per legal position narrated above, there is no actual turnover.

2. Where there is availment of Input Tax Credit (ITC) without actual receipt of goods, in such cases, ITC can not be allowed.

5. Actions required for reducing such demands:

As per the information received from field officials such cases are mainly assessed ex-parte. On enquiry, if such cases covered in above parameters then these cases may be re-opened as per the following provision provided by amendment in the Finance Act, 2022 as given below:-

"5. Amendment of section 174, Rajasthan Act No. 9 of 2017.- After the existing subsection (2A) and before the existing sub-section (3) of section 174 of the Rajasthan Goods and Services Tax Act, 2017 (Act No. 9 of 2017), the following new sub-section shall be inserted, namely:-

"(2B) Notwithstanding anything contained in the Acts repealed under subsection (1),-

(i) ............................. ;

(ii) an ex-parte assessment or best judgment assessment pertaining to any period upto 30th June, 2017 passed under any section of the repealed Acts may be re-opened suo moto by assessing authority or on application by the dealer submitted manually, directly to assessing , authority. In case of application by dealer, assessing authority shall proceed to make a fresh assessment within ninety days from the re-opening of assessment order; and

(iii)..........................."

6. Applicability of SOP:

1. It will be applicable for the demands pertaining to the period upto 30.06.2017 under repealed Acts as mentioned in Rajasthan Goods and Services Tax Act, 2017 (Act No.9 of 2017) and CST Act, 1956.

2. Prosecution under section 67(1 )(b) of RVAT Act, 2003 shall be initiated against such persons who have been indulged in such fictitious activities.

3. It shall not be applicable on such demands which are sub-judice in any Court.

4. In the series of such transactions benefit of Input Tax Credit shall not be available to purchasing dealer / end beneficiary. It will not be applicable in the cases where Input Tax Credit is utilized by purchasing dealer in the series of sale and which can not be reversed due to bar of time.

(Dr. Ravi Kumar Surpur)

Commissioner,

Commercial Taxes,

Rajasthan, Jaipur.