Broker Not Required To Physically Verify Exporters Premises Calcutta HC Sets Aside 50 Lakh Penalty
Calcutta High Court quashed a ₹50 lakh penalty, stating physical verification of exporter premises by brokers isn't mandatory.
The Calcutta High Court has set aside a ₹50 lakh penalty, clarifying that brokers are not required to physically verify exporters' premises. This decision provides relief to brokers facing penalties for non-verification. The case arose from allegations against an exporter for availing ITC fraudulently on the strength of invoices without actual supply of goods. The department initiated proceedings, arguing the broker should have physically verified the exporter's premises. The High Court, however, emphasized that the law does not mandate such physical verification by brokers. This ruling underscores the importance of adhering to the specific requirements outlined in GST laws and regulations, preventing unwarranted penalties on intermediaries. The judgment offers significant clarity on the extent of brokers' responsibilities in export transactions, potentially reducing compliance burdens and litigation.
Section 69 of the CGST Act pertains to the power to arrest in certain circumstances, typically involving offenses where the amount of tax evaded exceeds a specified threshold. While not directly referenced in the judgment, related provisions concerning verification and due diligence are relevant. Non-compliance can lead to penalties, including those under Section 122 of the CGST Act, which covers various offenses related to fraudulent ITC claims.
This ruling highlights a potential overreach by tax authorities in expecting brokers to perform duties beyond the scope of GST law. It may signal a trend towards more stringent scrutiny of intermediaries, necessitating careful documentation and adherence to explicitly defined responsibilities. CAs should advise clients to maintain thorough records of their due diligence processes, focusing on areas where verification is legally mandated.
This ruling clarifies the scope of responsibility for brokers in export transactions, preventing undue penalties and compliance burdens. It sets a precedent against imposing obligations not explicitly mandated by GST law.