The applicant’s firm in this case is in the business of trading and supply of iron scrap, purchased goods in August 2018 from a registered supplier, M/s Arvind Metal Suppliers, Nunhai, Agra, against two valid tax invoices and related e-way bills. The payment was made before the supplier via banking channels.
The supplier had duly submitted GSTR-1 and GSTR-3B for the said period, which can merely have been filed after payment of the due tax.
Thereafter, based on the fact that the GST registration of the supplier was cancelled dated 31.01.2019 and the supplier does not exist, the department commenced proceedings u/s 74 of the CGST/UPGST Act, 2017.
An SCN was issued asking for the ITC reversal and levying of a penalty. The applicant submitted a detailed response with all supporting documents- tax invoices, e-way bills, proof of payment, and returns; however, the Adjudicating Authority denied the response and confirmed reversal of GST ITC, alleging that purchases were from a non-existent supplier.
Problem: The issue is whether the ITC claimed via the purchasing dealer can be rejected only due to the cancellation of the supplier’s registration, even though during the transaction, the supplier was a registered person, Tax invoices and GST e-way bills were duly generated, Payments were made through banking channels, and the supplier had filed GSTR-1 and GSTR-3B, indicating tax payment.
Court Decision: The court it was undisputed that the supplier in the related tax period was registered. The cancellation of the registration cannot invalidate genuine transactions accomplished when the supplier was duly registered.
Also, the applicant secures valid tax invoices, e-way bills, and banking channel payments, fulfilling the needs of Section 16(2) of the CGST Act. The filing of GSTR-1 and GSTR-2B of the supplier established that the tax had been filed with the government, as GSTR-3B could not be submitted without the actual tax payment.
Read Also: Allahabad HC: GST ITC Cannot Be Denied to Buyer Due to Supplier’s Default
The court ruled that the department relied on the data that the supplier was nonexistent, with no verification of whether the supplier was in operation during the transaction. No permission without factual verification was held for such borrowed satisfaction. The Department did not allege any fraud, misrepresentation, or connivance on the applicant’s end. Therefore, the presumption of bona fide conduct is not contested.
As the basic norms for ITC eligibility were met and no wilful suppression or fraud was discovered, initiation of proceedings under section 74 (fraud-based demand) was wholly unwarranted. The writ petition was permitted by the Allahabad High Court, setting aside the orders passed u/s 74 and holding that the refusal of ITC to the applicant was not sustainable in law.
| Case Title | M/S Singhal Iron Traders vs. Additional Commissioner And Another |
| Case No. | WRIT TAX No. – 1357 of 2022 |
| Counsel for Petitioner | Suyash Agarwal |
| Counsel for Respondent | C.S.C. |
| Allahabad High Court | Read Order |
