The Allahabad High Court has ruled that a recipient’s right to claim Input Tax Credit (ITC) cannot be denied, provided the supplier was registered under GST at the time the transaction took place.
The Bench, led by Justice Piyush Agrawal, set aside a GST demand of ₹9.42 lakh raised under Section 74 of the CGST/UPGST Act. The Court held that Input Tax Credit (ITC) cannot be denied to the recipient where the selling dealer was duly registered at the time of the transaction and had filed GSTR-1 and GSTR-3B, reflecting the tax collected and paid.
The taxpayer, M/s Saniya Traders, a registered dealer, is in the trade of waste plastic, parings, and scrap of polymers, and had entered into a purchase transaction with Mohan Enterprises, Muzaffarpur, Bihar, on 28 June 2021.
The purchase includes old scrap batteries, and the transaction was supported by a valid tax invoice (No. ME 28/2021-22) as well as E-way Bill No. 821164498832 issued on the same date.
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The applicant, Mohan Enterprises, had duly reported the transaction in its GSTR-1 return, and the related tax liability was also released via GSTR-3B. Saniya Traders claimed that all payments made to the supplier, along with the IGST component, were transferred via regular banking channels, which does not cause any doubt regarding the genuineness of the transaction.
But the issue has arisen when the Joint Commissioner, State Tax, Central Investigation Bureau, Patna, performed an investigation concerning a network of 42 alleged non-existent suppliers operating in Uttar Pradesh and Bihar.
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The investigation report stated that such entities did not obtain or supply any goods and had only generated invoices without actual movement of goods, which led to a bogus transfer of ITC.
The UP GST authorities, as per the same report, have concluded that the supplier of the applicant Mohan Enterprises was part of this doubtful network. Consequently, the purchase made via Saniya Traders was considered non-genuine, and the ITC taken on this transaction was asked to be reversed.
A Show Cause Notice (SCN) on 27 September 2021 was issued, to which the applicant filed a detailed refutation, citing that the seller had submitted the returns until July 2021 and paid due taxes.
The Assistant Commissioner, even after the explanation and supporting documents, proceeded to pass an order u/s 74 of the GST Act on 20 December 2022, reversing the ITC of 94,17,997 along with interest and equal penalty.
The appeal of the applicant against this order was thereafter dismissed dated 5 February 2024, pushing the filing of the present writ petition before the Allahabad High Court.
As per the court, Mohan Enterprises was a registered GST taxpayer dated 28 June 2021, and its registration was cancelled merely later. If the selling dealer was enrolled during the transaction, then the ITC could not be rejected even if his registration is cancelled thereafter.
| Case Title | M/S Saniya Traders vs. Additional Commissioner Grade-2 |
| Case No. | WRIT TAX No. – 1743 of 2024 |
| Counsel for Petitioner | Srishti Gupta, Suyash Agarwal |
| Counsel for Respondent | C.S.C. |
| Allahabad High Court | Read Order |
