Facts of the Case:

The petitioner, a registered dealer engaged in the business of plastic roofing sheets, purchased goods from M/s Unique Trading Company on 26.11.2021 and 30.11.2021. Payments were claimed to have been made through banking channels, and the supplier had filed GSTR-1/1FF and GSTR-3B, reflecting the transactions and corresponding tax.

Subsequently, a show cause notice under Section 74 of the UP VAT Act was issued on the ground that the supplier was found non-existent at its place of business. The supplier’s registration was later cancelled on 08.04.2022, i.e., after the transactions in dispute.

The petitioner argued that since the supplier was registered at the time of transaction, and had duly filed GST returns, ITC could not be denied. Further, Section 74 proceedings could only be initiated in cases of fraud, willful misstatement, or suppression of facts, which was not established in the present case. Reliance was placed on Suraj Impex (India) Pvt. Ltd. (SC), Solvi Enterprises (Allahabad HC), R.T. Infotech (Allahabad HC), and Agrawal Rolling Mills (Allahabad HC).

The State, however, contended that the petitioner had failed to establish payments through banking channels and had not produced adequate proof of movement of goods.

Issue: Whether proceedings under Section 74 of the UP VAT Act can be sustained merely on the basis that the selling dealer was later found non-existent, without any finding of fraud, willful misstatement, or suppression of facts on the part of the petitioner.

Held that: The Allahabad High Court quashed the impugned orders, holding as under

• The transactions were undertaken when the selling dealer was duly registered; cancellation of registration at a later stage cannot retrospectively invalidate the transactions.
• The supplier had filed GSTR-1/1FF and GSTR-3B, which were sufficient material for verification of tax compliance. Instead of verifying these, the authorities wrongly proceeded only on the basis of subsequent inspection.
• As per the CBIC Circular dated 13.12.2023, and in line with Suraj Impex (SC), Section 74 proceedings can only be invoked when there is fraud, willful misstatement, or suppression of facts with intent to evade tax. No such finding was recorded against the petitioner.
• Denial of ITC merely because the supplier was not found at the premises during inspection is unsustainable in law.

Accordingly, the Court set aside the orders of the Commercial Tax Officer and Appellate Authority, and remanded the matter to the adjudicating authority for de novo consideration after granting due opportunity of hearing.

Case Name: M/s Khurja Scrap Trading Company Versus Additional Commissioner Grade-2 (Appeal) & Another dated 29.08.2025

To read the complete judgment 2025 Taxo.online 2103