Facts of the Case:
In this case, the petitioner firm engaged 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 corresponding e-way bills. The payment was made to the supplier through banking channels. The supplier had duly filed GSTR-1 and GSTR-3B for the said period, which could only have been filed after payment of the due tax.
Subsequently, on the ground that the supplier’s GST registration was cancelled on 31.01.2019 and the supplier was found to be non-existent, the department initiated proceedings under Section 74 of the CGST/UPGST Act, 2017.
A show cause notice was issued proposing reversal of ITC and imposition of penalty. The petitioner furnished a detailed reply with all supporting documents—tax invoices, e-way bills, proof of payment, and returns—but the Adjudicating Authority rejected the reply and confirmed reversal of ITC alleging that purchases were from a non-existing supplier.
Issue: Whether Input Tax Credit validly claimed by the purchasing dealer can be denied merely because the supplier’s registration was cancelled subsequently, even though at the time of transaction the supplier was a registered person, Tax invoices and e-way bills were duly generated, Payments were made through banking channels and supplier had filed GSTR-1 and GSTR-3B, implying payment of tax.
Held that: The Court observed that it was undisputed that the supplier was registered during the relevant tax period. Therefore, The subsequent cancellation of registration could not invalidate genuine transactions conducted when the supplier was duly registered.
Further, the petitioner had valid tax invoices, e-way bills, and banking channel payments, satisfying the requirements of Section 16(2) of the CGST Act. The supplier’s filing of GSTR-1 and GSTR-3B further proved that tax had been paid to the government, since GSTR-3B cannot be filed without actual payment of tax.
Also, the court held that the Department relied solely on the information that the supplier was non-existent, without independent verification of whether the supplier was operational at the time of transaction. Such “borrowed satisfaction” without factual verification was held impermissible. The Department did not allege any fraud, misrepresentation, or connivance on part of the petitioner. Hence, the presumption of bona fide conduct stood unrebutted.
Since the basic conditions for ITC eligibility were fulfilled, and no willful suppression or fraud was found, initiation of proceedings under Section 74 (fraud-based demand) was wholly unwarranted. The Allahabad High Court allowed the writ petition, setting aside the orders passed under Section 74 and holding that the denial of ITC to the petitioner was unsustainable in law.
Case Name: M/s Singhal Iron Traders Versus Additional Commissioner And Another dated 04.11.2025
To read the complete judgement 2025 Taxo.online 2818
