Facts of the Case:
In this case, the petitioner was a registered dealer engaged in supply of waste, parings, and plastic scrap (polymers of ethylene), had purchased old scrap batteries from Mohan Enterprises, Muzaffarpur (Bihar) on 28.06.2021. The supplier issued Tax Invoice and E-way Bill for the said supply. The outward supply made by the supplier was duly reflected in its GSTR-1, and the tax collected was paid through GSTR-3B. The petitioner availed Input Tax Credit (ITC) of IGST, paid the consideration along with GST through banking channels, and reported the purchase in its GST returns. An inspection was later conducted by the State Tax authorities, Bihar, alleging that Mohan Enterprises and 41 other suppliers had not received any inward supplies and that the transactions involved fictitious invoices without actual movement of goods. It was alleged that no trading activity existed at the supplier’s premises.
A show cause notice was issued to the petitioner under Section 74, alleging wrongful availment of ITC. The petitioner submitted that the supplier was a validly registered dealer on the date of the transaction, had filed GSTR-1 and GSTR-3B up to July 2021, had deposited GST collected from the petitioner, and goods were supported by invoices and e-way bill. Despite this, ITC was reversed, penalty imposed under Section 74.
Issue:
Whether ITC can be denied to a purchasing dealer when the supplier was duly registered at the time of the transaction and had filed GSTR-1 and GSTR-3B reflecting the supply and payment of tax? Whether subsequent cancellation of supplier’s registration (after the date of transaction) can invalidate ITC already availed by the purchaser?
Held that:
The High Court held that the petitioner was entitled to Input Tax Credit as the supplier, Mohan Enterprises, was a validly registered dealer on the date of the transaction, had issued a tax invoice and valid e-way bill, and had duly filed GSTR-1 and GSTR-3B reflecting the outward supply and payment of GST.
The Court noted that GSTR-2A of the petitioner also auto-populated the said supply, proving that tax had been deposited with the Government, and the authorities had failed to consider these statutory documents. It further held that subsequent cancellation of the supplier’s registration could not retrospectively invalidate ITC when the transaction was undertaken during the period of valid registration, relying on the Supreme Court’s decision in Shakti Kiran India Pvt. Ltd. and the Allahabad High Court’s rulings in Solvi Enterprises and Khurja Scrap Trading Co..
The Court found that there was no allegation or evidence of fraud, suppression, or willful misstatement on the part of the petitioner, and therefore invocation of Section 74 was wholly unjustified. The revenue’s reliance on Ecom Bill Coffee Trading Pvt. Ltd. was rejected as inapplicable, since in the present case all documents evidencing the transaction, including invoice, e-way bill, returns, and banking-channel payment were on record.
Holding the adjudication to be arbitrary, perverse, and contrary to Section 16 of the CGST Act, the High Court quashed both the original order dated 20.12.2022 and the appellate order dated 05.02.2024, and allowed the writ petition in full, setting aside the demand of tax, interest, and penalty.
Case Name: M/s. Saniya Traders Versus Additional Commissioner Grade-2 And Another. dated 03.12.2025:
To read the complete judgement 2025 Taxo.online 3166
