Facts of the Case:

In this case, the petitioner challenged the Order-in-Original whereby its GST registration was cancelled ab initio under Sections 29(2)(a) and 29(2)(e) of the CGST Act read with Rule 21(e) of the CGST Rules. he cancellation was based on allegations that the petitioner had availed fraudulent Input Tax Credit (ITC) through a chain of suppliers whose registrations were subsequently cancelled and were suspected to be involved in fake invoicing activities.

The department relied on buyer-supplier network analysis and concluded that the petitioner was part of a fictitious transaction chain leading to fake ITC generation. The petitioner, however, contended that it had undertaken bona fide transactions and had furnished supporting documents such as tax invoices, e-way bills, ledger statements and bank records. It was argued that denial of ITC and cancellation of registration solely on the basis of suppliers’ registration status was unsustainable.

Issue:

Whether GST registration can be cancelled ab initio on allegations of fraudulent ITC solely on the basis of cancellation of suppliers’ registrations, without independently examining the taxpayer’s transactions and recording specific findings on its involvement in the alleged fraud?

Held That:

The Court held that the impugned order cancelling the petitioner’s GST registration ab initio was unsustainable in law as it was passed without proper application of mind and without recording any cogent findings on the petitioner’s entitlement to Input Tax Credit (ITC).

It was observed that mere cancellation of the suppliers’ registrations or allegations of their involvement in fake invoicing cannot, by itself, justify denial of ITC or cancellation of the recipient’s registration. The adjudicating authority is under an obligation to independently examine the petitioner’s transactions and the documentary evidence such as invoices, e-way bills, and payment records to ascertain whether ITC was validly availed in the ordinary course of business.

In cases involving allegations of fraudulent ITC, the department must establish a clear nexus and the petitioner’s conscious involvement in the alleged illegality, supported by tangible material, which was lacking in the present case. The absence of such findings rendered the order arbitrary and violative of principles of natural justice.

Accordingly, the Court set aside the impugned order and remanded the matter for fresh adjudication after granting an opportunity of hearing, while leaving it open to the authorities to continue investigation and take appropriate action in accordance with law.

Case Name: Florida Solvent Private Limited Versus The Superintendent, CGST and Central Excise, Range II, Division II, Thane Commissionerate & Ors. dated 01.04.2026

To read the complete judgement 2026 Taxo.online 864