ITC can’t be denied on ground that supplier’s registration was cancelled subsequently when supplier had filed GSTR-1 and GSTR-3B for the relevant period.
In a recent judgment, Allahabad High Court has held that ITC can’t be denied on ground that the supplier’s registration was cancelled subsequently to the transaction, when the supplier had filed GSTR-1 and GSTR-3B for the relevant period.
ABCAUS Case Law Citation:
4908 (2025) (12) abcaus.in HC
In the instant case, the appellant assessee had challenged the appellate order passed by the Additional Commissioner and order passed u/s 74 of GST Act, 2017, by the Assistant Commissioner GST.
The petitioner was a registered dealer and is having a GSTN. The petitioner purchased scrap from a supplier who issued Tax Invoice and also E-way Bill. The said sale was duly reflected in GSTR No. 1 of the supplier.
The petitioner also discharged its tax liability while making payment to the supplier by banking channel which was duly shown in the GSTR returns. The seller had also paid tax as per Section 49 of the Act.
An inspection was conducted by Joint Commissioner, Central Investigation Bureau, and alleged that 42 suppliers located in Uttar Pradesh have either not received any inward supply or no inward supply has been received by the supplier included in their supply chain nor any tax has been deposited. Therefore, inadmissible ITC have been acquired or transferred through inward and outward transaction on the basis of fictitious invoice without actual movement of goods.
On the said basis, the purchases declared by the petitioner had been treated as non existing supply firm. Further, allegation had been made that no trading activity was found at the place of such supply.
In reply to show cause notice, the Petitioner submitted that for the relevant purchases, the supplier had filed the returns both GSTR-1 and GSTR-3B which clearly showed not only the sale but tax had also been deposited.
Not being satisfied with the said reply, an order was passed under Section 74 reversing the input tax credit and interest and penalty was imposed.
Before the Hon’ble High Court, the Petitioner submitted that at the time of transaction selling dearler was registered and he has filed its return GSTR-I and GSTR-3B. He submitted once GSTR-1 is filed, GSTR-2A auto generates which open window for filing of GSTR 3B. The purchaser can only view that tax had been paid and deposit with Department.
It was submitted that once the tax had been paid by the selling dealer there was full compliance of Section 16 of the GST Act. He further submitted Section 16 contemplates that ITC can only be claimed after payment of due tax by the seller. It was submitted that once there was no dispute of the fact that the tax had been deposited, the proceedings initiated against the petitioner were bad and liable to be set aside.
The Petitioner further submitted that even assuming without admitting that the selling dealer registration has been cancelled subsequently to the transaction, no adverse view can be taken against the petitioner. In support of his contention, he relied upon the judgment of the High Court.
The Hon’ble High Court observed that the petitioner had shown its purchases from the registered dealer who was registered at the time of the transaction. The seller had filed its return both GSTR-1 and GSTR-3B for the supply made to the petitioner, payment of tax had been made and deposited with the department. Further, the petitioners had made the payment through banking channel. It was no body’s case that at the time of transaction, the petitioner and its supplier were not registered but on subsequent dates to the transaction, the registration of the supplier was cancelled. Under the GST Act the authorities are empowered to cancel the registration from the date of inception i.e. the date of registration but the authorities in their wisdom cancelled the registration of the seller on a subsequent date i.e. after the date of transaction.
The Hon’ble High Court opined that the supplier had filed GSTR-1 and GSTR-3B. It is the matter of common knowledge that after filing GSTR-1, an auto operating window opens for filing GSTR-3B for payment of tax and GSTR-2A can be viewed by the purchaser of the goods in question. Once the said form was generated and the said facts had not been disputed by any of the authorities while passing the impugned orders, the authorities had failed to consider the fact that GSTR-3B and GSTR-2A, as prescribed under the Act, which was auto populated to which not a single word had been whispered in the impugned orders. Contrary, an observation had been made against the petitioner that had failed to bring on record any cogent material that the seller had deposited the tax was against the record.
The Hon’ble High Court observed that it had categorically held that the proceedings under Section 74 of the GST Act can be initiated against the dealer if ITC has wrongly been availed or utilized by reason of fraud or willful wrong statement of facts or by means of fraud and upon adjudication can recover the same but the case in hand is not such.
The Hon’ble High Court further noted that the Apex Court recently categorically held that on the date of transaction the selling dealer was registered. Neither the transaction nor the invoice in question can be doubted and ITC should have been granted.
In view of the law laid down by the Apex Court, the Hon’ble High Court held that impugned order could not be sustained and was quashed.
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