If seller is registered with GST department at the time of the transaction, no adverse inference can be drawn against the purchaser if the GST Registration of the seller is cancelled from a further date.
In a recent judgment, Hon’ble Allahabad High Court has held that once the seller was registered with GST department at the time of the transaction in question, no adverse inference can be drawn against the purchaser for claiming Input Tax Credit if the GST Registration of the seller is cancelled from a further date.
ABCAUS Case Law Citation:
4484 (2025) (03) abcaus.in HC
Important Case Laws relied upon by Parties:
State of Karanataka Vs. Ecom Gill Coffee Trading Private Limited
M/s Rajshi Processors
M/S Rama Brick Field
In the instant case, the Petitioner has filed a Writ Petition praying quashing the order passed by the GST Appellate Authority under the provisions of Section 74 of the U.P.G.S.T./C.G.S.T. Act.
The petitioner was a registered dealer engaged in the business of sale and purchase of scraps etc., against which, proceedings under Section 74 of the UPGST Act related to wrong availment of Input Tax Credit (ITC) were initiated by the GST Department for the FY 2018-19 vide notice DRC-01 as the registration of the seller dealer had been cancelled.
The Petitioner filed a detailed reply, however, without considering the same, the impugned order was passed in violation of Section 75(4) of the UPGST/CGST Act.
Being aggrieved by the said order, an appeal was filed by the petitioner, which was dismissed vide impugned order.
Before the Hon’ble High Court, the petitioner submitted that the petitioner had purchased the goods from a registered dealer (the seller), vide tax invoice which was generated by the seller from the GST Portal.
It was further submitted that the authorities have power under the Act for cancelling the registration with retrospective effect, but in the case at hand, the date of transaction in question was two years before the date the registration of the selling dealer was cancelled.
It was further submitted that the transaction in question was fully covered by the statutory documents prescribed under the Act and the registration was cancelled merely because at the subsequent stage, the selling dealer was not found in a disclosed place of business, therefore, the petitioner cannot be held responsible for the same. It was further submitted that the selling dealer filed its return therefore, GSTR-2A was auto generated, showing the transaction were genuine.
The Hon’ble High Court observed that it was not in dispute that the purchase was made by the petitioner from the firm, which was duly registered under the GST Act at the time when the transaction was made.
The Hon’ble High Court observed that Section 16 of the GST Act, 2017 showed that the input tax credit can be claimed only on the fulfilment of conditions mentioned therein. It also clarifies that no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both unless prescribed conditions are fulfilled.
The Hon’ble High Court further observed that Section 74 of the GST Act, 2017 provides for determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any wilful misstatement or suppression of fact. Further, the Rule 36 of the GST Rules, 2017 provides for document and condition required for claiming input tax credit. It was also observed that Rule 36 of the GST Rules, 2017 provides that the required documents for claiming input tax credit should be made available and the same may be reflected in GSTR-3B.
The Hon’ble High Court noted that Section 74 of the GST Act, 2017 provides the power to the State-authorities to proceed against the registered dealer if ITC has wrongly availed or utilized by reason of fraud or wilful misstatement of fact or by means of fraud, and upon the adjudication, can recover the same. However, in the case in hand, the proceedings were initiated against the petitioner under Section 74 of the GST Act, 2017 as the registration of the seller dealer had been cancelled on subsequent date i.e. the date of transaction was admittedly took place prior to cancellation of the registration of the seller. Further, it was not the case of the Revenue that at the time when the transaction took place, the selling dealer was not registered and was not having valid registration under the GST Act.
The Hon’ble High Court further noted that the seller had filed its returns i.e. GSTR01 and GSTR-3B. It is a matter of common knowledge that after filing of GSTR-01, an auto populated window would be open for filling the GSTR-3B for payment of tax and GSTR-2A can be viewed by the purchaser of the goods in question.
The Hon’ble High Court stated that once the said form was generated and the said fact had not been disputed by the authorities while passing the impugned order, the authorities failed to consider the fact that GSTR-3B & GSTR-2A, as prescribed under the Act, which was auto populated to which not a single word had been whispered in the impugned orders. On the contrary, an observation had been made against the petitioner that he had failed to bring on record any cogent material that the seller has deposited the tax.
The Hon’ble High Court held that once the seller was registered at the time of the transaction in question, no adverse inference can be drawn against the petitioner. Further, the registration of the selling dealer was cancelled retrospectively i.e. and not from its inception which showed that the transaction between petitioner and seller was registered and having valid registration in his favour.
Accordingly, the impugned orders were held to be unsustainable in the eyes of law and the same was quashed. The writ petitions were allowed. The matter was remanded to the authority concerned for deciding afresh by passing a reasoned and speaking order, after hearing all the stakeholder.
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