When tax was paid by supplier in the form GSTR-01 & GSTR-3B, no adverse inference can be drawn against the purchaser on the premise that the registration of the seller dealer was cancelled subsequently.
In a recent judgment, Allahabad High Court has quashed order passed under section 74 of the GST Act, 2017 holding that once the tax was paid in the forms of GSTR-01 and GSTR-3B by supplier, no adverse inference can be drawn against the purchaser on the premise that the registration of the supplier from whom the purchases were be made, was cancelled subsequently.
ABCAUS Case Law Citation:
4836 (2025) (11) abcaus.in HC
In the instant case a writ petition was filed by the assessee challenging order passed by the Additional Commissioner and the order passed by the Assistant Commissioner under Section 74 of the GST Act, 2017 (the Act).
The petitioner was a proprietorship firm which is engaged in the trading and supply businesses of all kinds of Iron Scrap etc. During the Assessment Year 2018-19, the petitioner purchased Iron Scrap in the month of August 2018 from the registered dealer against two tax invoices and two e-way bills. The amount including CGST and IGST against the said bill was made to the supplier through banking channels. The said supplier also filed his GSTR-01 and GSTR-3B for the said period within time on the GST Portal.
However, proceedings against the petitioner were initiated under Section 74 of the GST Act, 2017 and a notice was issued to show cause as to why Reduced ITC(RITC) and penalty may not be imposed as the registration of the supplier was cancelled subsequently in the month of January 2019 and no business activity was undertaken.
The petitioner filed a detailed reply, annexing all the documentary evidence, stating therein that the petitioner had validly claimed the ITC, but the Assistant Commissioner passed the order in GST DRC-07 and made RITC & imposed penalty whereby an inference was also drawn against the petitioner that the ITC claimed by the selling dealer may be reversed.
Being aggrieved to the said order, an appeal was filed by the petitioner, which was also dismissed confirming the proceedings initiated under Section 74 of the GST Act against the petitioner.
Before the Hon’ble High Court, the Petitioner submitted that he had purchased the goods and at the time of transactions for the same, the selling dealer was a registered dealer, but thereafter, on the application moved by the selling dealer, the registration was cancelled and therefore, no inference against the petitioner can be drawn if the selling dealer was found non existing at the subsequent stage of survey.
It was also submitted that the supplier/Seller had filed his return and deposited the tax in form GSTR-3B and GSTR-01. Therefore, no fraud or misrepresentation was made by the petitioner.
The Hon’ble High Court observed that it was not in dispute that the supplier had filed its return in the forms of GSTR-01 and GSTR-3B. It was also not in dispute that without making payment of due taxes, GSTR-3B cannot be generated.
The Hon’ble High Court opined that once the tax was paid by the supplier in the forms of GSTR-01 and GSTR-3B, no adverse inference can be drawn against the petitioner on the premise that the registration of the dealer from whom the purchases were shown to be made, was cancelled subsequently.
The Hon’ble High Court observed that it was the duty of the authorities to verify the said information as to whether at the time of transactions, the firm was in existence or not, and therefore, without verifying the same, the authorities ought not to have initiated the proceedings against the petitioner only on the borrowed information as the petitioner discharged its preliminary duty by making the payment of due taxes through banking channels.
It was further noted that it was also not the case of the revenue that the vehicle used for transportation was not found registered and therefore, the initiation of proceedings against the petitioner cannot be said to be justified and are liable to be quashed.
Accordingly, the impugned orders were held to be unsustainable in the eyes of law and were quashed.
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