Facts of the Case

The petitioner, M/S Shiv Trading, a registered proprietorship engaged in the purchase and sale of iron machinery parts and hardware, had purchased goods during 2018-19 from M/s Krishna Trading Company, Mathura, against tax invoices with payments routed through banking channels, and had availed Input Tax Credit on these purchases. An inspection carried out on 24.01.2019 found that M/s Krishna Trading Company was non-existent, leading the department to draw an adverse inference that the transactions were bogus and fictitious. An order dated 22.11.2021 was accordingly passed under Section 74 of the GST Act for the period May to December 2018, imposing tax, penalty and interest amounting to Rs. 45,21,097.75. The petitioner's first appeal was dismissed by the Additional Commissioner, Grade-2 (Appeals-1st), Muzaffarnagar, vide order dated 01.06.2022, prompting the present writ petition before the Allahabad High Court, entertained directly because no GST Tribunal has been constituted in Uttar Pradesh.

Issues Involved

  1. Whether Section 74 proceedings for denial of ITC are sustainable where the selling dealer is found non-existent on inspection.
  2. Whether tax invoices, e-way bills, weighment slips, bilty and banking-channel payments, by themselves, discharge the purchasing dealer's burden of proving actual physical movement of goods and genuineness of the transaction.
  3. Applicability of the Supreme Court's ruling in State of Karnataka v. Ecom Gill Coffee Trading Pvt. Ltd. on the burden of proof for ITC claims.

Petitioner's Arguments

  • All documentary evidence — tax invoices, e-way bills, bilty, and weighment slips before and after loading — was furnished, and payments were made through banking channels.
  • Section 74 proceedings were wrongly initiated despite this documentary compliance.
  • Relied on a long line of High Court and Supreme Court decisions (including Suncraft Energy, Divya Agencies, D.Y. Beathel Enterprises, LGW Industries and Sanchita Kundu) to argue that documentary compliance should be treated as sufficient to sustain the ITC claim.

Respondent's Arguments

  • On inquiry, neither the transport company nor the location where the weighment slips were said to be issued was found to exist, showing the weighment slips and bilty were fake.
  • There was no actual movement of goods, so the proceedings under Section 74 were rightly initiated.
  • Relied on the Supreme Court's ruling in Ecom Gill Coffee Trading, holding that the burden of proving the correctness of an ITC claim, including actual physical movement of goods, lies squarely on the purchasing dealer, and on the Allahabad High Court's own recent ruling in M/s Malik Traders to the same effect.

Court Order/Findings

  • Once the existence of the selling dealer, the transporter, and the weighment location was found doubtful or non-existent on departmental inquiry, the very basis for showing movement of goods stood doubted, and the petitioner failed to discharge its burden of proving actual physical movement of goods and genuineness of the transaction, as required under the Supreme Court's ruling in Ecom Gill Coffee Trading.
  • Mere production of invoices and proof of banking payment was held insufficient to discharge this burden.
  • The petitioner's cited case law, including LGW Industries and Sanchita Kundu, was distinguished as no longer good guidance in light of the later Supreme Court ruling.
  • The Section 74 proceedings were held to be rightly initiated; no interference was called for; the writ petition was dismissed.

Important Clarification

Under the Supreme Court's ruling in Ecom Gill Coffee Trading, the burden of proving the correctness of an ITC claim — including actual physical movement of goods and genuineness of the transaction — rests squarely on the purchasing dealer. Mere production of tax invoices, e-way bills and proof of payment through banking channels is not, by itself, sufficient where the selling dealer, transporter, or weighment agency is found non-existent on departmental inquiry; the purchasing dealer must additionally establish details such as the vehicle used, freight payment, and acknowledgement of delivery.

Sections Involved

  • Section 74, CGST/UPGST Act, 2017 — governs determination of tax not paid or Input Tax Credit wrongly availed by reason of fraud, wilful misstatement or suppression of facts.
  • Section 16, CGST Act, 2017 — lays down the conditions of eligibility for claiming Input Tax Credit, underlying the dispute over genuineness of the purchase.

Decision – In Favour of

The decision is clearly in favour of the Department. The High Court dismissed the writ petition, holding that the petitioner had failed to discharge its burden of proving actual physical movement of goods and genuineness of the transaction, and upheld the Section 74 tax, penalty and interest demand of over Rs. 45 lakh.

Related Case Laws

No directly on-point case notes are currently published on this site.

Case Details

  • Court: High Court of Judicature at Allahabad
  • Case No.: WRIT TAX No. 1421 of 2022
  • CNR: 2023:AHC:223893
  • Coram: Hon'ble Justice Piyush Agrawal
  • Decision Date: 28 November 2023
  • Disposal Nature: Dismissed

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