Facts of the Case

The petitioner, M/s Malik Traders, a registered dealer bearing GSTIN 09ACLPU9404D1ZA, is engaged in the purchase and sale of waste materials, plastic scrap, paper scrap and metal scrap. For the period April 2018 to September 2019, the petitioner disclosed a turnover of Rs. 34,22,634/- and availed input tax credit (ITC) of Rs. 6,16,074.12. A show cause notice dated 23.01.2019 was issued under Section 74 of the UP GST Act alleging wrong availment of ITC, to which the petitioner replied. Unsatisfied, the Commercial Tax Officer, Sector 2, Meerut, by order dated 04.10.2019, demanded tax of Rs. 6,16,074/- along with an equal penalty, totalling Rs. 12,32,148/-. The petitioner's first appeal was rejected by the Additional Commissioner (Appeals) on 06.03.2021. The writ petition was entertained because the GST Appellate Tribunal was not functional in Uttar Pradesh at the relevant time.

Issues Involved

  1. Whether ITC can be denied to a purchasing dealer solely because the selling dealer failed to reflect the purchases in its returns or failed to deposit the tax collected.
  2. On whom does the burden lie, under Section 16 of the UP GST Act, to prove actual physical movement of goods and genuineness of the underlying transaction for claiming ITC.
  3. Whether tax invoices, e-way bills and banking-channel payment alone are sufficient to discharge that burden.

Petitioner's Arguments

  • The scrap was purchased through tax invoices with e-way bills generated, transported by trucks under bilties, and payment made through cheque, RTGS or NEFT.
  • Action cannot be taken against the purchasing dealer merely because the selling dealer failed to show the purchases in its returns or failed to deposit the tax; the benefit of ITC cannot be denied for the seller's default.
  • Recovering ITC already legitimately availed would amount to double taxation, defeating the very object of the GST regime, which is to avoid a cascading effect of tax.
  • Relied upon Ashish Trading Company v. State of UP and the Calcutta High Court's decisions in LGW Industries and Sanchita Kundu to argue that genuine documentation should suffice for ITC.

Respondent's Arguments

  • Section 16 of the UP GST Act imposes specific conditions for availing ITC, and non-fulfilment of those conditions disentitles the dealer to the credit.
  • Without proof of actual physical movement of goods and genuineness of the transaction, ITC cannot be granted; mere tax invoices, e-way bills or goods receipts are insufficient.
  • The purchasing dealer must furnish details such as the vehicle used for transportation, payment of freight charges, and acknowledgment of delivery to discharge its burden of proof.
  • Relied upon State of Karnataka v. Ecom Gill Coffee Trading Pvt. Ltd. (SC), Aastha Enterprises (Patna HC), and Ramway Foods Ltd. (Allahabad HC) to argue the burden lies on the purchaser.

Court Order/Findings

  • The Court held that Section 16(2) prescribes mandatory conditions for ITC eligibility, and Section 74 empowers the authority to demand tax and penalty for ITC wrongly availed by fraud or suppression, after notice.
  • The burden of proving actual physical movement of goods and genuineness of the transaction lies squarely on the purchasing dealer claiming ITC; mere production of tax invoices, e-way bills, goods receipts and banking payment particulars is not sufficient, applying the Supreme Court's ruling in Ecom Gill Coffee Trading.
  • The petitioner failed to furnish freight payment, delivery acknowledgment, toll receipts, or proof of GSTR-2A reflection; the proceedings were rightly initiated.
  • The Calcutta High Court decisions relied on by the petitioner were held inapplicable in view of the later Ecom Gill Coffee Trading ruling.
  • The writ petition was dismissed, and the impugned assessment and appellate orders were upheld.

Important Clarification

Following the Supreme Court's ruling in Ecom Gill Coffee Trading, a purchasing dealer claiming ITC under Section 16 of the GST law must affirmatively prove the actual physical movement of goods and the genuineness of the transaction through evidence going beyond tax invoices, e-way bills and banking payment records — such as transport/vehicle details, freight payment and acknowledgment of delivery — and cannot shift this burden to the revenue merely by pointing to the selling dealer's default in depositing tax.

Sections Involved

  • Section 16, UP GST Act, 2017 — lays down the eligibility and conditions for a registered person to claim input tax credit.
  • Section 74, UP GST Act, 2017 — empowers determination of tax not paid, short paid, or ITC wrongly availed or utilised by reason of fraud, wilful misstatement or suppression of facts.

Decision – In Favour of

In favour of the Department — the writ petition was dismissed and the denial of input tax credit, along with the tax demand and equal penalty, was upheld for failure to prove actual physical movement of goods and genuineness of the transaction.

Related Case Laws

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

Case Details

  • Court: Allahabad High Court
  • Case No.: WRIT TAX No. 1237 of 2021
  • CNR: Not available (Neutral Citation 2023:AHC:201260)
  • Coram: Justice Piyush Agrawal
  • Decision Date: 18 October 2023
  • Disposal Nature: Dismissed

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