Facts of the Case

The petitioner, M/S Universal Enterprises, a proprietorship engaged in trading mild steel scrap, bars, rods and related ferrous items, registered under GST since 19.09.2017, challenged an order dated 25.04.2023 passed by the Joint Commissioner, Central GST, Ghaziabad, denying input tax credit availed on invoices from suppliers alleged to be non-existent. The petitioner had availed ITC of Rs. 50.55 crores on goods purportedly supplied by 199 suppliers between October 2017 and March 2022; the department flagged 34 of these suppliers as suspicious, issued a show cause notice on 27.07.2022, and ultimately confirmed a demand of Rs. 15,64,58,361 (IGST Rs. 8,04,90,895 + CGST Rs. 3,79,83,733 + SGST Rs. 3,79,83,733) with interest under Section 74(1) of the CGST Act, 2017 read with Section 16 and Rule 36, along with penalties on the non-existent suppliers under Section 122(1).

Issues Involved

  1. Whether the impugned order denying ITC on the ground that the supplying firms were non-existent was passed in violation of natural justice, warranting writ interference despite the availability of a statutory appeal.
  2. Whether the petitioner had discharged the burden of proving the genuineness of the underlying transactions and the actual physical movement of goods to justify the ITC claimed.

Petitioner's Arguments

  • The petitioner had rightly claimed ITC on the strength of invoices issued by its suppliers, and the department's presumption that 34 of its 199 suppliers were non-existent or fictitious was without basis.
  • The Department's refusal to allow cross-examination of the persons whose statements formed the basis of the case against the petitioner amounted to a sacrifice of the principles of natural justice.
  • The petitioner relied on a string of decisions from various High Courts (including this Court, and the Chhattisgarh, Bombay, Patna, Delhi and Telangana High Courts) to argue that the ITC denial was unsustainable and that the writ petition should be entertained despite the alternative remedy.

Respondent's Arguments

  • The impugned order suffered from no infirmity warranting interference under Article 226, particularly since an efficacious alternative statutory remedy of appeal under Section 107 of the CGST Act was available to the petitioner.
  • The order was a detailed, reasoned and speaking order passed after considering the petitioner's objections and affording an opportunity of hearing.

Court Order/Findings

  • The Court found that the impugned order was a reasoned, speaking order passed after due opportunity of hearing and consideration of the petitioner's reply — no violation of natural justice was made out.
  • Relying on the Supreme Court's ruling in State of Karnataka vs. M/s Ecom Gill Coffee Trading, the Court held that ITC can be claimed only on genuine transactions, and the purchasing dealer must prove genuineness and actual physical movement of goods — through the selling dealer's details, vehicle and freight particulars, and delivery acknowledgment — over and above the tax invoice and payment particulars.
  • Since the case did not fall within the recognised exceptions to the rule of exhaustion of alternative remedies, the Court held it was not a fit case to bypass the efficacious statutory appellate remedy under Section 107 of the CGST Act.
  • The writ petition was dismissed on the ground of availability of alternative remedy, leaving the ITC-denial order under Section 74(1) undisturbed.

Important Clarification

  • Following State of Karnataka vs. Ecom Gill Coffee Trading, mere possession of a tax invoice and proof of payment is not sufficient to sustain an ITC claim — the purchasing dealer must additionally establish the genuineness of the transaction and the actual physical movement of goods.
  • Availability of a statutory appeal under Section 107 of the CGST Act ordinarily bars writ interference in ITC-denial matters where the impugned order is a reasoned, speaking order passed after due hearing.

Sections Involved

  • Section 16 of the CGST Act, 2017 — conditions for availing input tax credit.
  • Section 74(1) of the CGST Act, 2017 — determination of tax not paid by reason of fraud or wilful misstatement/suppression.
  • Rule 36 of the CGST Rules, 2017 — documentary requirements for claiming ITC.
  • Section 122(1) of the CGST Act, 2017 — penalty for issuing invoices without actual supply of goods or services.
  • Section 107 of the CGST Act, 2017 — statutory appellate remedy.

Decision – In Favour of

In favour of the Department. The Allahabad High Court dismissed the writ petition on the ground of alternative remedy, leaving the ITC-denial order and the demand of over Rs. 15.64 crore intact for the time being.

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. 1015 of 2023
  • CNR: 2023:AHC:199418-DB
  • Coram: Hon'ble Pritinker Diwaker, Chief Justice and Hon'ble Ashutosh Srivastava, J.
  • Decision Date: 05.10.2023
  • Disposal Nature: Dismissed on the ground of alternative remedy; Section 74(1) CGST Act ITC-denial order left undisturbed

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