Facts of the Case

M/S Singhal Iron Traders, a proprietorship engaged in trading iron scrap, challenged the order dated 30.09.2021 passed by the Assistant Commissioner, State Tax, Sector-4, Agra, and the appellate order dated 23.06.2022 passed by the Additional Commissioner Grade-2 (Appeal)-I, State Tax, Agra, both under Section 74 of the GST Act, 2017. During February-March 2019, the petitioner had purchased iron scrap worth Rs.44,26,271/- (including CGST and SGST of Rs.6,75,194/-) from a registered dealer, M/s Shiv Iron Trading Co., against seven tax invoices and e-way bills, with payment routed through banking channels. The supplier had also filed its GSTR-1 and GSTR-3B for the relevant period. Subsequently, the supplier's registration was cancelled with effect from 30.04.2019, and a show cause notice dated 01.04.2021 was issued to the petitioner proposing reversal of ITC (RITC) and penalty on the ground that the supplier was found non-existent. The adjudicating authority confirmed RITC and penalty of Rs.6,75,193.86/- each, and the first appeal was dismissed.

Issues Involved

  1. Whether ITC validly availed on purchases from a then-registered supplier can be reversed merely because the supplier's registration was cancelled subsequently.
  2. Whether the tax authorities can act on borrowed information about the supplier's non-existence without independent verification.

Petitioner's Arguments

  • The supplier was a validly registered dealer at the time of the transactions; cancellation of its registration happened only later, on the supplier's own application.
  • The supplier had filed GSTR-1 and GSTR-3B for the period, and GSTR-3B cannot be filed without paying the due tax, so tax on these supplies had in fact reached the exchequer.
  • No fraud or misrepresentation was committed by the petitioner, who paid the supplier through banking channels.
  • The authority ought to have independently verified the supplier's status at its own level before drawing an adverse inference against the petitioner merely on the basis of a subsequent finding of non-existence.

Respondent's Arguments

  • The supplier of the goods was found non-existent, rendering the seven purchases shown by the petitioner effectively unregistered transactions.
  • The proceedings under Section 74 were therefore rightly initiated and the demand rightly confirmed.

Court Order / Findings

  • It was undisputed that the petitioner held a valid GST registration and that seven purchases were supported by e-way bills, with payments made through banking channels.
  • It was also undisputed that the supplier had filed GSTR-1 and GSTR-3B, and that GSTR-3B cannot be generated without payment of due tax; hence, once tax stood paid by the supplier, no adverse inference could be drawn against the petitioner merely because the supplier's registration was cancelled subsequently.
  • It was the duty of the authorities to verify whether the supplier firm existed at the time of the transactions, rather than acting on borrowed information without independent verification; the petitioner had discharged its preliminary duty by paying through banking channels.
  • There was no case made out that the vehicles used for transportation were unregistered.
  • The impugned orders could not be sustained and were quashed; the writ petition was allowed.

Important Clarification

  • A purchaser cannot be denied ITC, or subjected to reversal and penalty under Section 74, solely because the selling dealer's registration was cancelled at a point in time after the transactions took place.
  • Where the supplier has filed GSTR-1 and GSTR-3B (which itself presupposes payment of tax) and the purchaser has paid through banking channels with supporting e-way bills, the burden shifts to the Department to independently verify the supplier's existence at the time of transaction before drawing adverse inferences — reliance on later or borrowed information alone is insufficient.

Sections Involved

  • Section 74, Central Goods and Services Tax Act, 2017 – determination of tax not paid, ITC wrongly availed or refund wrongly made, by reason of fraud, wilful misstatement or suppression of facts.

Decision – In Favour of

Decided in favour of the Assessee. The reversal of ITC and penalty were quashed and set aside.

Case Details

  • Court: High Court of Judicature at Allahabad
  • Case No.: Writ Tax No. 1356 of 2022
  • Coram: Hon'ble Piyush Agrawal, J.
  • Date of Order: 26 September 2025

Link to Download the Order

Click here to view/download the full order

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.