Allahabad HC Rules ITC Cannot Be Denied If Supplier Was Registered at Transaction Time:

Allahabad HC Rules ITC Cannot Be Denied If Supplier Was Registered at Transaction Time The Allahabad High Court, in a recent case, has quashed the reversal of ITC under the provisions of GST, saying a genuine purchaser cannot be stopped from claiming ITC if the supplier was duly registered at the time of making the transaction. The present appeal has been filed by a company named M/S Saniya Traders in the Allahabad High Court, challenging an order passed by the tax authorities on February 05, 2024, and December 20, 2022. The tax department had imposed a recovery of tax (IGST) amounting to Rs. 417,997, interest of Rs. 106,589, and a penalty of Rs. 417,997, totalling Rs. 942,584, on the company vide the order in question dated December 20, 2022.

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On June 28, 2021, the company had purchased old scrap batteries from Mohan Enterprises, Muzaffarpur, Bihar, for the purpose of its business; in return, Mohan Enterprises issued Tax Invoice No. ME 28/2021-22 and also E-way No. 821164498832 dated June 28, 2021. The transactions made were duly shown in GST returns. As per the company, the seller had paid its tax liability under Section 49 of the Act. Further, the payments, including IGST, made to the supplier by the company were all through the banking channel. The tax department had conducted a search operation and concluded that 42 suppliers based in Uttar Pradesh are accused of having either not received any inward supply or of having no inward supply received by the supplier included in their supply chain, nor any tax deposited. The tax authorities claimed that the company had wrongly claimed Input Tax Credit (ITC) based on fake invoices for goods that were never actually moved. Because of this, the company’s purchases were considered to be from a company that does not really exist. They also said that no business activity was found at the supplier’s location.

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The company argued that the supplier, i.e., Mohan Enterprises, was a registered dealer at the time of the transaction, filed GSTR-1 and GSTR-3B returns, and paid all its tax liabilities, which were documented through banking channels. They argued that the following cancellation of the seller’s registration cannot adversely affect the legitimate claim of ITC by them. When the case was taken to the Allahabad High Court, the court analysed the records, which confirmed that the company had made purchases from a registered dealer named Mohan Enterprises, who was a registered dealer at the time of making the transaction. It noted that GSTR-1 and GSTR-3B were correctly filed and auto-generated till 2021, confirming the tax deposit, which was overlooked by the lower authorities. The court cited earlier Supreme Court and Allahabad High Court rulings on the case related to the same issue, confirming that ITC cannot be denied if the seller was registered and tax was paid at the transaction time, even if the seller’s registration was later cancelled. The High Court quashed the orders reversing ITC and held the petitioner’s claim valid, and allowed the writ petition.