Allahabad High Court Cancels Petition against GST ITC Reversal on Fake Supplies

The Allahabad High Court dismissed a firm’s plea against the penalty, interest charged, and reversal of ITC on inward supplies of products by non-existent entities.

The court upheld the additional commissioner’s order in this case.

The court observed that the bogus vitiates the solemn proceedings and that the benefit of the input tax credit (ITC) was previously granted to the taxpayer just as the firms were then enrolled shall not be used as an excuse against the council from taking the appropriate action to claim a refund of the incorrectly claimed benefit.

The taxpayer manufactures and sells aluminium casting and machinery parts, and a survey of the place of the business revealed that it claimed to have received inward supplies through three entities while claiming ITC on the same inward supplies.

Following the taxpayer’s application for the ITC, the Special Investigation Branch (SIB) conducted an investigation, which discovered that the enterprises from which the taxpayer claimed to have gotten inward supplies did not exist and were fraudulent.

The taxpayer provided evidence that it had obtained the inward supplies through records submitted to the adjudicating council, and the supplier firms obtained legal GSTIN registration when they obtained the supplies.

The taxpayer benefited from this since if the firm’s GSTIN registration is terminated, his company will not be penalized. The court said that simply because the firms were enrolled on the transaction date does not mean that the department is required to provide the ITC advantage to the taxpayer, notwithstanding the fact that the firms were not in existence and could not have produced the real supply.

The court’s decision emphasizes the need for actual transactions for businesses claiming ITC. This decision serves as a strong warning against fraudulent operations, as well as support for strict compliance with GST legislation.