The Allahabad High Court has quashed the demand of tax and penalty imposed on M/s Singhal Iron Traders, holding that Input Tax Credit (ITC) cannot be denied merely because the supplier’s GST registration was cancelled after the transaction took place.
The bench of Justice Piyush Agrawal has observed that it is the duty of the department to verify the information as to whether at the time of transactions, the firm was in existence or not, and therefore, without verifying the same, the department ought not to have initiated the proceedings against the trader only on the borrowed information as the petitioner discharged its preliminary duty by making the payment of due taxes through banking channels.
The petitioner, M/s Singhal Iron Traders, a proprietorship firm dealing in iron scrap, had purchased goods in August 2018 from a registered supplier, M/s Arvind Metal Suppliers, Agra.
The purchases were supported by valid tax invoices, generated e-way bills, payment made through banking channels, and supplier filing GSTR-1 and GSTR-3B for the relevant period.
However, the department later initiated proceedings under Section 74 of the GST Act, alleging that the selling dealer was found non-existent and his GST registration had been cancelled on January 31, 2019 — months after the invoice date.
On this basis, the department reversed ITC amounting to Rs. 1,95,048, and imposed an equal penalty, totaling approximately Rs. 3.9 lakh.
The appeal filed by the trader before the Additional Commissioner (Appeals) was also rejected.
The Court noted that at the time of the transaction, the supplier was a registered dealer. The supplier had duly filed GSTR-1 and GSTR-3B, and tax could not have been filed without payment of GST. Payments were made through banking channels — indicating a genuine business transaction. The tax department did not prove that transportation was bogus or goods were not actually supplied.
The Court further held that, “once the tax was paid and returns were filed by the supplier, no adverse inference can be drawn against the recipient on the ground that the supplier’s registration was cancelled subsequently.”
The bench also criticized authorities for acting solely on “borrowed information” without conducting independent verification of the supplier’s existence at the time of sale.
Case Details
Case Title: M/S Singhal Iron Traders Versus Additional Commissioner And Another
Case No.: WRIT TAX No. – 1357 of 2022
Date: 04/11/2025
Counsel For Petitioner: Suyash Agarwal, Sr. Advocate
Counsel For Respondent: CSC
Read More: Biofuel ITC: A Step Forward, But Clarity Remains Elusive for Industry