The Goods and Services Tax Appellate Tribunal (GSTAT), Lucknow, has held that a supplier’s active GST registration, tax invoices and payments through banking channels cannot, in isolation, conclusively establish a purchaser’s entitlement to input tax credit when the actual receipt of goods is disputed.
The bench of Narendra Kumar (Judicial Member) and Alok Chopra (Technical Member) clarified that a supplier’s absence from its declared business premises during a subsequent investigation does not, by itself, conclusively prove that no goods were supplied during the relevant transaction period.
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The Bench set aside both the adjudication order and the first appellate order in a dispute involving ₹67,500 in ITC. It remanded the matter for fresh adjudication after finding that neither authority had adequately examined the documentary evidence concerning the movement of goods.
The proceedings concerned ITC claimed by M/s Deepak Lamination on invoices issued by M/s M.H. Enterprises. According to the State Tax Department, an investigation by the Special Investigation Branch found the supplier to be non-existent at its declared place of business.
The adjudicating authority proceeded against the purchasing firm under Section 74 of the Uttar Pradesh Goods and Services Tax Act, 2017, alleging wrongful availment of ITC without actual movement of goods.
The First Appellate Authority subsequently quashed the demand. The Department challenged that decision before the Tribunal, arguing that the appellate authority had concentrated on the supplier’s registration status without adequately examining whether the goods covered by the invoices had actually been supplied and received.
The Department argued that the purchaser was required to establish the genuineness of the transactions under Section 16(2)(b), read with Section 155 of the UPGST Act.
According to the Department, invoices, electronic reflection of transactions and payments through banking channels were insufficient without supporting evidence of actual receipt of goods. It maintained that the First Appellate Authority had failed to address the central allegation underlying the demand.
The Department also relied on the SIB investigation report dated November 9, 2021, concerning the supplier and information circulated for action in respect of its purchasing dealers.
The taxpayer disputed the Department’s allegation, submitting that the supplier held an active GST registration during the relevant transactions and that the registration had not been cancelled.
It also contended that the supplier had filed GSTR-1 and GSTR-3B returns and discharged the applicable tax liability. The taxpayer relied on invoices, banking transactions and information available on the GST portal to support the genuineness of its purchases.
Addressing the Department’s contention regarding NIL returns, the taxpayer submitted that the portal facilities available to a recipient enabled verification of registration status and return-filing status, but did not provide an independent means of determining whether the supplier had reported taxable outward supplies or filed NIL returns.
The taxpayer further maintained that documents relating to the movement of goods, including invoices and e-way bills, were available and had been placed before the authorities.
The central issue was whether the first appellate order could be sustained without addressing the allegations in the show-cause notice and examining the evidence necessary to establish eligibility for ITC under Section 16.
The Tribunal considered whether the supplier’s active registration and return records sufficiently answered the separate allegation that the purchaser had claimed credit without actual receipt of goods.
The Tribunal explained that Section 16(2)(b) requires actual receipt of goods or services, while Section 16(2)(c) concerns payment of the tax charged on the supply to the Government.
It emphasised that satisfaction of the tax-payment requirement cannot substitute for proof of actual receipt of goods.
Even where the supplier’s registration remained active and transactions were reflected on the GST portal, the purchaser was required to establish compliance with the statutory conditions applicable to its ITC claim.
The Bench also referred to Section 155, which places the burden of proving eligibility for ITC on the person claiming the credit. It identified transport and delivery evidence—including vehicle particulars, freight-payment records, delivery acknowledgements, invoices and payment details—as material relevant to establishing the genuineness of purchases.
The Tribunal nevertheless rejected an automatic inference that the supplier’s absence during a later investigation necessarily meant that earlier supplies had never occurred.
It held that the evidentiary value of the investigation report had to be assessed against the relevant transaction dates, the nature and scope of the investigation, the supplier’s registration and return records, and other available evidence.
The Bench therefore required the ITC claim to be examined on the cumulative effect of the evidence, rather than decided solely on either the supplier’s active registration or its subsequent absence from the declared premises.
Examining the adjudication order, the Tribunal noted that it did not disclose proper consideration of the documents which the taxpayer claimed to have furnished. Nor did it provide cogent reasons explaining why that material was insufficient or unreliable to establish movement of goods.
Once the Department alleged that ITC had been claimed without actual movement, the adjudicating authority was required to examine the relevant evidence and record reasoned findings on the genuineness of the transactions.
The First Appellate Authority, meanwhile, had primarily focused on whether the supplier’s GST registration was active. Although relevant, that factor could not independently determine the purchaser’s entitlement to credit.
The Tribunal found that neither order contained an adequate and reasoned examination of the evidence relating to goods movement and fulfilment of the statutory conditions for ITC.
The Department also addressed the ₹20 lakh monetary limit prescribed under Circular No. 207/1/2024-GST dated June 26, 2024.
It argued that the appeal raised a recurring issue concerning interpretation and application of Section 16(2)(b), extending beyond the individual disputed credit of ₹67,500.
After considering the opinion of the Commissioner, UPGST, the Tribunal decided to hear the departmental appeal on merits in the interest of revenue.
The Tribunal allowed the appeal by way of remand and set aside both the Order-in-Original and the Order-in-Appeal.
It directed the adjudicating authority to examine compliance with the applicable statutory conditions for ITC and record specific, clear and reasoned findings. The taxpayer must receive a reasonable and effective opportunity to produce relevant documents and supporting evidence concerning the transactions and movement of goods.
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