The Goods and Services Tax Appellate Tribunal (GSTAT), Lucknow, has upheld the denial of input tax credit (ITC) amounting to ₹7.69 lakh after finding that the disputed purchases were paper transactions unsupported by actual movement and receipt of goods. 

The bench of Narendra Kumar (Judicial Member) and Alok Chopra (Technical Member) observed that invoices, e-way bills, stock records and payments through banking channels could not establish ITC eligibility when specific investigation material undermined the transactions.

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However, the Bench set aside the penalties imposed by the adjudicating authority and the first appellate authority. It remanded the matter for redetermination of penalty in accordance with Section 75(13) of the Central Goods and Services Tax Act, 2017, which restricts multiple penalties for the same act or omission.

The appeal challenged an order dated February 19, 2026, through which the first appellate authority had upheld the disallowance of ITC under Section 74 of the CGST Act.

The disputed credit arose from purchases attributed to two suppliers: Diamond Enterprises, Bhopal, for financial year 2018–19, and Raj Trade Link Corporation, Ghaziabad, for financial year 2017–18.

The credit comprised IGST of ₹4,60,800 on purchases attributed to Diamond Enterprises and CGST and SGST of ₹1,54,328 each on purchases attributed to Raj Trade Link Corporation. The total disputed ITC was ₹7,69,456.

The department’s case was that the suppliers were bogus or non-existent and that verification of the vehicles mentioned in the transport documents did not support actual movement of the goods.

The appellant argued that the purchases were supported by tax invoices, e-way bills, transport documents, weighment slips, ledger accounts, stock inventory and payments through banking channels.

It also contended that the suppliers had filed statutory returns and that the transactions appeared in its GSTR-2A. According to the appellant, these records supported the genuineness of the purchases.

The taxpayer maintained that subsequent adverse findings against suppliers could not, by themselves, justify denial of credit to a purchasing dealer. It disputed the invocation of Section 74, arguing that fraud, wilful misstatement or suppression of facts had not been established against it.

The appellant further alleged that the authorities had failed to properly consider its documents and submissions.

During the proceedings, the Tribunal directed the department to obtain reports concerning the nine vehicles linked to the disputed transactions.

The resulting verification disclosed several discrepancies. In one transaction attributed to Diamond Enterprises, the vehicle had a maximum carrying capacity of 1,690 kg, while the corresponding e-way bill recorded a load of 19,215 kg.

Other discrepancies included vehicle registration numbers that could not be traced in the relevant records, absence of a requisite national permit and lack of supporting material such as toll receipts, freight bills and delivery acknowledgements.

For transactions attributed to Raj Trade Link Corporation, the reports recorded invalid permits, absence of insurance or fitness records and, in one instance, the prior sale of the vehicle.

The Tribunal considered these findings cumulatively and held that they materially undermined the claim that the goods had actually travelled from the suppliers to the appellant. It also noted that the appellant had not effectively rebutted the transport verification findings.

The department also placed material concerning proceedings against both suppliers before the Tribunal.

In relation to Diamond Enterprises, the material included findings that the declared premises did not house the claimed commercial activity. Statements of the tenant and owner supported the department’s position that the supplier was non-existent.

For Raj Trade Link Corporation, the department produced an adjudication order recording that the firm was bogus and non-existent. Its registration had been cancelled in April 2018.

The Tribunal observed that the case involved more than a supplier becoming unavailable or having its registration cancelled after the transactions. The findings against the suppliers were accompanied by specific evidence casting doubt on transportation and receipt of the goods.

The Bench identified actual movement and receipt of goods as the central issue under Section 16(2)(b) of the CGST Act.

It distinguished this requirement from the condition concerning payment of tax to the Government under Section 16(2)(c). Compliance with the latter could not substitute for proof of actual receipt.

The Tribunal held that the documentary and banking records relied upon by the appellant did not overcome the investigation findings in this case. It concluded that the disputed transactions were fraudulent paper transactions undertaken to avail ITC.

Referring to Section 155, the Bench emphasised that the burden of establishing eligibility for credit rested on the person claiming it. In the circumstances before it, the appellant had failed to discharge that burden.

The appellant relied on numerous judicial decisions concerning protection of bona fide purchasers from consequences arising from a supplier’s default.

The Tribunal distinguished those authorities on facts. It explained that the present dispute concerned whether the underlying supplies had occurred at all, whereas decisions concerning genuine purchases and a supplier’s subsequent failure to deposit tax addressed a different situation.

The Bench also noted that many of the cited decisions had merely been listed without explaining their relevance to the particular facts of the appeal.

It referred to the Allahabad High Court’s decision in Malik Traders, discussing the need for evidence supporting actual transactions and movement of goods when ITC claims are disputed.

Although the Tribunal upheld the adverse findings on ITC, it found defects in the penalty orders.

The department had defended the first appellate authority’s enhancement of the penalty from ₹76,946 to ₹7,69,456. The Tribunal, however, observed that the enhancement had been made without following the principles of natural justice.

It further found that neither the original order nor the appellate order adequately explained why a penalty under Section 122 was being imposed when Section 74 had already been invoked.

The Bench referred to Section 75(13), under which a penalty imposed under the specified demand provisions bars another penalty on the same person for the same act or omission under another provision of the Act.

It also referred to Circular No. 171/03/2022-GST dated July 6, 2022, dealing with demand and penalty provisions in cases involving fake invoices.

The Tribunal partly upheld the first appellate order while setting aside the penalty amounts imposed at both earlier stages.

It remanded the matter to the adjudicating authority to redetermine the penalty with due regard to Section 75(13).

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