The Commissioner (Appeals), CGST Jaipur, has set aside a demand of ₹95,670 towards alleged wrongful availment of Input Tax Credit (ITC), holding that retrospective cancellation of a supplier’s registration cannot automatically invalidate genuine transactions.
The order, passed by the Additional Commissioner (Appeals), arose from an appeal filed by a Jaipur-based taxpayer against an adjudication order that had confirmed recovery of ITC along with interest and penalty under Sections 74, 50, and 122 of the CGST Act.
The dispute originated from an investigation conducted by the DGGI, which alleged that the taxpayer had availed ITC based on invoices issued by a non-existent firm. The department claimed that the supplier entity was found non-operational during physical verification and had issued “goods-less invoices,” leading to wrongful ITC claims amounting to ₹95,670 for FY 2017–18.
Based on these findings, the adjudicating authority confirmed the demand, along with interest and penalties, invoking provisions relating to fraud and suppression.
The appellant challenged the demand on multiple grounds, asserting compliance with all statutory conditions under Section 16 of the CGST Act. It was argued that Valid tax invoices were received and recorded; goods were actually transported and received through registered transporters; payments, including tax, were made through banking channels; the supplier was duly registered at the time of transaction; and ITC reflected in GSTR-2A matched the supplier’s GSTR-1 filings.
The appellant further contended that there is no legal obligation on a purchaser to verify the physical existence of the supplier beyond checking GST registration.
After examining the records and submissions, the appellate authority framed the central issue—whether ITC can be denied solely on the basis of subsequent findings against the supplier.
The Commissioner (Appeals) emphasized the four essential conditions for availing ITC under Section 16 read with Rule 36: Possession of a valid tax invoice; Actual receipt of goods or services; Payment of tax by the supplier to the government; Filing of GST returns.
Upon reviewing documentary evidence such as invoices, transport documents, bank records, and stock registers, the authority found that the appellant had satisfied these conditions.
A crucial aspect of the ruling was the treatment of retrospective cancellation of the supplier’s GST registration. The department had relied on such cancellation to allege that the supplier was non-existent.
Rejecting this approach, the Commissioner (Appeals) held that cancellation of registration after several years cannot retroactively invalidate transactions unless supported by concrete evidence of fraud or non-supply of goods.
The order relied on judicial precedents, including the Gujarat High Court decision in AAP & Co., which held that retrospective cancellation is merely an administrative action and cannot negate completed transactions in the absence of collusion or fraud.
The appellate authority also reiterated that once a taxpayer produces documentary evidence demonstrating receipt of goods and compliance with statutory requirements, the burden shifts to the department to prove otherwise.
In this case, the department failed to establish that goods were not actually received; the supplier was non-existent during the relevant period; and invoices were fake or transactions were sham.
The reliance solely on an alert notice without further investigation was found insufficient.
Concluding that the demand was based on assumptions rather than evidence, the Commissioner (Appeals) held that the ITC denial was unsustainable in law.
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