The Allahabad High Court has quashed the denial of Input Tax Credit (ITC) on the grounds that supplier’s later Goods and Service Tax (GST) cancellation is irrelevant if the transaction is genuine.
The bench of Justice Piyush Agrawal set aside tax and penalty proceedings initiated under Section 74 of the Uttar Pradesh Goods and Services Tax (UPGST) Act, holding that the transaction in question was a genuine “bill-to-ship-to” arrangement and that the seller’s registration was valid on the date of sale.
The case arose from proceedings against the petitioner, a registered dealer engaged in the sale and purchase of MS TMT bars. In June 2018, the trader procured goods from a Sonbhadra-based supplier, M/s Purvanchal Tradelink India, which in turn purchased the goods from SM Shop, Raipur. The tax invoice issued by SM Shop named the Sonbhadra firm as the buyer and the petitioner as consignee. An e-way bill was also generated for the movement of goods via vehicle CG-10-C-6933.
While the goods were in transit, they were intercepted and checked by a mobile squad in Chhattisgarh, which endorsed the e-way bill with a rubber stamp. Despite this, nearly four years later, the Uttar Pradesh GST authorities issued a notice under Section 74, alleging that the supplier’s registration had been cancelled and treating the transaction as a sham.
The petitioner challenged the notice and subsequent recovery proceedings, arguing that the transaction was genuine, supported by valid invoices, e-way bills, and payment records. It was also contended that the supplier’s registration was cancelled only after the transaction date (September 28, 2018), and hence no adverse inference could be drawn.
The Additional Commissioner (Appeals) dismissed the petitioner’s appeal in December 2024, but Justice Piyush Agrawal of the Allahabad High Court noted that the authorities failed to rebut the petitioner’s evidence or dispute the physical movement of goods. The court emphasized that the interception and stamping of the e-way bill by Chhattisgarh authorities confirmed the genuineness of the transaction.
“Once on the date of transaction the seller was having a valid registration and the transaction was through a valid billing channel, which has neither been denied nor any adverse material has been brought on record, no adverse inference can be drawn against the petitioner,” the court observed.
Quashing the orders, the High Court directed that any amount deposited during the litigation be refunded to the petitioner within one month of submission of the certified order copy.
Case Details
Case Title: M/S Kesarwani Traders Versus State
Case No.: WRIT TAX No. – 1235 of 2025
Date: 18.8.2025
Counsel For Petitioner: Aditya Pandey,Manish Kumar Kesarwani
Counsel For Respondent: C.S.C.,Krishna Agarawal
