The Allahabad High Court recently ruled in favor of M/s Saniya Traders, holding that the Input Tax Credit (ITC) cannot be denied when the supplier was registered and had filed the necessary returns at the time of the transaction. The case involved the purchase of old scrap batteries from Mohan Enterprises in Bihar, where the transaction was documented with a tax invoice and a valid e-way bill. The sale was reflected in GSTR-1, and tax was paid through GSTR-3B. However, the Bihar authorities later claimed that the suppliers were involved in bogus transactions, leading to the reversal of ITC for Saniya Traders.
The petitioner argued that the transaction was genuine, as evidenced by the auto-populated GSTR-2A from the supplier's GSTR-1 and payments made through banking channels. They contended that the subsequent cancellation of the supplier's registration should not affect their legitimate purchase. The court agreed, emphasizing that the supplier was registered and compliant at the time of the transaction, and the authorities failed to consider the evidentiary value of the GSTR-2A, GSTR-3B, and banking records.
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Relying on precedent cases, the court ruled that the cancellation of the supplier's registration post-transaction should not harm the purchaser. It concluded that without evidence of fraud or willful misstatement, the Section 74 action was unsustainable, and the reversal of ITC was unlawful. Consequently, the court quashed both the assessment and appellate orders, allowing the petition in favor of M/s Saniya Traders.
Parties: M/s Saniya Traders v. Additional Commissioner Grade-2 & Another
Order Date: 03 December 2025
Facts –
- The petitioner purchased old scrap batteries from Mohan Enterprises, Bihar, and the supplier issued tax invoice and valid e-way bill, with the sale reflected in GSTR-1 and tax paid through GSTR-3B. Bihar authorities later alleged that 42 suppliers in Uttar Pradesh were engaged in bogus transactions without movement of goods, leading the department to treat petitioner’s purchases as non-genuine.
- A Section 74 notice was issued, and despite petitioner showing that the supplier was registered, had filed returns, and tax was deposited, ITC was reversed with interest and penalty, and the appellate authority affirmed this.
- The petitioner argued that GSTR-2A auto-populated from supplier’s GSTR-1 and payment through banking channel clearly proved a genuine transaction and that subsequent cancellation of supplier’s registration cannot affect a bona fide purchaser.
Issue –
- Whether ITC can be denied under Section 74 when the supplier was registered and had filed GSTR-1 and GSTR-3B and tax was deposited at the time of the transaction?
Order –
- The Court held that the supplier was a registered dealer on the transaction date and had duly filed GSTR-1 and GSTR-3B, which auto-generated GSTR-2A for the purchaser, thereby establishing both tax payment and genuineness of the transaction. It held that authorities failed to consider the statutory evidentiary value of GSTR-2A, GSTR-3B and banking-channel payments, and incorrectly assumed absence of tax deposit despite clear records to the contrary.
- Relying on Shakti Kiran India (SC, 2025), Solvi Enterprises, and Khurja Scrap Trading Company, the Court ruled that subsequent cancellation of the suppliers registration cannot prejudice the purchaser.
- It held that Section 74 action is unsustainable in absence of fraud or wilful misstatement and that the reversal of ITC was contrary to law.
- Accordingly, both the assessment order dated 20.12.2022 and appellate order dated 05.02.2024 were quashed, and the petition was allowed.
