The Allahabad High Court ruled that Input Tax Credit (ITC) cannot be denied if a supplier had valid registration at the time of the transaction, even if their registration was later canceled. This decision came in the case between M/s Kesarwani Traders and the State of Uttar Pradesh, where the petitioner had purchased goods from a supplier whose registration was valid during the transaction but was canceled subsequently. Despite the valid registration at the time of the transaction, proceedings were initiated against the petitioner under allegations of a fake transaction, leading to an order and recovery notice against them.
The court found that the transaction was conducted through a valid billing channel and the movement of goods was properly documented, leaving no grounds for adverse inference against the petitioner. The authorities failed to provide evidence to counter the petitioner’s claims, and the court held that the later cancellation of the supplier’s registration did not invalidate the transaction. Consequently, the court quashed the previous orders and recovery notice, ruling the denial of ITC and recovery actions as unsustainable, and directed a refund to the petitioner.
Date of Order: 18 August 2025
Parties: M/s Kesarwani Traders v. State of U.P. & Ors.
Facts –
- Petitioner, a dealer in MS TMT Bars, purchased goods from M/s Purvanchal Tradelink India, Sonbhadra, who sourced from SM Shop, Raipur (Chhattisgarh). Transaction evidenced by invoices and e-Way bill (vehicle no. CG-10-C-6933). Petitioner was consignee; supplier was buyer.
- Goods were intercepted by Chhattisgarh mobile squad on 21.06.2018 and the e-Way bill was rubber-stamped as checked. Despite this, proceedings under Section 74 UPGST Act were initiated in 2022 alleging fake/bogus transaction. Order dated 17.11.2023 and recovery notice (DRC-07) were passed.
- Petitioner’s appeal was dismissed on 24.12.2024, ignoring that supplier’s registration was valid on the transaction date (cancelled later on 28.09.2018).
Issue –
- Whether ITC could be denied and recovery initiated when the supplier’s registration was valid on the date of transaction and goods movement was proved?
Order –
- The single bench of the Hon’ble high court noted ITC cannot be denied if supplier had valid registration at the time of supply and goods movement is evidenced under the “Bill To – Ship To” model.
- 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.
- Authorities failed to rebut petitioner’s evidence; mere later cancellation of supplier’s registration could not vitiate the transaction and held that ITC denial and recovery were unsustainable.
- Orders dated 17.11.2023 & 24.12.2024, and recovery notice, were quashed. Refund directed.
