The Allahabad High Court ruled in favor of M/s. Khurja Scrap Trading Company, stating that Input Tax Credit (ITC) cannot be denied if the supplier was registered at the time of the transaction, even if the supplier's registration was later canceled, provided there is no evidence of fraud. This decision came after the petitioner was denied ITC and faced penalties due to the supplier's registration being canceled months after the purchase of roofing sheets in November 2021. The petitioner provided banking records, invoices, and GST returns to demonstrate the legitimacy of the transaction.
The central issue was whether ITC could be denied to a purchaser when the supplier was validly registered at the time of supply but was later found non-existent. The court clarified that liability under Section 74 of the GST Act arises only in cases involving fraud, suppression, or willful misstatement, none of which were attributed to the petitioner. The court emphasized that the ITC accrued to the purchaser as a vested right when the supplier was a valid registered dealer at the time of the transaction. Therefore, the subsequent cancellation of the supplier’s registration cannot retroactively affect the buyer's entitlement to ITC.
The court criticized the authorities for failing to verify the transaction properly, ignoring essential documents, and relying solely on post-cancellation inspections. Consequently, the court quashed the assessment and appeal orders and remanded the matter for fresh adjudication, directing that a proper opportunity for a hearing be given to the petitioner.
Order date: 29 Aug 2025
Parties: M/s. Khurja Scrap Trading Company v. Addl. Commissioner (Appeals) & Anr.
Facts -
- Petitioner availed ITC on roofing sheets purchased in Nov 2021 from a dealer validly registered at that time.
- Supplier’s registration was later cancelled in April 2022, leading to denial of ITC and imposition of penalty. Petitioner relied on banking records, invoices, and GST returns to prove bona fides.
Issue -
- Whether ITC can be denied to the purchaser when the supplier was validly registered at the time of supply but later found non-existent?
Order -
- The Single bench of the Hon’ble High Court clarified that liability under Section 74 arises only in cases of fraud, suppression or willful misstatement. Since no such conduct was attributed to the petitioner, invocation of Section 74 was unjustified.
- Once the supplier was a valid registered dealer at the time of transaction, ITC accrued to the purchaser as a vested right. The subsequent cancellation of the seller’s registration cannot retrospectively nullify the buyer’s entitlement.
- Authorities failed to discharge their duty of verification, they ignored invoices, movement documents and returns filed, and proceeded mechanically on the basis of post-cancellation inspection.
- The impugned orders of assessment and appeal were quashed. The matter was remanded for fresh adjudication de novo within two months after giving the petitioner a proper opportunity of hearing.
