Saniya Traders vs. Additional Commissioner Grade-2 (Writ Tax No. 1743 of 2024 – High Court of Allahabad)
1. Brief Facts
- The petitioner (assessee) purchased scrap batteries from a GST-registered supplier.
- Payment including GST component was made through banking channels.
- The transactions were duly reflected in the petitioner’s GSTR-2A and GSTR-3B returns.
- Subsequently, the supplier’s GST registration was cancelled (post-transaction).
- The department initiated proceedings and reversed the petitioner’s Input Tax Credit (ITC), invoking Section 74 of the CGST/UPGST Act on grounds linked to supplier’s cancellation.
- Penalty proceedings were also initiated alleging wrongful availment of ITC.
The core issue before the Court was whether ITC validly availed at the time of transaction could be denied solely because the supplier’s registration was cancelled subsequently.
The Allahabad High Court held that where the purchasing dealer had fulfilled the conditions under Section 16 — including purchase from a registered supplier, payment through banking channels, and reflection in statutory returns — subsequent cancellation of supplier’s registration cannot automatically disentitle the purchaser from ITC.
Further, in absence of fraud, collusion, wilful misstatement or suppression attributable to the purchaser, invocation of Section 74 and levy of penalty was held unsustainable.
2. Important Key Takeaways
(A) Protection of Bona Fide Purchasers
ITC cannot be denied merely because the supplier’s registration was cancelled after the transaction, if at the time of purchase the supplier was duly registered.
(B) Compliance with Section 16 is Crucial
Where:
- Tax invoice is valid,
- Supplier was registered at the time of supply,
- Payment was made via banking channel,
- Transactions reflected in GSTR-2A/3B,
ITC claim stands protected.
(C) Section 74 Requires Mens Rea
Proceedings under Section 74 (fraud/wilful misstatement/suppression) require clear evidence of wrongdoing by the recipient. Mere default by supplier is insufficient.
(D) No Automatic ITC Reversal
Department must establish involvement or knowledge of fraud before reversing ITC.
3. Authors Comment – Impact on Businesses
This judgment significantly strengthens the position of bona fide purchasers under GST.
Practical Implications:
- Businesses cannot be penalised solely due to subsequent supplier default.
- ITC protection is available where due diligence and statutory compliance are demonstrated.
- Section 74 cannot be mechanically invoked without proving fraud or collusion by recipient.
- This ruling may reduce arbitrary ITC reversals based on retrospective cancellation of supplier registration.
Advisory for Businesses:
- Maintain documentary evidence of:
- Supplier GST registration status at time of supply,
- Payment through banking channels,
- Invoice reconciliation with GSTR-2A/2B,
- Goods receipt and stock records.
- Continue supplier due diligence to mitigate litigation risk.