Case Analysis: M/S Solvi Enterprises vs. Additional Commissioner
Grade 2 & Others
Court:
Allahabad High Court
Case No.: Writ Tax No. 1287 of 2024 (with
connected cases: Writ Tax Nos. 1285, 1288, 1289, and 1282 of 2024)
Order Date: 24 March 2025
Presiding Judge: Hon’ble Justice Piyush Agrawal
Introduction
The case of M/S Solvi
Enterprises vs. Additional Commissioner Grade 2 & Others revolves
around the denial of Input Tax Credit (ITC) under the Goods and Services Tax
(GST) regime. The dispute arose because the petitioner's supplier’s GST
registration was canceled at a later date, which led the tax authorities to
question the genuineness of the transactions and deny ITC claims. The
petitioner challenged the orders passed by the GST authorities, leading to a
significant judicial determination on whether ITC can be denied solely based on
retrospective cancellation of a supplier’s registration.
Facts of the
Case
M/S Solvi Enterprises is
a registered taxpayer engaged in the business of buying and selling scrap
materials. For the tax period December 2018-19 (FY 2018-19), the petitioner
purchased goods from M/S Radhey International, a registered GST supplier, via a
valid tax invoice dated 06.12.2018. The invoice and transaction details were
reflected in the GST returns (GSTR-1 and GSTR-3B) of the supplier and the
auto-populated GSTR-2A of the petitioner.
However, the GST
authorities initiated proceedings under Section 74 of the GST Act, issuing a
notice (DRC-01) on 29.07.2022. The petitioner submitted a detailed reply, but
the authorities ignored it and passed an adverse order on 12.09.2022, denying
ITC. The petitioner filed an appeal, but the appellate authority upheld the
order on 20.10.2023.
The primary reason cited
for ITC denial was that the registration of the selling dealer, M/S Radhey
International, was canceled retrospectively from 29.01.2020. The authorities
inferred that the seller was non-existent, casting doubt on the transaction’s
legitimacy.
Petitioner’s
Submissions
1. Valid
GST Registration at the Time of Transaction: The petitioner
contended that at the time of purchase (06.12.2018), the supplier was a
registered dealer under GST. The cancellation of the supplier’s registration
occurred much later (29.01.2020), meaning the transaction was valid when
executed.
2. Transaction
Supported by GST Documents: The petitioner produced tax
invoices, e-way bills, and payment proof. Further, the supplier had filed its
GSTR-1 and GSTR-3B returns, which were auto-populated in the petitioner's
GSTR-2A. These records demonstrated that the transaction was genuine.
3. Authorities’
Failure to Verify Tax Payment: The GST authorities
could have verified whether the supplier deposited the tax by checking the GST
Portal. Instead, they shifted the burden onto the petitioner, which was
unreasonable.
4. Distinction
from Supreme Court Precedents: The petitioner argued
that the Supreme Court ruling in State of Karnataka vs. Ecom Gill Coffee
Trading Pvt. Ltd. (2023) was not applicable because, in that case, the
seller was never registered, whereas here, the supplier was duly registered at
the time of sale.
5. No
Evidence of Fraud or Suppression: Section 74 of the GST
Act applies only in cases involving fraud, willful misstatement, or suppression
of facts. Since the petitioner acted in good faith, met all statutory
conditions, and had no involvement in any fraudulent activity, invoking Section
74 was unjustified.
Respondent’s
Submissions
1. No
Proof of Physical Movement of Goods: The GST authorities
argued that the petitioner failed to establish the actual transportation of
goods. Since the selling dealer was later found non-existent, the authorities
questioned whether the transaction genuinely took place.
2. Retrospective
Cancellation of Supplier’s Registration: The tax department
maintained that once a supplier’s registration is canceled, the corresponding
ITC claims by purchasers become questionable. The authorities cited previous
High Court rulings to justify their stance.
3. Reliance
on Past Precedents: The respondents referred to judgments in M/S
Rajshi Processors Raebareli vs. State of U.P. and M/S Shiv Trading vs.
State of U.P., where courts upheld ITC denial when the selling dealer was
later found non-existent.
4. Burden
of Proof on the Buyer: The department insisted that under
GST law, the buyer must ensure the tax is deposited by the seller. Since the
petitioner did not produce evidence of tax payment by the seller, ITC denial
was justified.
Court’s
Findings
1. Supplier’s
Registration Was Valid at the Time of Transaction:
The Court emphasized that the supplier had a valid GST registration when the
transaction occurred (06.12.2018). The cancellation took place later
(29.01.2020), and there was no retrospective cancellation to suggest the
supplier was never legitimate.
2. GST
Returns Supported the Transaction: The supplier had filed
GSTR-1 and GSTR-3B, and the petitioner’s ITC claim was auto-populated in
GSTR-2A. The Court noted that these were statutory documents that the
authorities failed to properly consider.
3. Authorities’
Failure to Verify Tax Payment: The Court criticized the
GST department for not verifying whether the supplier had paid the tax. Since
all transaction details were available on the GST Portal, it was the
department’s responsibility to cross-check rather than shift the burden to the
buyer.
4.
Distinguishing
from Previous Judgments:
Unlike M/S Rajshi Processors and M/S Shiv Trading, where the
suppliers’ registrations were canceled from inception, in this case, the
supplier’s registration was valid during the transaction. Therefore, the Court
ruled that those precedents did not apply here.
5. Section 74 Was Wrongly
Invoked: Since the petitioner had fulfilled all statutory
conditions and acted in good faith, there was no fraud, suppression, or misstatement. The Court held that
invoking Section 74 in this case was unjustified.
Judgment and
Court’s Decision
1. The
Court quashed the impugned orders denying ITC.
2. The
matter was remanded to the tax authorities for reconsideration.
3. The
authorities were directed to pass a fresh, reasoned, and speaking order within two
months, after granting the petitioner an opportunity to be heard.
4. Any
amount deposited by the petitioner in compliance with the impugned orders would
be subject to the final outcome of the fresh adjudication.
Conclusion
The Allahabad High
Court’s ruling in M/S Solvi Enterprises vs. Additional Commissioner Grade 2
is a significant judgment clarifying the conditions under which ITC can be
denied. It reinforces that:
- ITC cannot be denied merely because a
supplier’s registration is canceled at a later date.
- The GST authorities must verify tax
payments using the GST Portal rather than shifting the burden onto the
buyer.
- Section 74 should only be invoked in
cases involving fraud or willful misstatement, not merely due to
procedural lapses by suppliers.
This judgment sets a
precedent that protects genuine taxpayers from undue ITC denials and
strengthens the principle that statutory documents like GST returns hold
evidentiary value. Going forward, tax authorities must exercise due diligence
before denying ITC claims based on supplier registration status.
Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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