GST Vidhi | GST Case Law

GST Case Article: Input Tax Credit Cannot Be Denied If Supplier Was Registered at Time of Transaction – Solvi Enterprises vs. State of U.P.

Court: Allahabad High Court
Case Title: M/s Solvi Enterprises vs. Additional Commissioner Grade 2 and Others
Neutral Citation: 2025:AHC:42270
Case Nos.: Writ Tax Nos. 1282, 1285, 1287, 1288, 1289 of 2024
Date of Judgment: 24 March 2025

    Background of the Case

The petitioner, M/s Solvi Enterprises, a registered GST dealer dealing in scrap material, was subjected to proceedings under Section 74 of the CGST/UPGST Act, 2017 for Financial Year 2018-19. The proceedings were triggered by a purchase made on 06.12.2018 from a registered supplier — M/s Radhey International.

Although the transaction was supported by a tax invoice and duly reflected in the GSTR-2A, the input tax credit (ITC) claimed by the petitioner was denied. The denial was based on the later cancellation of the supplier’s registration, effective from 29.01.2020 — more than a year after the transaction date.

 

    Issues Raised

The key question before the Court was:

Can ITC be denied to a purchaser if the supplier was registered at the time of transaction, but later found non-existent or cancelled under GST law?

 

    Petitioner’s Contentions

• The transaction occurred when the seller had valid GST registration.
• The purchase was supported by a tax invoice, and the input credit was auto-reflected in GSTR-2A.
• The registration of the seller was cancelled much later, with no retrospective effect.
• The petitioner fulfilled all conditions of Section 16 of the GST Act, and there was no fraudulent intention.
• Denial of ITC in such cases undermines the objective of seamless credit under the GST regime.

 

    Respondent’s Submissions

• The petitioner failed to prove the physical movement of goods.
• Cited judgments such as:
• State of Karnataka vs. Ecom Gill Coffee Trading Pvt. Ltd.
• M/s Rajshi Processors Raebareli
• M/s Shiv Trading vs. State of U.P.
• Argued that the transaction lacked sufficient substantiation and was potentially bogus.

 

    Legal Provisions Discussed

• Section 16, CGST Act – Conditions for availing ITC.
• Section 74, CGST Act – Recovery provisions in case of fraud or misstatement.
• Rule 36, CGST Rules – Documentation requirements for ITC.

 

    Court’s Analysis and Findings

• At the time of the transaction (06.12.2018), the seller was a registered GST dealer.
• The cancellation of registration took effect prospectively from 29.01.2020 and not retrospectively.
• The petitioner provided documentary evidence such as tax invoice, GSTR-2A (auto-populated), and other statutory returns.
• The authorities failed to verify tax deposit by the seller, which is easily accessible via GST portal records.
• Section 16 requires possession of a valid invoice and actual receipt of goods. The invoice was genuine, and no evidence proved non-receipt.
• The Court distinguished this case from Rajshi Processors and Ecom Gill Coffee, as in those cases, the suppliers were not registered or non-compliant from inception, unlike here.

 

    Key Precedents Cited

In Favor of Petitioner:

• M/s Rama Brick Field vs. Additional Commissioner Grade-2
  Held that where a supplier was registered and returns were filed, ITC cannot be denied due to subsequent cancellation.

 

    Final Verdict

The Allahabad High Court allowed the writ petitions and quashed the impugned orders. The matter was remanded to the concerned authority for fresh adjudication after proper verification.

“Once the seller was registered at the time of the transaction in question, no adverse inference can be drawn against the petitioner.” – Justice Piyush Agrawal

Any amount deposited shall be subject to the outcome of the fresh order.

 

    Conclusion & Takeaway

This judgment reinforces a crucial principle under GST:

    Buyers cannot be penalized for the later non-compliance or cancellation of the seller, if the transaction was genuine and the seller was registered at the time of supply.

It emphasizes the need for tax authorities to carry out proper verification instead of placing entire burden on the buyer. The case is a significant relief for honest dealers facing denial of ITC for reasons beyond their control.

 

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.

Find the Attachment (Press on Click Here )

Click here