Issuing Tax Invoice and E-Way Bill from Cancelled GSTIN is a
Sham Transaction: Allahabad High Court
Introduction
In a notable judgment
delivered on 16 April 2025, the High Court of Judicature at Allahabad
(Single Bench of Justice Rohit Ranjan Agarwal) dismissed the writ petition
filed by M/s Raman Metal Works. The case revolved around the
interception of a truck transporting lead ingots accompanied by an e-way bill
and tax invoice. However, it was discovered that the supplier’s GST
registration had been cancelled prior to the date of the invoice, raising
suspicion about the authenticity of the transaction. The Court held that any
tax invoice issued by a non-existent entity under the GST regime is a sham,
and therefore not protected under Rule 138 of the U.P. GST Rules, 2017.
Consequently, the penalty imposed under Section 129 of the CGST Act was
upheld. The ruling emphasizes the legal obligation on the recipient to ensure
supplier's active GST status before dealing in goods and e-way bills.
1. Case
Overview
- Case Name:
M/s Raman Metal Works vs. Additional Commissioner and Another
- Case Number:
Writ Tax No. 3 of 2022
- Neutral Citation:
2025:AHC:56217
- Date of Judgment:
16 April 2025
- Court:
High Court of Judicature at Allahabad
2.
Background and Facts
M/s Raman Metal Works,
a registered partnership firm dealing in lead ingots, purchased a
consignment from a supplier named M/s Agrawal Metal, and arranged for
its transportation via truck bearing registration number HP-72B-7167.
On 2nd December 2020
at 10:42 PM, the Assistant Commissioner (Mobile Squad), Commercial Tax,
Etah intercepted the vehicle and examined the documents. The goods were
accompanied by:
- A tax invoice dated 01.12.2020,
and
- A valid e-way bill generated
on the same date.
However, it came to light
that:
- The GST registration of the
supplier firm M/s Agrawal Metal had been cancelled on 07.11.2020,
i.e., prior to the date of the invoice and e-way bill.
This formed the basis for
issuing a show cause notice under Section 129 of the CGST Act and
subsequently levying a penalty.
The petitioner filed an appeal,
which was rejected by the appellate authority. Hence, the firm
approached the High Court through this writ petition.
3. Legal
Issues Raised
The key issues before the
Court were:
1. Whether
a tax invoice and e-way bill issued by a supplier whose GSTIN has already
been cancelled can be considered valid under GST law?
2. Does
the recipient of goods bear any responsibility to verify the registration
status of the supplier?
3. Whether
Rule 138 of the U.P. GST Rules, 2017 was complied with?
4. Whether
the penalty under Section 129 was rightly imposed?
4.
Submissions by the Petitioner
Advocate Rahul Agarwal,
appearing for M/s Raman Metal Works, presented the following arguments:
- The e-way bill was generated on
01.12.2020, along with the invoice. Hence, the transaction appeared
legitimate at the time of movement of goods.
- The petitioner, being a bona fide
purchaser, had no control over the status of the supplier's
registration and should not be penalized for an act not
attributable to them.
- The interception did not reveal any other
discrepancies—the goods were physically verified, and all documents
were otherwise in order.
- The goods were not undervalued,
and no tax evasion was attempted, thereby not fulfilling the
condition for penalty under Section 129.
5.
Submissions by the Respondent
The Standing Counsel
for the State opposed the petition, arguing:
- The supplier’s registration was
cancelled on 07.11.2020, almost a month before the invoice and
e-way bill were issued.
- As per Rule 138 of the U.P.
GST Rules, only registered persons can generate valid e-way bills
and issue invoices.
- Since M/s Agrawal Metal ceased to
be a registered person, any document issued in their name after
07.11.2020 was null and void.
- The transaction was therefore sham
and void ab initio, and the penalty under Section 129 was fully
justified.
6. Relevant
Legal Provisions
a. Section 129 of the
CGST Act, 2017
- Governs detention, seizure, and
release of goods and conveyances in transit.
- If transportation is without valid
documents, a penalty equal to 200% of the tax payable is
applicable.
b. Rule 138 of the U.P.
GST Rules, 2017
- Mandates that movement of goods
exceeding ₹50,000 in value must be accompanied by a valid e-way
bill, generated on the GST portal by a registered person.
- A tax invoice and e-way bill
issued by a non-existent GSTIN is a direct violation of this
rule.
7. Court's
Analysis and Observations
Justice Rohit Ranjan
Agarwal carefully examined the records and provided a structured analysis:
- The supplier's GST registration
had ceased to exist from 07.11.2020.
- Any document (invoice or e-way bill)
issued post-cancellation is invalid and has no legal sanctity.
- Rule 138 mandates that the movement
of goods must originate from a registered entity. In this case, the
supplier was not registered on the date of transaction.
- Hence, the entire consignment was
being moved on the strength of forged documents, even if
unintentionally.
- The petitioner failed to conduct due
diligence, particularly verifying the GST status of the supplier,
which is easily accessible online.
The Court opined:
“Once the supplier firm
was not in existence, it could not have issued the tax invoice dated 01.12.2020
and the transaction is sham.”
- The appellate authority's order was
based on valid legal reasoning and did not warrant interference
by the High Court.
8. Judgment
and Final Order
The Court dismissed the
petition, upholding the penalty and appellate order.
“Considering the facts
and circumstances of the case, I find that the order passed by the appellate
authority needs no interference of this Court. Writ petition fails and is
hereby dismissed.”
- The decision emphasizes that recipient
businesses must ensure supplier’s GST registration is active at the
time of purchase.
9.
Conclusion
This judgment serves as a
cautionary precedent for all GST-registered entities. The High Court
clearly laid down that:
- Transactions based on documents
issued by de-registered suppliers are not protected under GST law.
- Responsibility is on the buyer/recipient
to verify the validity of supplier’s GST registration before entering
into transactions.
- The presence of tax invoice and
e-way bill alone does not guarantee compliance, if the issuer of
those documents lacks legal standing under the Act.
The Court’s decision
strengthens the compliance framework and urges taxpayers to adopt due
diligence protocols in all procurement activities.
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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