🏛️ Allahabad High Court Gives Relief to Singhal Iron Traders in
GST ITC Case
Introduction
The Allahabad High Court
recently delivered an important judgment in favor of M/S Singhal Iron
Traders in Writ Tax No. 1357 of 2022, decided on 4th November
2025 by Justice Piyush Agrawal. The case dealt with reversal of
Input Tax Credit (ITC) and imposition of penalty under Section 74 of the GST
Act, 2017, where the authorities alleged that the supplier of the
petitioner was later found non-existent.
The Court ruled that the
buyer (Singhal Iron Traders) cannot be punished when the transaction was
genuine and the supplier was registered at the time of sale.
Background
of the Case
M/S Singhal Iron Traders
is a registered dealer involved in the business of trading and supplying iron
scrap. In August 2018, the firm purchased iron scrap worth â‚ą10,83,600
(including â‚ą1,95,048 as GST) from a registered supplier named M/S Arvind
Metal Suppliers, Agra. The purchase was supported by valid tax invoices,
e-way bills, and payments made through banking channels.
Both the buyer and
supplier had properly filed their GSTR-01 and GSTR-3B returns for
that period.
However, later the GST
Department initiated proceedings under Section 74 against Singhal Iron
Traders on the ground that the supplier’s GST registration was cancelled after
the transaction date and the supplier was later found non-existent.
What the
Tax Department Did
The tax officer issued a show
cause notice to Singhal Iron Traders in March 2021, asking why their ITC
should not be reversed. Despite the firm providing all documentary proofs, the
officer passed an order in GST DRC-07 demanding reversal of ITC of
₹1,95,048 and an equal amount as penalty. The petitioner’s appeal before the Additional
Commissioner (Appeal) was also rejected in June 2022. This led the firm to
approach the Allahabad High Court.
Arguments
by the Petitioner
The petitioner argued
that:
- The purchase was made from a validly
registered supplier at the time of transaction.
- The goods were received, and payment
was made through the bank.
- The supplier filed his GST returns
and paid tax.
- Just because the supplier’s
registration was cancelled later, the buyer cannot be penalized.
- There was no fraud,
misrepresentation, or attempt to evade tax.
The petitioner also said
that the department did not verify whether the supplier was active during the
transaction and acted only on later information.
Arguments
by the Department
The government lawyer
(A.C.S.C.) said that since the supplier was found non-existent later, the
purchases made by Singhal Iron Traders were not genuine, and hence ITC was not
admissible.
Court’s
Observations
The High Court carefully
examined the facts and made the following key points:
1. Supplier
Was Registered at the Time of Sale
o The
supplier’s registration was cancelled after the transaction.
o Hence,
the purchase could not be treated as made from a non-existent dealer.
2. Returns
Were Filed and Tax Was Paid
o The
supplier had filed GSTR-01 and GSTR-3B for August 2018.
o GSTR-3B
can only be filed after paying the due taxes, so tax payment was evident.
3. Authority
Failed to Verify Facts
o The
officers did not verify whether the supplier existed when the sale took place.
o They
wrongly relied on later information without investigation.
4. No
Proof of Fake Transaction or Fraud
o The
petitioner had all valid documents and had paid through the bank.
o There
was no attempt to evade tax or claim false credit.
Decision of
the Court
The Allahabad High Court
held that:
- The petitioner acted in good faith
and fulfilled all legal obligations.
- The department was wrong in reversing
ITC and imposing penalty.
- Both the orders dated 30.09.2021
and 23.06.2022 were quashed.
The Court allowed the
writ petition and directed that all consequential reliefs be given to the
petitioner.
Conclusion
This judgment is a big
relief for genuine taxpayers. The Court clarified that a bona fide buyer
cannot be denied ITC just because the seller’s registration was cancelled
later. If the transaction is genuine, tax is paid, and documents are valid, the buyer’s right to claim ITC remains
protected.
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