Seller Registered at Time of Transaction Cannot Draw Adverse Inference Against Purchasing Dealer Over Subsequent GST Cancellation: Allahabad HC [Read Order]

The Allahabad High Court has held that if the seller is a registered dealer at the time of the transaction, no adverse inference can be drawn against the purchasing dealer based on the subsequent cancellation of the seller's registration.

The petitioner, Solvi Enterprises, is a registered dealer engaged in the buying and selling of junk. For the tax period December 2018–19, F.Y. 2018–19, he received a notification under Section 74 of the UPGST Act. Without taking into account his response, the petitioner contended that the order was issued in violation of Section 75(4) of the Act.

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The process that evaluating officers must adhere to for proceedings under Sections 73 and 74 is outlined in Section 75. According to Section 75(4), if the assessee is subject to a tax or penalty or if any unfavorable action is being considered against him, he must be given the option to appear in person upon written request.

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The petitioner's attorney argued that the transaction from the selling dealer in question occurred more than a year prior to the department canceling the seller's registration. It was stated that if the vendor was later discovered not at the place of business and the registration was canceled, the petitioner would not be held accountable. Additionally, it was asserted that the petitioner had disclosed the transaction in its return.

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The department's attorney countered that the petitioner had not demonstrated the actual physical transportation of commodities. Examining Sections 16 and 74 of the GST Act as well as Rule 36 of the GST Rules, the Court noted that the assesee must be offered the advantage of input tax credit after the requirements are met and the necessary paperwork is submitted.

The court observed that although the authorities may have revoked the selling dealer's registration on the date of proceedings, they did so with effect from January 29, 2020. The Department did not claim that the selling dealer was not registered at the time of the transaction, it was noted.

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While penalizing the petitioner, the court pointed out that the returns were submitted by the supplier, were accessible on the web, and were not taken into account by the authority. It was noted that the seller's registration had not been revoked as of the transaction date.

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Justice Piyush Agrawal's single bench ruled that the petitioner could not be held negatively once the seller was registered at the time of the transaction. Additionally, it is documented that the selling dealer's registration was revoked retroactively, that is, with effect from January 29, 2020, rather than at the beginning. This indicates that the transaction between the petitioner and the seller was registered and had a legal registration in his favor.

In M/S Rama Brick Field, the court overturned the proceedings, concluding that the results were accessible on the portal, notwithstanding the authorities' failure to confirm this. In the current case, the Court expressed similar views. The matter was remanded to the authorities to issue new orders after the contested orders were overturned.

To Read the full text of the Order CLICK HERE

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