Commercial Tribunal allows ITC Solely on Seller’s Registration Ignoring Core Finding of Circular Money Transactions: Allahabad HC Remands Matter [Read Order]

In a recent ruling, the Allahabad High Court observed that the commercial tax tribunal had allowed input tax credit ( ITC ) solely on the ground that the selling dealers were registered, while ignoring the Assessing Officer’s core finding that the payments made by the dealer were returned on the same day, indicating circular money transactions, and the court has now set aside the Tribunal’s order and remanded the matter for fresh consideration.

The Commercial Tax Department filed several revisions challenging the Tribunal’s order granting ITC to S/S Vasu Steels for the relevant assessment year. The Assessing Officer had rejected the ITC claim after examining the dealer’s bank statements and observing that every amount deposited was withdrawn or transferred either on the same day or the next day, with the bank balance remaining almost negligible throughout the year.

The Assessing Officer explained that this pattern showed that no real movement of goods had occurred and that only paper transactions were created by a group of dealers with the intention of claiming ITC.

The dealer’s counsel argued before the High Court that the purchases were made from registered sellers, were duly recorded in the accounts, and that payments were made through banking channels.

They argued that the First Appellate Authority and the Tribunal had correctly relied on the dealer’s returns, bank statements, purchase registers, and other documents while allowing the ITC claim.

The State’s counsel argued that the Tribunal and the First Appellate Authority allowed the ITC without reversing the Assessing Officer’s factual finding that the money was returned immediately, and that this omission made their orders unsustainable.

The counsel argued that the Tribunal also relied on documents that had not been placed before the lower authority without giving the department a chance to respond.

The single-bench comprising Justice Piyush Agrawal observed that the Tribunal had relied only on the seller’s registration status and the documents placed before it, but did not deal with the Assessing Officer’s core finding that the amount paid by the dealer was returned on the same day.

The court pointed out that the documents relied upon by the Tribunal were filed for the first time before it and that the department was not given an opportunity to rebut them. The Court explained that the Tribunal, being the last fact-finding authority, was required to consider all material findings, which it failed to do.

The court held that the Tribunal’s order could not stand in light of these deficiencies and that the matter required reconsideration. The court set aside the impugned orders and remanded the case to the Tribunal to decide the issue afresh after hearing all parties. The revisions were partly allowed.

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