GST Dept cannot Deny ITC to Buyer if Selling Dealer’s Registration Cancelled Post-Transaction: Allahabad HC [Read Order]
The High Court held that ITC cannot be denied for a transaction at a time when the selling dealer was duly registered and had paid tax.
![GST Dept cannot Deny ITC to Buyer if Selling Dealer’s Registration Cancelled Post-Transaction: Allahabad HC [Read Order]](https://images.taxscan.in/h-upload/2025/11/06/2102712-gst-dept-itc-to-registration-cancelled-post-transaction-allahabad-hc-taxscan.webp "GST Dept cannot Deny ITC to Buyer if Selling Dealer’s Registration Cancelled Post-Transaction: Allahabad HC [Read Order]")
The Allahabad High Court recently ruled that the Goods and Services Tax (GST) Department cannot deny input tax credit (ITC) to a purchasing dealer merely because the registration of the selling dealer was cancelled after the transaction had occurred.
M/s Singhal Iron Traders, a proprietorship engaged in trading iron scrap, purchased iron scrap in August 2018 from M/s Arvind Metal Suppliers, Nunhai, Agra, against two tax invoices and two e-way bills for a total value of ₹10,83,600 that was inclusive of Central GST and State GST of ₹1,95,048, with the payments being made through banking channels.
The GST department initiated proceedings on the premise that the supplier was subsequently found to be non-existing and its GST registration was cancelled on January 31, 2019. The petitioner was served a show-cause notice (SCN) under Section 74 on March 27, 2021 seeking reversal of ITC while imposing a penalty of ₹1,95,048.
Subsequently, the Assistant Commissioner passed an order in GST DRC-07 making the reversal and imposing equal penalty; the order was upheld in appeal, leading to the present writ.
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Suyash Agarwal, appearing for the petitioner contended that the supplier was a registered dealer at the time of sale, that e-way bills were generated, tax was paid and returns (GSTR-1 and GSTR-3B) were filed by the supplier. They also contended that no adverse inference could be drawn against the buyer.
It was further argued that the department ought to have verified the status of the supplier at the time of transaction before initiating punitive proceedings.
Standing Counsel for the Revenue supported the impugned order and submitted that the supplier of goods was found to be non-existent and the seven purchases shown by the petitioner was unregistered, thus warranting proceedings.
The bench comprising Justice Piyush Agrawal observed that GSTR-3B cannot be generated without payment of tax and that the supplier had filed GSTR-1 and GSTR-3B for August 2018.
The Court noted that it was the duty of the authorities to verify whether at the time of transactions, the selling dealer was in existence or not, and therefore, without verifying the same, the authorities ought not to have initiated the proceedings.
Justice Agarwal further opined that the revenue relied on borrowed information about the supplier’s consequent non-existence and that the petitioner had discharged its preliminary duty by making the payment of due taxes through banking channels.
The court also noted that the revenue had not raised any case that the vehicle used for transportation was not registered and no such case could be made out in that regard as well.
Accordingly, the Allahabad High Court observed that proceedings under Section 74 were unwarranted and quashed the impugned orders and allowed the writ petition.
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