GST Department's remedy lies against defaulting seller not the bonafide buyer- says Allahabad High Court
Date & Year of Judgment
03 December 2025 (Reserved on 31.10.2025)
This judgment further consolidates the Allahabad High Court’s consistent position protecting bona fide purchasers in ITC denial cases.
Case Reference
M/s Saniya Traders vs. Additional Commissioner Grade-2 & AnotherWrit Tax No. 1743 of 2024
Before the Allahabad High Court
1. Main Issue Involved
Whether ITC can be reversed under Section 74 when:
The supplier was registered at the time of transaction,
The supplier filed GSTR-1 and GSTR-3B,
Tax was deposited,
Payments were made through banking channel,
And subsequent allegations arose from investigation against other entities in supply chain.
The Court examined whether ITC denial can survive when statutory compliance is demonstrably satisfied at the time of transaction.
2. Sections and Rules Discussed
Section 16, CGST Act (Conditions for ITC)
Section 49, CGST Act (Tax payment)
Section 74, CGST Act (Fraud-based proceedings)
Reference to Supreme Court decision in Shakti Kiran India (P) Ltd.
Reference to Ecom Gill Coffee Trading Pvt. Ltd.
Allahabad High Court decisions in Solvi Enterprises, Khurja Scrap Trading Company
The Court distinguished cases involving bogus transactions from cases where statutory returns and tax deposits are undisputed.
3. Facts of the Case
The petitioner purchased old scrap batteries from Mohan Enterprises, a registered dealer, on 28.06.2021.
Tax invoice issued.
E-way bill generated.
GSTR-1 and GSTR-3B filed by supplier.
Tax deposited.
Payment made through banking channel.
Subsequently, investigation in Bihar alleged fictitious supply chain activity involving multiple entities, and ITC of ₹4,17,997/- was reversed under Section 74 along with interest and equal penalty.
Appeal was dismissed, leading to writ petition.
The ITC reversal was triggered by third-party investigation rather than defect in petitioner’s own compliance.
4. Petitioner’s Submissions
Supplier was registered at time of transaction.
Returns (GSTR-1 and GSTR-3B) were filed.
Tax deposited and reflected in system.
GSTR-2A auto-generated confirming compliance.
Subsequent cancellation of registration cannot retrospectively invalidate bona fide transaction.
Relied on Shakti Kiran India (P) Ltd. and Solvi Enterprises.
The petitioner relied on objective portal-based compliance evidence rather than mere documentary assertions.
5. Department’s Submissions
Alleged that goods were not actually moved.
Burden of proof lies on purchaser to establish actual movement.
Relied on Ecom Gill Coffee Trading Pvt. Ltd..
Argued ITC claim must be proved beyond doubt.
The department attempted to shift burden entirely onto purchaser despite admitted portal compliance.
6. Analysis and Findings of the Court
The Court held:
Supplier was registered at the time of transaction.
Supplier filed GSTR-1 and GSTR-3B.
Tax was deposited and reflected in portal records.
GSTR-2A auto-populated and was not disputed.
Payment was made through banking channel.
The Court observed that:
Once GSTR-1 is filed, GSTR-2A auto-generates, enabling purchaser to verify compliance.
There was no finding that tax was not deposited.
Proceedings under Section 74 require fraud or wilful misstatement — not present here.
Subsequent cancellation of supplier’s registration does not invalidate past genuine transactions.
The Court distinguished Ecom Gill on facts and relied upon Shakti Kiran India (P) Ltd., where Supreme Court protected purchaser when seller was registered at time of transaction.
The Court placed decisive weight on GST portal architecture (GSTR-1 → 2A → 3B flow) as evidence of compliance.
7. Final Judgment / Operative Directions
Impugned orders under Section 74 quashed.
ITC reversal, interest and penalty set aside.
Writ petition allowed.
The Court granted complete relief, holding that recovery must be directed against defaulting seller, not compliant buyer.
8. Similar / Related Judgments & Counter Judgments
Supporting Jurisprudence
Shakti Kiran India (P) Ltd. – Supreme Court
Solvi Enterprises – Allahabad HC
Khurja Scrap Trading Company – Allahabad HC
Safecon Lifescience Pvt. Ltd.
These cases emphasize:
Registration status at time of transaction is critical.
Portal reflection supports bona fide claim.
Supplier default alone cannot deny ITC.
Counter Position
Ecom Gill Coffee Trading Pvt. Ltd. — where transactions were found unsupported by evidence.
Courts are consistently limiting Ecom Gill to cases involving lack of documentary and portal evidence.
9. CA BTA Insights (Professional Takeaway)
This judgment is highly significant for defending ITC disputes where:
Supplier later becomes non-existent or registration cancelled.
ITC denial is based on third-party investigation.
Portal returns and tax deposits are undisputed.
Key strategy points:
Emphasize GSTR-1, 2A/2B, 3B linkage.
Demonstrate tax deposit under Section 49.
Highlight banking trail.
Challenge Section 74 invocation if fraud absent.
Distinguish Ecom Gill on factual matrix.
The Court reaffirmed that GST compliance is system-driven, and once system reflects tax deposit, purchaser cannot be made insurer of supplier’s conduct. Copy of judgement is attached here.