This blog provides the case brief of Solvi Enterprises v. Commr., 2025 SCC OnLine All 1537 relating to the grant of Input Tax Credit under the Goods & Services Tax Act, 2017.
FACTS OF THE CASE
Solvi Enterprises, a registered dealer under the GST regime, is engaged in the business of sale and purchase of scrap materials. During the financial year 2018-2019, specifically on 06.12.2018, Solvi Enterprises purchased goods from a registered supplier, M/s Radhey International, through a tax invoice duly generated by the seller from the GST portal.
Subsequently, GST proceedings were initiated against Solvi Enterprises under Section 74 of the UPGST/CGST Act for wrongly availing Input Tax Credit (ITC). A notice in Form DRC-01 dated 29.07.2022 was issued, to which the petitioner submitted a reply. Despite this, the Adjudicating Authority passed an order on 12.09.2022, allegedly in violation of Section 75(4) of the Act, without properly considering the reply or granting a hearing.
An appeal was filed, which was dismissed vide order dated 20.10.2023, leading to the filing of the writ petitions. The Revenue’s contention was that the supplier’s registration was cancelled with effect from 29.01.2020, and that the petitioner failed to prove the actual movement of goods, thus making the ITC claim fraudulent.
ISSUES INVOLVED
The Court finds that the core issue revolves around the denial of Input Tax Credit (ITC) to the petitioner on the ground that the registration of the supplier (M/s Radhey International) was cancelled on a date subsequent to the date of the transaction in question.
ARGUMENTS FOR PETITIONER
- Learned counsel for the petitioner, Mr. Aditya Pandey, argued that Solvi Enterprises had entered into a genuine transaction for the purchase of goods (scrap materials) from a registered supplier, M/s Radhey International, on 06.12.2018 and at the time of the transaction, the seller was duly registered under the GST Act, and a valid tax invoice was issued.
- The petitioner argues that authorities have the power to cancel the registration with retrospective effect but in the instant case date of cancellation is 29-01-2020 with effect from this date only and not retrospective and the date of transaction is 06-12-2018.
- The details of this transaction were automatically reflected in s GSTR-2A, which is generated by the GST portal based on the seller’s filing of GSTR-1.
- The petitioner contended that the availability of these statutory documents and the fact that both parties were registered at the time of the transaction should conclusively prove the genuineness of the transaction and make the petitioner eligible to avail Input Tax Credit (ITC) under Section 16 of the CGST Act.
- It was further argued that the subsequent cancellation of the seller’s registration, effective from 29.01.2020, cannot be a ground to deny ITC for a transaction that occurred much earlier. There was no retrospective cancellation, and hence, the petitioner should not be penalized for circumstances beyond its control.
ARGUMENTS FOR THE RESPONDENT
- On behalf of the State and GST authorities, learned Standing Counsel argued that the petitioner failed to prove the actual movement of goods, which is a mandatory requirement under Section 16(2)(b) of the CGST Act and therefore the order was rightly passed.
- The Respondent relied on the Supreme Court judgment in State of Karnataka v. Ecom Gill Coffee Trading Pvt. Ltd., which upheld the denial of ITC where the supplier was untraceable and failed to deposit tax. Additional reliance was placed on decisions of the High Court in Rajshi Processors v. State of U.P. and Shiv Trading v. State of U.P., wherein ITC claims were disallowed in similar factual circumstances. The judgment in Shiv Trading was upheld by the Hon’ble Supreme Court upon dismissal of the SLP, strengthening the respondent’s claim that physical verification and actual tax payment by the supplier are necessary elements to claim ITC.
LAWS ANALYSED BY THE COURT
- Section 16 of the GST Act which talks about the conditions for availing the ITC.
- Section 74 of the GST Act which deals with the situation when the tax not paid due or credit availed by fraud.
- Rule 36 of the GST Rule 2017 which provides for the condition and documents required for availing ITC.
JUDGEMENT
The Court said that it is not disputed that at the time of the transaction dated 06.12.2018, the supplier was a registered dealer under the GST Act. The cancellation of registration occurred later, with effect from 29.01.2020, and not retrospectively. The petitioner has produced valid tax documents, including the tax invoice, and the transaction is duly reflected in the auto-generated GSTR-2A. The supplier had also filed GSTR-1 and GSTR-3B returns, and there is no evidence presented by the respondents to demonstrate that the tax on the said transaction was not deposited.
The court held that the authorities have failed to consider or verify the said returns through the GST portal, which contains complete transactional data. The denial of ITC based solely on the subsequent cancellation of the supplier’s registration, without examining GSTR returns or other evidence, reflects non-application of mind by the authorities and is legally unsustainable.
The court find the judgments relied upon by the Revenue not applicable as in those cases, either the supplier was never registered, or registration was cancelled retrospectively. In the present case, there is no allegation of retrospective cancellation or that the supplier was bogus at the time of transaction. The court applied the case of Rama Brick Field v. Additional Commissioner where it has held that when both purchaser and supplier were registered at the time of transaction, and returns were duly filed, denial of ITC is not justified merely on the ground that the supplier was later found to be non-existent.
Therefore, this Court decide the case in favour of the petitioner and held that the respondent cannot deny the ITC solely on the ground that supplier becomes non-existent subsequently and not at the time of transaction.
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