2025 (3) TMI 1313 - HC - GST

Entitlement to Input tax credit (ITC) under the UPGST/CGST Act for transactions conducted with a seller whose registration was subsequently canceled - cancellation of the seller s registration with retrospective effect impacts the petitioner s entitlement to ITC for transactions conducted prior to the cancellation or not - HELD THAT - The perusal of the contents of Section 16 of the GST Act 2017 shows that the input tax credit can be claimed only on the fulfilment of conditions mentioned therein. It also clarifies that no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both - The contents of Section 74 of the GST Act 2017 provides for determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any wilful misstatement or suppression of fact - Perusal of the contents of Rule 36 of the GST Rules 2017 provides that the required documents for claiming input tax credit should be made available and the same may be reflected in GSTR-3B. From Sections 16 74 of the GST Act 2017 as well as Rule 36 of the GST Rules 2017 it is clear that the provisions as provided certain benefit of input tax credit to the registered person should be provided on the fulfilment of conditions as well as documents required to be provided therein. In the case in hand the proceedings were initiated against the petitioner under Section 74 of the GST Act 2017 as the registration of the seller dealer has been cancelled on subsequent date i.e. with effect from 29.01.2020 thus the date of transaction was admittedly took place prior to it i.e. on 06.12.2018 - Further the record shows that the GST authorities are empowered to cancel the registration from the date of inception of proceedings but the authorities in their wisdom cancelled the registration of the seller on a subsequent date i.e. with effect from 29.01.2020. Once the seller was registered at the time of the transaction in question no adverse inference can be drawn against the petitioner. Further the record shows that the registration of the selling dealer was cancelled retrospectively i.e. w.e.f. 29.01.2020 and not from its inception which goes to show that the transaction between petitioner and seller was registered and having valid registration in his favour - That under the GST regime all details are available in the GST Portal and therefore authorities ought to have been verified the same as to whether the filing of GSTR-1A and GSTR-3B how much tax has been deposited by the seller but the authorities have failed to do so. Conclusion - Once the seller was registered at the time of the transaction in question no adverse inference can be drawn against the petitioner. The denial of credit to petitioner cannot be sustained. The matter is remanded to the authority concerned for deciding afresh by passing a reasoned and speaking order after hearing all the stakeholder - petition allowed by way of remand.

Summary

1. ISSUES PRESENTED and CONSIDERED

The Court considered several key legal issues in this judgment:

• Whether the petitioner is entitled to input tax credit (ITC) under the UPGST/CGST Act for transactions conducted with a seller whose registration was subsequently canceled.
• Whether the cancellation of the seller's registration with retrospective effect impacts the petitioner's entitlement to ITC for transactions conducted prior to the cancellation.
• Whether the authorities followed due process under Sections 16 and 74 of the GST Act, 2017, in denying ITC to the petitioner.
• Whether the petitioner provided sufficient evidence to demonstrate the legitimacy of the transactions and the payment of tax by the seller.
• Whether the authorities' reliance on certain precedents was appropriate in the context of the petitioner's case.

2. ISSUE-WISE DETAILED ANALYSIS

Entitlement to Input Tax Credit (ITC)

• Relevant legal framework and precedents: The Court examined Sections 16 and 74 of the GST Act, 2017, which outline the conditions for claiming ITC and the determination of tax not paid or erroneously refunded. Rule 36 of the GST Rules, 2017, was also considered for documentary requirements and conditions for claiming ITC.
• Court's interpretation and reasoning: The Court noted that the petitioner had conducted transactions with a registered dealer at the time of the transaction. The seller's registration was canceled at a later date, and not retrospectively from the date of the transaction. The Court emphasized that the petitioner's entitlement to ITC should be based on the conditions at the time of the transaction.
• Key evidence and findings: The petitioner provided tax invoices, e-way bills, and GSTR-2A forms to support the legitimacy of the transactions. The Court found that these documents were auto-generated and not disputed by the authorities, indicating the genuineness of the transactions.
• Application of law to facts: The Court applied the provisions of Section 16, which allows ITC if the conditions are met, and found that the petitioner met these conditions at the time of the transaction. The Court also considered Section 74, which allows authorities to proceed against registered dealers for ITC wrongly availed due to fraud or misstatement, but found no evidence of such conduct by the petitioner.
• Treatment of competing arguments: The Court distinguished the present case from the precedents cited by the authorities, noting that in those cases, the sellers were non-existent or unregistered at the time of the transaction. In contrast, the petitioner's seller was registered and compliant with GST requirements at the relevant time.
• Conclusions: The Court concluded that the petitioner was entitled to ITC for the transactions in question, as the conditions for claiming ITC were met at the time of the transaction.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "Once the seller was registered at the time of the transaction in question, no adverse inference can be drawn against the petitioner."
• Core principles established: The Court established that the legitimacy of a transaction for ITC purposes should be assessed based on the conditions at the time of the transaction, not on subsequent developments such as the cancellation of the seller's registration.
• Final determinations on each issue: The Court quashed the impugned orders denying ITC to the petitioner and remanded the matter for reconsideration by the authorities, directing them to pass a reasoned and speaking order after hearing all stakeholders.