Bona fide purchasers cannot have Input Tax Credit reversed solely based on supplier registration cancellations absent substantial evidence of fraud.

ORDER :

BHARGAV D. KARIA, J.

1. Heard learned advocate Mr. Sahil Rao appearing for the petitioner and learned Assistant Government Pleader Ms. Shrunjal Shah for the respondents.

2. By this petition under Article 227 of the Constitution of India, the petitioner has challenged the Order-in-Original dated 23.1.2025 passed under Section 74 of the Gujarat Goods and Service Tax Act, 2017 (hereinafter referred to as ‘GST Act’ for short) by the Assistant Commissioner, Ghatak-21 (Ahmedabad) Range-6, Division-2, Gujarat.

3. Brief facts of the petition are as under:

3.1 The petitioner, a Partnership Firm, is engaged in the business of manufacturing and trading of Ferrous and Non-Ferrous Metal and Scrap. The petitioner Firm is registered with the GST Department since 1.7.2017.

3.2 Respondent No.1, the Assistant Commissioner Ghatak-21, Ahmedabad issued intimation in Form DRC-01A dated 22.7.2024 as per Rule 142(1A) of the Central/ State Goods & Service Tax Rules, 2017 (for short ‘GST Rules’).

3.3 As per the intimation, it was alleged that the petitioner had purchased goods during the Financial Year 2017-18 from various vendors whose registration had been cancelled suo-motu on retrospective basis and hence the Input Tax Credit availed by the petitioner was supposed to be reversed as per the provisions of Section 16 (2)(c) of the GST Act.

3.4 Respondent No.1, thereafter, issued show- cause notice dated 30.7.2024 in FORM GST DRC- 01 reiterating the facts narrated in the notice in FORM GST DRC-01A.

3.5 The petitioner filed reply on 7.8.2024 in FORM GST DRC-06 providing information and documents such as Invoices, E-way bills, Lorry Receipts, Way-slips, Ledger Account so as to establish that the petitioner had made bonafide purchases along with payment of GST on such purchases and, therefore, no disallowance can be made on the failure of the payment of tax, if any, at the ends of the suppliers. It was also contended that the allegation with respect to ineligible ITC is based on retrospective cancellations of GST registration of vendors of the petitioner but the same were active at the time of making purchases and hence neither disallowance of ITC can be made nor the petitioner may be asked to reverse such ITC availed by the petitioner.

3.6 Thereafter, the impugned Order-in- Original FORM GST DRC-07 dated 23.1.2025 was passed after considering reply filed by the petitioner wherein it is stated that the cancelled vendor was found to be bogus and hence Input Tax Credit availed qua cancelled vendors of the petitioner is liable to be reversed under Section 16 (2)(c) of the Act.

3.7 The petitioner has also challenged the vires of Section 16 (2)(c) of the GST Act as the petitioner was a bonafide purchaser.

4. Learned advocate Mr. Sahil Rao for the petitioner submitted that the reply of the petitioner is not considered at all or dealt with and respondent No.1 has passed a premeditated and one-sided order without giving any opportunity of hearing to the petitioner. It was further submitted that the petitioner ought to have been provided with the relied upon documents in form of cancellation orders passed in case of its vendors and further opportunity of cross- examination ought to have been provided to the petitioner in consonance with the principle of natural justice.

4.1 It was further submitted that the show- cause notice is also cryptic without alleging what is referred in the Order-in-Original. It was submitted that the vendors are from outside the State whose registration was cancelled and only because the cancellation is reflected on the portal, the respondent authority without verification as to the subsistence