Back
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
BHARGAV D. KARIA, PRANAV TRIVEDI, JJ.
M/s R.V. Enterprises and Another - Appellants
Versus
State of Gujarat and Others - Respondents
Special Civil Application No. 20134 of 2023
Decided On : 19-06-2025
Based on the provided legal document, the key points are as follows:
The case involves a challenge to the disallowance of input tax credit (ITC) claimed by the petitioner, a partnership firm, on supplies received from a supplier whose registration was canceled for non-payment of tax (!) (!) .
The petitioner had availed ITC based on invoices issued by the supplier, which was later found to have failed to discharge its outward tax liability, leading to cancellation of its registration (!) (!) .
The respondent authorities issued a show cause notice and subsequently passed an order demanding reversal of the claimed ITC, citing that the supplier's registration was canceled and that the supplier did not pay the applicable tax (!) (!) .
The petitioner contended that the provisions of section 16(2)(c) of the GST Act should be read down to prevent double taxation, arguing that since the petitioner paid tax at the time of purchase, they should not be liable to pay again, especially when the supplier failed to pay outward tax (!) (!) (!) .
The court observed that the supplier's registration was canceled due to non-payment of tax and that the supplier had not discharged its outward tax liability, which under section 16(2)(c) makes the petitioner liable to reverse the ITC claimed (!) (!) (!) .
The court clarified that the petitioner had not provided sufficient evidence to prove the genuineness of the transactions, and the discrepancy between the supplier’s purchase and supply figures indicated a lack of outward tax payment (!) (!) .
The court rejected the petitioner’s argument for reading down section 16(2)(c), holding that since the supplier did not pay the tax, the petitioner is rightly liable for reversal of the ITC under the applicable provisions (!) (!) .
The court found that the respondent authorities had already conducted an inquiry into the supplier’s status and that the absence of a formal intimation in Form GST DRC-01A did not render the proceedings without jurisdiction (!) .
The court upheld the validity of the order-in-original but set aside the penalty imposed due to the absence of proper prior intimation, emphasizing that penalty cannot be levied without the requisite notice (!) (!) .
The overall decision confirms that if the supplier fails to pay the outward tax, the recipient cannot retain the input tax credit, and the authorities are justified in demanding its reversal, without necessarily pursuing recovery from the recipient (!) (!) .
The court emphasized that the burden of proof lies with the claimant of ITC, and in this case, the petitioner failed to demonstrate the genuineness of the transactions or that the supplier had discharged its tax liability (!) .
The order modifies the penalty aspect but otherwise upholds the main decision, confirming that the petitioner is liable to reverse the ITC claimed on supplies from a non-genuine supplier who did not pay outward tax (!) (!) .
Please let me know if you need further analysis or assistance with specific legal interpretations related to this case.
ORDER :
1. By this petition under Article 227 of the Constitution of India, the petitioners have prayed for the following reliefs:
“10(C). Your Lordships may be pleased to issue writ of mandamus or writ in the nature of mandamus or any other appropriate writ or order quashing and setting Show- cause Notice dtd. 28/09/2023 bearing Reference No. ZD240923046218C along with attachment to Show-cause Notice (Annexure 'B' Colly to this petition) being issued by Respondent No. 02 herein;
C.1 Your Lordships may be pleased to issue a writ of mandamus or a writ in the nature of mandamus, or any other appropriate writ or order quashing and setting aside order in Form GST-DRC-07 along with 'Summary of Order' bearing Reference No.STO-3/Morbi/DRC- 07/R.V.ENT.17-18/2023-2024/No.7665 dated 31/12/2023 (Annexure-D Colly.);
C.2 Your Lordships may be pleased to stay the implementation, execution and operation of the order in Form GST-DRC-07 along with 'Summary of Order' bearing Reference No.STO- 3/Morbi/DRC-07/R.V.ENT.17-18/2023- 2024/No. 7665 dated 31/12/2023 (Annexure- D Colly.), pending notice, admission and final hearing of this petition.
C.3 Your Lordships may be pleased to grant ex- parte ad-interim order in terms of prayer clause C.2 hereinabove;
C.4 Your Lordships may be pleased to issue writ of mandamus or writ in a nature of mandamus or any other appropriate writ 'reading down' Section 16 (2)(c) of CGST Act, 2017/ SGST Act, 2017 in such a way that it should mean that the unscrupulous registered person who has colluded with the registered supplier who has not actually paid the tax charged in respect of the supplies received by the said registered person either in cash or through utilization of Input Tax Credit admissible in respect of the said supplies, may not be entitled to the credit of any Input Tax in respect of any supplies of goods or services or both to him and that said restriction may not be applicable to a bona-fide recipient of supplies who has received the supplies in normal course of business on payment of the basic value along with tax charged on the same by the supplier;”
2. Brief facts of the case are that the petitioner is a partnership firm. The petitioner firm is registered under the provisions of the Central/State Goods and Service Tax Act, 2017 (For short “the GST Act”). During the financial year 2017-2018, the petitioner availed Input Tax Credit on the purchases made from the various suppliers in regard to plastic items supplied by the petitioner. According to the petitioner, the suppliers of the goods were registered with GST department at the relevant point of time and had issued valid invoices, E-way bill and supplied the goods to the petitioner.
2.1 The petitioner also filed return in Form GSTR-1 on the GSTN portal by uploading the requisite details to be mentioned therein and details of credit available on the basis of invoices of the suppliers were auto-populated on the GSTN Portal in Form GSTR-2A. The petitioner accordingly, availed the input tax credit.
2.2 The petitioner also filed annual return in Form GSTR-9 for the Financial Year 2017-2018 declaring that ITC of SGST and CGST of Rs.3,49,324/- equally were availed on the basis of invoices issue by the dealer for goods supplied to the petitioner.
2.3 It is the case of the petitioner that without issuance of any intimation in Form GST DRC-01A, the respondent issued a show cause notice in Form GST DRC-01 on 28.09.2023 under section 73 of the GST Act calling upon the petitioner to show cause as to why the input tax credit of Rs.6,98,648/- availed by the petitioner during the financial year 2017-2018 should not be disallowed on the ground that the petitioner has availed the input tax credit on supply of the goods when the supplier’s registration was cancelled on account of non payment of outward tax liability by the supplier of the goods to the petitioner.
2.4 Being aggrieved by the show cause notice, the petitioner has preferred this petition.
3. This Court by order dated
Input tax credit is not claimable unless the supplier has paid the applicable tax, as per Goods and Services Tax Act provisions.
A registered person is not entitled to input tax credit if the claimed supplies are from non-existent firms, regardless of the validity of the supplier's GST registration at the time of transaction.
The first respondent was not justified in reversing the ITC availed by the appellant without conducting any enquiry on the supplier and without resorting to any action against the supplier.
Input tax credit claims require proof of actual tax payment by the supplier; failure to demonstrate this results in denial of credit.
The denial of Input Tax Credit requires verification of the supplier's tax payment, and unilateral action against the recipient without such verification is arbitrary.
Bona fide purchasers cannot have Input Tax Credit reversed solely based on supplier registration cancellations absent substantial evidence of fraud.
The jurisdiction under the Central Goods and Services Tax Act prohibits State GST authorities from initiating parallel proceedings once Central GST proceedings have commenced on the same subject matt....
Tax authorities must provide substantial evidence of fraud or suppression of facts before imposing penalties under Sections 74 and 50, especially when input tax credit has already been reversed volun....
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
