ITC CANNOT BE REJECTED SOLELY ON SUPPLIER’S RETROSPECTIVE GST REGISTRATION CANCELLATION

Engineering Tools Corporation Vs Assistant Commissioner (ST) (Madras High Court)

Introduction: The rejection of Input Tax Credit (ITC) solely based on the retrospective cancellation of a supplier’s GST registration is a significant issue in taxation law. The case of Engineering Tools Corporation vs. Assistant Commissioner (ST) highlights the legal intricacies and implications associated with such rejections.

Background: The petitioner, Engineering Tools Corporation, contested an assessment order wherein their claimed ITC was reversed due to the cancellation of their supplier’s GST registration. Despite providing substantial evidence of transactions, the reversal was solely based on the supplier’s canceled registration.

Key Legal Arguments:

Petitioner’s Contentions: The petitioner argued that they provided valid documentation, including tax invoices and payment proofs, establishing genuine transactions with the supplier, M/s. Shikhar Technologies.

Respondent’s Stand: The respondent contended that the petitioner failed to prove the existence of the supplier, implying that the transactions were fraudulent.

Court’s Analysis: The court observed that the rejection solely based on the supplier’s canceled registration was unjustified. It emphasized the importance of assessing the genuineness of transactions based on concrete evidence rather than administrative assumptions.

Legal Precedents: The judgment aligns with previous rulings emphasizing the importance of substantiating transactions with evidence beyond mere GST registration status.

Implications:

Taxpayer Protection: The judgment provides relief to taxpayers facing ITC rejections solely due to supplier-related issues, ensuring fair treatment and due process.

Compliance Enforcement: It underscores the need for tax authorities to assess transactions holistically, considering all available evidence before rejecting ITC claims.

Conclusion: The Engineering Tools Corporation case sets a significant precedent in taxation law, emphasizing the need for a thorough examination of evidence before rejecting ITC claims. It upholds taxpayer rights and promotes fairness in tax assessments. This judgment serves as a guide for both taxpayers and tax authorities in navigating complex issues surrounding Input Tax Credit.

Full Text Of The Judgment/Order Of Madras High Court

The petitioner assails an assessment order dated 30.12.2023 by which the Input Tax Credit (ITC) availed of by the petitioner was reversed on the ground that the GST registration of the relevant supplier was cancelled with retrospective effect.

2. The petitioner asserts that he had purchased goods from M/s. Shikhar Technologies in 2017-2018 and that such purchases are supported by tax invoices, e-way bills, transport documents and proof of payment to the supplier through regular banking channels. In spite of submitting all these documents, it is stated that the ITC was reversed solely on the ground that the registration of the petitioner’s supplier was cancelled with retrospective effect.

3. Learned counsel for the petitioner invites my attention to the operative portion of the impugned order and points out that ITC was reversed exclusively on the ground that the GST registration of M/s. Shikhar Technologies was cancelled with retrospective effect.

4. Mr. C. Harsha Raj, learned Additional Government Pleader, accepts notice on behalf of the respondent. He submits that it is a fairly prevalent phenomenon that bill trading is undertaken by creating documents like tax invoices, e-way bills and the like.

5. The operative portion of the impugned order is as under:

“Observation of the Proper Officer:

The taxpayer has made purchase from nonexistent person whose registration has been cancelled with retrospective effect on 03.11.2021. If Tvl. SHIKHAR TECHNOLOGIES is a genuine Tax Payer, then Tvl. ENGINEERING TOOLS CORPORATION should have filed the proof for the existence of Tvl. SHIKHAR TECHNOLOGIES. Instead they have stated that they are purchasing goods from them and claimed ITC based on the purchase bills. Hence, it is proved beyond doubt that Tvl. SHIKHAR TECHNOLOGIES is a Non-Existent dealer and issued fake invoices to the beneficiaries. In view of the above facts, the contention is not sustainable and it is overruled. Therefore the above proposal is hereby confirmed.”

From the above extract, it is abundantly clear that the contentions of the petitioner were rejected entirely on the ground that the petitioner should have proved the existence of M/s. Shikhar Technologies. The petitioner purchased goods in 2017-2018 and, at the highest, the petitioner may be called upon to produce evidence of the existence of the supplier at the relevant point of time. In addition, the petitioner may be called upon to prove that the transaction was genuine by providing relevant documents such as tax invoices, e-way bills, lorry receipts, delivery challans, proof for payment and the like. In the case at hand, it appears that the petitioner submitted such documents but these documents were disregarded. The impugned assessment order is unsustainable in the facts and circumstances.

6. Hence, the impugned assessment order is quashed and the matter is remanded for reconsideration. The assessing officer is directed to consider whether the transaction was genuine by examining all relevant documents in that regard. The ITC claim shall not be rejected upon such reconsideration solely on the ground that the supplier’s GST registration was cancelled with retrospective effect and a fresh assessment order shall be issued upon reconsideration, after providing a reasonable opportunity to the petitioner, within a maximum period of two months from the date of receipt of a copy of this order.

7. The writ petition is disposed of on the above terms. There will be no order as to costs. Consequently, connected miscellaneous petitions are closed.