Supreme Court Upholds ITC Relief for Bona Fide Purchasers

Summary

The Hon’ble Supreme Court dismissed the Revenue’s Special Leave Petition against the Allahabad High Court judgment in Additional Commissioner Grade 2 & Anr. v. M/s Safecon Lifescience Private Limited. The Court allowed the High Court’s decision to stand, holding that Input Tax Credit (ITC) cannot be denied to a genuine purchaser merely because the supplier’s GST registration was cancelled subsequently or due to irregularities committed by the supplier.

The High Court observed that the recipient had produced valid tax invoices, e-way bills, transport documents, banking transactions, and GST returns proving genuine movement of goods and payment of tax. Since no fraud, wilful misstatement, or suppression of facts was established against the purchaser, proceedings under Section 74 of the UPGST Act were held to be unsustainable.

Facts of the Case

• The petitioner purchased pharmaceutical goods during April 2021 from a GST-registered supplier.
• The purchases were supported by tax invoices, e-way bills, transport documents, and banking transactions.
• The supplier filed GSTR-1 and GSTR-3B and paid GST on the outward supplies.
• Subsequently, the supplier’s GST registration was cancelled.
• Based on intelligence received from the Central Intelligence Unit, the department initiated proceedings under Section 74 and denied ITC.
• The adjudicating authority and appellate authority confirmed the demand.
• The Allahabad High Court quashed both orders.

Issue

Whether ITC can be denied to a bona fide purchaser solely because the supplier’s registration was cancelled later or due to alleged irregularities committed by the supplier, despite genuine movement of goods and payment through banking channels.

Allahabad High Court Findings

• Actual movement of goods was established.
• Payment was made through banking channels.
• GST returns reflected payment of tax.
• No fraud or suppression was found against the purchaser.
• Authorities relied only on unverified intelligence reports.
• Information relied upon was never supplied to the taxpayer.
• Section 74 cannot be invoked without fraud, wilful misstatement, or suppression of facts.

Supreme Court Decision

The Hon’ble Supreme Court dismissed the Revenue’s Special Leave Petition at the admission stage itself, observing:

“We do not find any good ground to entertain this petition.”

As a result, the Allahabad High Court judgment remains undisturbed and continues to protect bona fide purchasers who establish genuine transactions with proper documentary evidence.

Key Takeaways

• ✔ ITC cannot be denied merely because the supplier later defaults.
• ✔ Genuine documentary evidence protects bona fide purchasers.
• ✔ Fraud must be established before invoking Section 74.
• ✔ Intelligence reports must be verified and disclosed before reliance.
• ✔ Principles of natural justice must always be followed.