Retrospective GST registration cancellation cannot deny buyer's input tax credit for transactions during valid registration period

HC held that retrospective cancellation of seller's GST registration does not affect buyer's entitlement to input tax credit for transactions conducted when seller was validly registered. Court found that since seller held valid registration at time of transaction (06.12.2018) and cancellation was effective from later date (29.01.2020), no adverse inference could be drawn against petitioner. Authorities failed to verify seller's GST compliance through portal. Denial of ITC was unsustainable. Matter remanded to authority for fresh decision after proper hearing.

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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.

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