2025 (8) TMI 1132 - HC - GST

Section 74 proceedings unsustainable where supplier had valid registration and billed supplies with e-way/bill evidence despite later cancellation

M/s Kesarwani Traders Versus State of Up And 3 Others

M/s Kesarwani Traders Versus State of Up And 3 Others - 2025:AHC:140085 ISSUES PRESENTED AND CONSIDERED 1. Whether proceedings under Section 74 of the U.P. Goods and Services Tax Act could be validly initiated against a registered recipient where the supplier's registration was valid on the date of transaction but cancelled subsequently. 2. Whether an Input Tax Credit (ITC) claim can be treated as arising from a 'paper transaction' and appropriately denied/reversed where (a) the outward tax invoice evidences a 'Bill To - Ship To' arrangement, (b) the consignee is shown on the supplier's invoice, and (c) the goods were intercepted in transit with the e-Way bill physically stamped by a mobile squad of the originating State. 3. Whether the appellate authority erred in dismissing the first appeal without giving due weight to documentary evidence demonstrating actual movement of goods and the supplier's valid registration at the time of transaction. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of proceedings under Section 74 where supplier's registration was valid at the time of transaction but cancelled later Legal framework: Section 74 (penalty/assessment provisions) of the U.P. GST Act permits proceedings where tax is alleged to have been evaded or ITC wrongly availed. Assessment and allied actions must be judged on facts existing at the relevant time of transaction. Precedent Treatment: No prior authority was invoked in the judgment; the Court decided on statutory and documentary records before it. Interpretation and reasoning: The Court examined whether the supplier had valid registration on the date of the transaction. The record showed that the supplier's registration was valid on 20 June 2018 and was cancelled only on 28 September 2018. The Court held that cancellation subsequent to the date of transaction could not retroactively render the earlier transaction void or justify adverse inference against the recipient. Ratio vs. Obiter: Ratio - where the supplier held valid registration on the date of supply, initiation of proceedings against the recipient under Section 74 on the basis of subsequent cancellation is unsustainable unless contrary material is shown. Conclusion: Proceedings under Section 74 could not be sustained solely because the supplier's registration was cancelled after the transaction; no adverse inference could be drawn against the recipient on that ground alone. Issue 2: Whether documentary evidence of movement (Bill To - Ship To; supplier's invoice; e-Way bill interception) precludes treating ITC as arising from a paper transaction Legal framework: GST law recognises 'Bill To - Ship To' arrangements where buyer and consignee differ; entitlement to ITC depends on genuineness of supply and documentary proof of movement. E-Way bills and tax invoices are relevant material to establish actual movement and supply. Precedent Treatment: The Court did not cite authorities; it applied principles of evidentiary weight to statutory documents (tax invoice, e-Way bill) and contemporaneous endorsements (mobile squad stamp). Interpretation and reasoning: The supplier's invoice from the original seller (SM Shop) identified the petitioner as consignee and specified the vehicle number. The e-Way bill accompanied the goods and bore a rubber stamp placed by the mobile squad in the originating State, evidencing interception during transit. These contemporaneous documents were neither contradicted nor rebutted by the revenue. The appellate order acknowledged the grounds but did not provide any contradicting material or reasoned rebuttal to deny weight to such proof. The Court held that once movement and genuineness of supply are established by such documentary evidence and not disputed, the transaction cannot be treated as a paper transaction for purposes of denying ITC. Ratio vs. Obiter: Ratio - where tax invoice and e-Way bill demonstrably establish movement and consignee identity and are unchallenged by contrary material, the transaction cannot be treated as only a paper transaction to deny ITC. Conclusion: Documentary proof of movement (tax invoice showing consignee, e-Way bill, interception stamp) precluded treating the ITC claim as a paper transaction; benefit of such proof must be allowed absent rebuttal. Issue 3: Duty of appellate authority to consider and weigh documentary evidence and specific grounds raised in appeal Legal framework: Appellate orders must address the grounds raised and reason why material relied upon by the appellant does or does not bear on the conclusion. Administrative decision-making requires recording of reasoning, especially where material facts are uncontroverted. Precedent Treatment: The Court relied on the need for reasoned consideration rather than invoking precedent. Interpretation and reasoning: The first appellate authority recorded the grounds of appeal but failed to rebut or explain why the uncontroverted documentary evidence (supplier invoice, e-Way bill, interception stamp, supplier's registration valid on transaction date) did not establish genuineness of supply. The Court found that mere notice of grounds without engagement or contrary material did not satisfy the duty to weigh evidence. Consequently, the appellate dismissal lacked legal sustainment. Ratio vs. Obiter: Ratio - an appellate order cannot legitimately dismiss an appeal where it notices but does not meaningfully weigh uncontroverted documentary evidence supporting the appellant's case; such omission is legally untenable. Conclusion: The appellate authority's dismissal of the appeal without adequate consideration and rebuttal of the documentary evidence rendered the impugned order unsustainable. Relief and consequential directions Interpretation and reasoning: Given that the transaction was shown to be genuine on the available record, supplier's registration was valid on the transaction date, and the appellate authority failed to meaningfully address these points, the Court quashed the impugned assessment and related recovery notice. Ratio vs. Obiter: Ratio - where assessment/recovery is founded on failure to consider uncontroverted evidence establishing genuineness and valid registration at the time of supply, such assessment/recovery must be quashed. Conclusion: The impugned orders were quashed and the writ petition allowed; any amounts deposited during litigation were ordered to be refunded within one month of production of a certified copy of the order.