Order denying Input Tax Credit set aside as retrospective supplier registration cancellation alone cannot justify ITC denial

HC set aside the appellate authority's order denying Input Tax Credit, holding that retrospective cancellation of a supplier's registration alone does not justify denial of ITC. The court noted the petitioner produced invoices, e-way bills, transport and bank documents, and that the appellate order was non-speaking and failed to consider documentary evidence or statutory ITC requirements. Applying a prior similar decision, HC quashed the impugned order and disposed of the petition.

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ISSUES PRESENTED AND CONSIDERED

1. Whether the appellate authority was justified in affirming the adjudicating authority's denial of Input Tax Credit (ITC) on the sole ground that invoices were issued after the effective date of retrospective cancellation of the supplier's GST registration.

2. Whether retrospective cancellation of a supplier's GST registration, by itself, is a valid ground to deny ITC to a purchaser who claims bona fide receipt and utilization of goods.

3. Whether the appellate authority committed jurisdictional/record-review errors by failing to consider documentary evidence on record (tax invoices, e-way bills, transport documents, bank records, ledgers) and by issuing a non-speaking order without findings on the relevancy/credibility of those documents.

4. Whether the appellate authority's procedural reliance on the appellant's non-appearance at personal hearing absolved it from the statutory duty to adjudicate and record reasons on materials on file.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of affirming denial of ITC solely because invoices were dated after the effective date of retrospective cancellation

Legal framework: Section 16 of the Central and State GST Acts prescribes entitlement to ITC subject to statutory conditions; adjudication under Section 73(9) determines tax liability where discrepancies are found; appeals lie under the appeals provision in the GST statute.

Precedent Treatment: The Court relied on and applied a recent decision on substantially identical facts (referred to in the judgment) holding that retrospective cancellation alone cannot be the sole ground for denial of ITC where the purchaser produces supporting documents showing genuine supply and use.

Interpretation and reasoning: The Court noted there was no dispute that, as on the date of supply, the supplier's registration was valid; cancellation was effected later with retrospective effect. The appellate authority affirmed denial only on the basis that invoice dates were after the effective date of cancellation and did not identify any other statutory deficiency (for example, absence of supply, non-movement of goods, or failure to satisfy conditions under Section 16). The Court reasoned that retrospective cancellation, standing alone, does not negate a purchaser's otherwise supported claim to ITC.

Ratio vs. Obiter: Ratio - retrospective cancellation of the supplier's registration, without additional adverse findings on genuineness of transaction or failure to meet statutory conditions for ITC, is not a sole and sufficient ground to deny the purchaser ITC.

Conclusion: The appellate authority was not justified in affirming denial of ITC solely on that ground; its conclusion in that respect lacked legal foundation and required reconsideration.

Issue 2: Burden of proof and evaluation of documentary evidence supporting bona fide supply

Legal framework: The burden lies on the person claiming ITC to substantiate by material evidence (invoices, e-way bills, transport documents, bank records, etc.) that the transaction was bona fide, goods physically moved, and inputs were used in course/ furtherance of business (as per Section 16 conditions and related GST provisions).

Precedent Treatment: The Court applied the principle that documentary proof on record must be examined and reasoned findings returned; failure to do so renders an order non-speaking and vulnerable to judicial interference.

Interpretation and reasoning: The petitioner had placed on record the relevant documentary material before both authorities. The appellate authority recorded receipt of those documents but failed to address why they were insufficient to prove genuineness or physical movement. The Court emphasized that even where the appellant failed to attend personally, the appellate authority was duty-bound to assess materials on record and record specific reasons for acceptance or rejection of each line of evidence.

Ratio vs. Obiter: Ratio - where a claimant adduces documentary evidence relevant to ITC entitlement, the adjudicatory authority must consider and return reasoned findings on that evidence rather than mechanically dismissing the claim.

Conclusion: The appellate authority erred by not evaluating the evidence and by not recording reasons; remand for fresh, reasoned consideration of the documents is required.

Issue 3: Legality of non-speaking order and duty to record reasons despite non-appearance of appellant

Legal framework: Administrative and adjudicatory decisions in tax matters must be reasoned; statutory duty to give opportunity of hearing and to decide on merits applies. Non-appearance does not relieve the authority of the obligation to consider and adjudicate the materials on record.

Precedent Treatment: The Court relied on its prior ruling (cited within the judgment) where similar administrative conduct - no finding on documentary proof - was set aside for being non-speaking and failing to discharge the statutory duty.

Interpretation and reasoning: The appellate authority afforded opportunities but noted non-appearance; nevertheless, since documents were on record, the authority was required to examine them and state reasons for their rejection or acceptance. The appellate order merely affirmed the adjudicating order on the invoice/cancellation point without addressing the documentary evidence or applicability of precedent relied upon by the adjudicating authority. The Court found this to be a non-speaking order and therefore legally infirm.

Ratio vs. Obiter: Ratio - an appellate or adjudicatory order that fails to deal with material evidence on record and offers only a mechanical conclusion is non-speaking and unsustainable.

Conclusion: The appellate authority's order with respect to discrepancy no. 3 is a non-speaking order and must be set aside; the matter should be remitted for a reasoned determination after a hearing.

Issue 4: Remedial and procedural directions on remand

Legal framework: On setting aside a non-speaking order, the Court may remit the matter to the same authority with directions to afford hearing and to pass a reasoned order addressing the statutory criteria for ITC and the materials on record.

Precedent Treatment: The Court followed its prior decision directing fresh adjudication where authorities had not addressed documentary proof or statutory conditions for ITC.

Interpretation and reasoning: Given that documents were filed and the issue of retrospective cancellation had been improperly treated as determinative, the Court directed the appellate authority to fix a hearing date, give advance notice, allow representation, and pass a reasoned order specifically addressing (a) relevance and sufficiency of the documents, (b) whether statutory conditions for ITC under Section 16 were met, and (c) applicability of any precedent relied upon by the adjudicating authority.

Ratio vs. Obiter: Ratio - remedial direction requiring a reasoned adjudication on remand where an order is non-speaking and material evidence remains unadjudicated.

Conclusion: The appellate authority's order as to discrepancy no. 3 is set aside; authority must rehear the matter after notice and pass a reasoned order addressing the documentary evidence and legal criteria for ITC.

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