ITC Cannot Be Denied If Supplier’s GST Registration Was Cancelled Later: Allahabad High Court
M/s Singhal Iron Traders challenged a GST demand and penalty after the tax department claimed their supplier was a “non-existing dealer” because the supplier’s registration was cancelled months after a valid transaction. The firm argued that it bought goods lawfully from a registered dealer, paid through bank channels, and the supplier had filed GST returns. The Court agreed, noting that GSTR-3B cannot be filed without paying tax, and the buyer cannot be penalized for the seller’s later cancellation. Consequently, the GST demand and penalty were quashed.
The present writ petition (No. 1357 of 2022) dated November 4, 2025, has been filed by a company named M/S Singhal Iron Traders (Petitioner) against Additional Commissioner and Another (Respondent) in the High Court of Judicature at Allahabad. The case was heard by the Piyush Agrawal,J.
The authorized representative of the petitioner submits that the petitioner is a proprietorship firm that is involved in trading and supplying businesses of all types of iron scrap, etc. The petitioner purchased iron scrap in August 2018, during the assessment year 2018-19, from the registered dealer, namely M/s Arvind Metal Suppliers, Nunhai, Agra, against two invoices and two e-way bills for Rs. 1,083,600, including CGST and SGST of Rs. 195,048. The said payment was made to the supplier through banking channels.
He further submits that the supplier/seller also filed his GSTR-01 and GSTR-3B for the period of August 2018 within time on the GST Portal. However, GSTR-3B can only be used to make payment of due tax by the supplier.
However, later on, the tax department found that the seller’s GST registration was cancelled on January 31, 2019 months after the transaction. Based on this, the department claimed that the seller was a “non-existing dealer” and that the input tax credit (ITC) taken by Singhal Iron Traders should be reversed, along with a penalty of the same amount, i.e., Rs.1,95,048.
Dissatisfied Petitioner files an appeal, which was also dismissed without considering the material available on record confirming the proceedings initiated under Section 74 of the GST Act against the petitioner.
A.R. of the petitioner further submits that the petitioner purchased the goods, the seller was validly registered, and everything was done properly. They argued that they cannot be punished for something that happened later, especially when they had paid through bank channels and had no fraudulent intent.
The respondent argued that the seller who supplied goods to the petitioner didn’t actually exist at the time of verification. Because of this, they claimed that the purchases made by the petitioner were not genuine and should be treated as unregistered or fake transactions.
Therefore, the department said that it was right to start proceedings and take action against the petitioner for wrongly claiming tax credit on those purchases.
However, after hearing from both the parties, the Court has agreed with the petitioner and said it is not in dispute that without making payment of due taxes, GSTR-3B cannot be generated. No adverse inference can be drawn against the petitioner on the premise that the registration of the dealer from whom the purchases were shown to be made was cancelled subsequently. The authorities should have verified the facts instead of relying only on the later cancellation of registration.
Therefore, the Court ruled that the proceedings and tax demands against Singhal Iron Traders were unjustified and quashed the orders issued by the tax authorities.
Citation: Singhal Iron Traders Vs Additional Commissioner And Another (Allahabad High Court); 1357 of 2022; 04/11/2025; 2018-19.
