ITC Cannot Be Denied Solely On Allegation That Supplier Is Bogus Without Examining Buyer's Evidence: GSTAT Agra

The GST Appellate Tribunal (GSTAT), Agra Bench, has recently ruled that an allegation that a supplier is bogus cannot, by itself, justify denying Input Tax Credit (ITC) without examining the evidence produced by the buyer to establish that the purchases were genuine.

The bench comprising Judicial Member Ajeet Singh and Technical Member Vivek Kumar upheld ITC of ₹3.83 lakh claimed by Safecon Lifesciences Private Limited. It found that the company had produced documents supporting the purchases and establishing the transportation and receipt of goods.

The tribunal observed:

"The principal allegation of the Revenue is that the taxpayer availed input tax credit on the strength of invoices issued by a bogus supplier without actual receipt of goods. The allegation is founded substantially upon the investigation report concerning M/s Neon Pharma Chem and the statement reportedly made by a person present during that investigation.

However, the allegation against the supplier, by itself, cannot be considered in isolation from the evidence produced by the recipient-taxpayer concerning the transactions in question. The eligibility of input tax credit must be examined with reference to the applicable statutory conditions and the facts and evidence relating to the particular transactions."

The dispute arose from purchases worth ₹21.30 lakh made by Safecon Lifesciences from Neon Pharma Chem, a supplier registered in Maharashtra, in November 2019. The company claimed ITC of ₹3.83 lakh on these purchases.

The GST Department relied on an investigation report alleging that Neon Pharma Chem was a fictitious firm that issued invoices without actually selling goods.

The adjudicating authority raised a tax demand of ₹3.83 lakh and imposed an equal penalty. It also levied interest of ₹53,676.

Safecon Lifesciences challenged the demand before the First Appellate Authority. It produced purchase orders, tax invoices, e-way bills, payment records, stock registers, consignment documents and vehicle particulars to establish that the goods had actually been purchased, transported and received.

The company also relied on the supplier's GST returns and records relating to payment of tax.

The First Appellate Authority allowed the company's appeal and set aside the tax demand and penalty. The Department then approached the GSTAT, arguing that invoices, consignment documents and bank payments did not, by themselves, conclusively establish that the purchases were genuine.

It contended that the company also needed to establish the actual movement and receipt of goods through transportation records, vehicle particulars and evidence of freight payments.

The tribunal found that the company had produced evidence beyond the invoices themselves. The documents also supported the actual purchase, transportation and receipt of the goods.

Another factor was that Neon Pharma Chem's GST registration, which had allegedly been cancelled following the investigation, was subsequently restored by the supplier's jurisdictional authority. The Revenue did not dispute the restoration before the tribunal.

The tribunal held that the revocation of the cancellation order automatically nullified the allegation that the supplier was bogus or non-existent.

It also rejected the Department's argument that the additional documents had been accepted without giving it an opportunity to examine them. The tribunal noted that the First Appellate Authority had forwarded the documents to the adjudicating authority and obtained a report dated October 12, 2021.

The report was considered before the appeal was decided.

The tribunal ultimately held that the ITC claimed by Safecon Lifesciences was justified. It found that the Department had failed to establish sufficient grounds to interfere with the earlier decision.

Accordingly, it dismissed the Department's appeal and upheld the order setting aside the tax demand and penalty.

For Appellant/Revenue: Shri Mukesh Kumar, Authorised Departmental Representative.

For Respondent/Taxpayer (Safecon Lifesciences Private Limited): Advocate Shri Umakant Aggrawal.