GSTAT Upholds Foundry’s ITC Reversal, Saying Its Paper Trail Didn’t Prove Goods Came From a Supplier Found Non-Existent Three Months Later

In brief

The question

1. Whether the taxpayer had received the goods covered by the three invoices and was therefore entitled to the claimed ITC

The court held

The Tribunal answered the central issue against the taxpayer, holding that actual inward supply of the goods covered by the three invoices had not been established and that the ITC claim was not proved.

It also directed

It dismissed the second appeal and upheld both the first appellate order and the order-in-original.

01Facts

The taxpayer appealed against the first appellate authority’s order dated 24.04.2025, which had upheld an order-in-original dated 01.10.2022 imposing tax and penalty of ₹5,42,505, with applicable interest.

¶ 1

The dispute concerned ITC of ₹2,71,252.90 claimed on three invoices for goods said to have been supplied by Dwarkadhish Traders in June 2023. The department relied on an inspection conducted in September 2023, which reportedly found the supplier non-existent, and alleged that no goods had been delivered.

¶ 2

The taxpayer produced invoices, e-way bills, lorry receipts, a goods receipt note, photographs, ledger entries and bank statements to support the claim.

¶ 9

The proper officer reversed the ITC under Section 74; the first appeal was dismissed, prompting this second appeal.

¶ 2–3

02Issues

i.1. Whether the taxpayer had received the goods covered by the three invoices and was therefore entitled to the claimed ITC

¶ 7

ii.2. Whether the ITC had been wrongly availed by reason of fraud, wilful misstatement or suppression of facts so as to attract Section 74

¶ 8

03Law Applied

Under Section 16(2) of the CGST/UPGST Acts, entitlement to ITC is subject to specified conditions, including possession of prescribed tax documents, receipt of the goods or services, payment of the tax to the Government, and filing of the return.

¶ 8

Section 155 places the burden of proving ITC eligibility on the person claiming it.

¶ 9

Section 74 permits recovery where ITC has been wrongly availed by reason of fraud, wilful misstatement or suppression of facts to evade tax.

¶ 8

The Tribunal also referred to M/s Sunflag Iron and Steel Company Ltd. v. State of U.P. and Others, M/s Best Crop Science Pvt. Ltd. v. Principal Commissioner and Others, CIT-07 Delhi v. M/s Odiyan Builders Pvt. Ltd., M/s Shiv Trading Company v. State of U.P. and Others, and M/s Ashtha Enterprises v. Commissioner of Commercial Tax and Others in considering evidence of genuine supply and payment of tax.

¶ 9, 14–16

Provisions in the judgment · 10 · Linked ones open on LawLens

Central Goods and Services Tax Act, 2017 10 provisions

Section 16 Section 37 Section 38 Section 39 Section 41 Section 49 Section 50 Section 74 Section 112 Section 155

04Reasoning

The Tribunal held that the taxpayer’s documents did not conclusively establish physical receipt of the goods. It considered the e-way bills insufficient on their own, found that the photographs did not establish when they were taken, and regarded the goods receipt note and other paper records as capable of being created after the event.

¶ 10–11

The supplier’s reported non-existence at its declared premises, found during an inspection approximately three months after the transactions, was weighed against the taxpayer’s documentary evidence.

¶ 10–12

The Tribunal further found that the taxpayer had not established that the tax charged on the supplies had been paid to the Government.

¶ 13

It therefore concluded that the taxpayer had not discharged the burden under Section 155 of proving genuine inward supply and valid ITC entitlement.

¶ 12, 17