Whether ITC can be disputed in case Supplier’s registration is cancelled- Recent judgement of Madras HC

TVL. Cleon Optobiz Pvt. Ltd., Versus The Assistant Commissioner (St), Chennai [2024 (1) TMI 1049 – MADRAS HIGH COURT]

In this case, there were two grounds which have been adjudicated. The same are as below:

  • Petition submitted invoices, e-way bills and bank statements as a proof of payment but authorities have not considered the same
  • Authorities made a new finding in the Order that product dealt by the petitioner is entirely different than those dealt by the supplier

Learned Government Advocate by referring to the judgement of Sahyadri Industries [Tvl. Sahyadri Industries Ltd. Versus The State of Tamil Nadu 2023 (4) TMI 912 – MADRAS HIGH COURT] submitted that Section 16(2) of TNGST Act read with Rule 36 of CGST Rules imposes an obligation on the assessee to establish the genuineness of the transaction in relation to which ITC is claimed. Therefore, the petitioner should have availed statutory remedy and not approach this Court under Article 226 of Constitution of India.

In case of Sahyadri Industries case, division bench of Madras HC referred to the judgement of Hon’ble Supreme Court in case of State of Karnataka Vs. M/s Ecom Gill Coffee Trading Private Limited. In the said judgement, Apex Court held that the onus to prove the genuineness of the transaction lies upon the assessee claiming the ITC in terms of Section 70 of Karnataka VAT Act, 2003. Hence, Madras HC held that similarly under GST, assessee needs to substantiate its claim of ITC.

Decision of Madras HC in the present case:

Madras HC held as below:

  • The authorities have failed to consider the submission made by the petitioner i.e. invoices, e-way bills and bank statements
  • With respect to contention made in the impugned Order that the petitioner is not dealing in goods which the supplier deals with, shall not sustain since the said ground was not covered in the impugned SCN. Hence, at the stage of issuance of Order this new ground cannot be considered.

In light of the above, High Court has quashed the impugned Order. Also, the matter is remanded for reconsideration by assessing officer for passing a fresh assessment Order.

Our Comments:

This decision can be relied upon by a taxpayer in case there are sufficient documents available to substantiate the claim of ITC and authority fails to consider the same at the time of issuing a SCN or passing an Order. With respect to list of details/documents to be maintained or produced before authorities, in quite a few cases HC continues to rely upon the judgement of Apex Court in case of Ecom Gill Coffee Trading wherein Apex Court has prescribed exhaustive list of documents. Hence, it has to be observed as to what would qualify as sufficient details/documents for proving the genuineness of transaction. Consequently, whether the claim of ITC in cases such as where vendor’s registration is cancelled or vendor is found to be non-existent, would be accepted.

Disclaimer: This article provides general information existing at the time of preparation and we take no responsibility to update it with the subsequent changes in the law. The article is intended as a news update and Affluence Advisory neither assumes nor accepts any responsibility for any loss arising to any person acting or refraining from acting as a result of any material contained in this article. It is recommended that professional advice be taken based on specific facts and circumstances. This article does not substitute the need to refer to the original pronouncement