The Allahabad High Court has dismissed a petition filed by a firm against penalty, interest imposed on it, and reversal of input tax credit (ITC) on inward supplies of goods by non-existent firms.

The court upheld the order passed by the Additional Commissioner in this regard.

The court observed, “fraud vitiates even the most solemn proceedings and the mere fact that the ITC benefit had earlier been granted to the assessee merely because the firms were then registered, would not create any estoppel against the authority taking appropriate action for claiming refund of the benefit wrongly availed”.

The assessee is engaged in the manufacturing and sale of aluminium casting and machinery parts and, during a survey of the place of business, it was found that it claimed to have received inward supplies from three firms and claimed ITC on such inward supplies.

After availing of ITC by the assessee, an enquiry was conducted by the Special Investigation Branch (SIB) and it came to light that the firms from which the assessee claimed to have received inward supplies were non-existent and bogus.

However, the assessee submitted that it had actually received inward supplies, which is established from the records produced before the adjudicating authority, and the supplier firms had valid GSTIN registration when it had received the supplies. The assessee claimed that in case the GSTIN registration of the firm is cancelled subsequently, his firm cannot be penalised for the same.

The court said that merely because the firms were registered on the date of the transaction, it cannot be said that the department is bound to give ITC benefit to the assessee, even though it has been revealed later that the firms were non-existent, and they could not have made actual supplies.

An expert said the court’s ruling underscored the critical requirement for businesses to engage in genuine transactions when claiming ITC. This judgement serves as a stern warning against fraudulent practices and reinforces the necessity for strict adherence to GST laws.