The Madras High Court, in Clear Secured Service Private Limited v. Assistant Commissioner (ST), reiterated that while the burden of proving entitlement to Input Tax Credit (ITC) lies upon the registered person, the tax authorities are required to objectively examine the evidence produced by the taxpayer. An assessment order confirming reversal of ITC merely because the supplier’s GST registration was subsequently cancelled, without evaluating the documents furnished by the taxpayer, cannot be sustained.
The petitioner challenged an assessment order passed under Section 74 of the CGST/TNGST Acts relating to ITC availed on purchases made from a supplier whose GST registration had later been cancelled after being declared non-existent. The petitioner had submitted several documents including tax invoices, proof of payment through banking channels, e-way bills, ledger extracts and GSTR-2A and GSTR-2B details in support of the genuineness of the transactions.
The Court observed that although the taxpayer bears the statutory burden of establishing eligibility for ITC, the assessing authority must meaningfully consider all the documentary evidence placed on record. If any deficiency is noticed, the taxpayer should be granted an opportunity to furnish additional documents instead of mechanically confirming the proposal. The Court found that the impugned order was passed solely because the supplier was subsequently treated as non-existent and its registration cancelled, without examining the evidence produced by the petitioner.
An additional irregularity noted by the Court was that while the show cause notice referred to proceedings under Section 73, the final assessment order had been passed under Section 74. Such inconsistency further justified judicial interference.
Accordingly, the Madras High Court set aside the assessment order and remanded the matter to the assessing authority for fresh consideration. The authority was directed to provide the petitioner with a reasonable opportunity of hearing and thereafter pass a fresh order within three months.
Why this Judgment is Important
This decision reinforces several significant principles under GST law:
- ITC cannot be denied merely because the supplier’s registration is cancelled at a later point of time.
- Authorities must examine all documentary evidence produced by the taxpayer before rejecting an ITC claim.
- Principles of natural justice require that deficiencies in evidence should be communicated and an opportunity granted to furnish additional documents.
- Proceedings initiated under one statutory provision should not culminate in an order under a different provision without following the prescribed legal procedure.
- Mechanical reliance upon supplier-related defaults cannot substitute a proper examination of the genuineness of the recipient’s transactions.
The judgment will be relevant for taxpayers facing ITC disputes arising from supplier cancellations, alleged fake billing, or proceedings questioning the genuineness of purchases.
