The assessee must prove the physical movement of goods to claim disputed ITC.
Issue
Can Input Tax Credit (ITC) be denied if a taxpayer, despite showing invoices and proof of bank payments, fails to provide evidence of the actual physical movement of goods from suppliers who are later found to be non-existent or bogus?
Facts
- The GST department issued a show-cause notice to the assessee, proposing to deny Input Tax Credit (ITC) of ₹8.59 crores. The department’s case was that the ITC was fraudulently availed from bogus suppliers who were non-existent.
- The assessee defended their claim by providing documentary evidence such as ledger copies, purchase invoices, and proof of payments made through banking channels.
- However, the adjudicating authority noted that the assessee had failed to provide any evidence of the actual physical movement of the goods (like e-way bills, transport receipts, delivery challans, etc.), even though this was specifically requested in the show-cause notice.
- The authority confirmed the demand. The assessee bypassed the regular appeal route and filed a writ petition in the High Court, which was dismissed. The assessee then took the matter to the Supreme Court.
Decision
The Supreme Court ruled in favour of the revenue, dismissing the assessee’s petition.
- The court was “not inclined to entertain” the petition, which means it saw no reason to interfere with the High Court’s decision to not quash the demand order at this stage.
- However, both the High Court and the Supreme Court provided a crucial procedural pathway for the assessee. They gave the petitioner the liberty to file a statutory appeal and to raise all their arguments and grounds before the Appellate Authority.
- The Supreme Court specifically directed that the Appellate Authority must decide the appeal on its own merits, without being influenced by any preliminary observations made by the High Court in its order.
Key Takeways
- Proof of Payment is Not Enough for ITC: In cases involving allegations of bogus suppliers, merely showing an invoice and a bank payment is often considered insufficient. To prove a genuine transaction, the taxpayer must also be able to provide evidence of the actual receipt and physical movement of the goods.
- The Burden of Proof is on the Taxpayer: The responsibility to prove that a claim for ITC is legitimate and meets all the conditions of Section 16 of the CGST Act rests squarely on the taxpayer who is making the claim. This includes proving the actual receipt of goods.
- Exhaust Your Appellate Remedies First: The courts, especially the Supreme Court, are very reluctant to interfere with a fact-based adjudication order through a writ petition or an SLP. The proper course of action is to file a statutory appeal where all the facts and evidence can be thoroughly examined.
- The Importance of a “Non-Influenced” Hearing: The Supreme Court’s direction for the appellate authority to not be “influenced” by the High Court’s observations is very significant. It ensures that even though the assessee lost at the High Court and Supreme Court stages (on the issue of maintainability), they will get a fresh and unbiased hearing on the actual merits of their case before the first appellate authority.
SUPREME COURT OF INDIA
Krupa Jewellers
v.
Assistant Commissioner of State Tax – 3
Aravind Kumar and N.V. Anjaria, JJ.
SLP Appeal (C) No(s). 25414 of 2025
SEPTEMBER 12, 2025
Ashutosh Dave, Pradhuman Gohil, Ms. Hetvi Ketan Patel, Alapati Sahithya Krishna, Rushabh N. Kapadia, Ms. Taniya Bansal, Advs. and Mrs. Taruna Singh Gohil, AOR for the Petitioner.
ORDER
1. Having heard the learned counsel appearing for the petitioner, we are not inclined to entertain this petition. However, we give liberty to the petitioner to urge all grounds, including the one urged in the present petition, before the appellate authority and in such an event, the appellate authority without being influenced by the observations made under the impugned order and shall adjudicate the appeal on its own merits and in accordance with law. With this observation, the special leave petition stands dismissed.
2. The learned counsel appearing for the petitioner submits that the time fixed under a statute for filing an appeal expires tomorrow i.e. 13.09.2025 and as such he seeks for enlargement of the time.
3. In view of the fact that the petitioner has been prosecuting its claim in these proceedings, we deem it proper to grant four weeks time to file the appeal and in the event such an appeal being filed within four weeks from today, the appellate authority shall adjudicate the appeal on merits.
4. Pending application(s), if any, shall stand disposed of.
Ashutosh S Dave for the Petitioner. Ms. Shrunjal T. Shah, Assistant Government Pleader for the Respondent.
ORDER
Bhargav D. Karia, J. – Heard learned advocate Mr.Ashutosh Dave for the petitioner and learned Assistant Government Pleader Ms.Shrunjal Shah for the respondent. By this petition under Article 227 of the Constitution of India, the petitioner has prayed for quashing and setting aside the Order-in-Original dated 13.06.2025 passed by the respondent- Assistant Commissioner of State Tax, Unit-3, under sec.74(9) of the Gujarat Goods & Service Tax Act, 2017 (for short ‘the GST Act’) read with relevant rules of Gujarat Goods & Service Tax Rules, 2017 (for short ‘the GST Rules’), in Form GST DRC-07 for the Financial Year 2019-20.
2 The brief facts of the case are as under:
2.1 The petitioner is a proprietorship concern engaged into dealing in articles and articles of gold in powder form on wholesale basis as contemplated under HSN Code No. 7114 and 7106 respectively.
2.2 The petitioner is registered under the provisions of the GST Act with effect from 01.07.2017 and is maintaining the books of accounts and has also uploaded all the requisite returns timely with respect to the purchase and sale of goods on the E-portal i.e. GSTIN.
2.3 It is the case of the petitioner that the respondent cancelled the registration of the petitioner with effect from 31.03.2022 upon the application made by the petitioner and order to that effect was passed on 12.05.2022 in Form GST REG – 19 with ‘Nil’ liability.
2.3 The petitioner, thereafter, received intimation in Form GST DRC-01A dated 14.05.2024 for the Financial Year 2019-20 under Sec.74(5) of the GST Act read with Rule142(1A) of the GST Rules. After scrutiny of the returns filed by the petitioner in Form GSTR-3B, GSTR-01, GSTR-2A, GSTR-9 and E-way bill data, it was found that the tax has not been paid or short paid or input tax credit has been wrongly availed or utilized by reason of fraud or any willful mis-statement or suppression of facts by the petitioner amounting to Rs.8,59,28,742/
2.4 On receipt of the intimation in Form DRC-01A, the petitioner filed reply dated 15.05.2024 providing the ledger copies of the suppliers from whom the petitioner purchased the goods and made the payment. It was pointed out by the petitioner that the GST number of the parties referred to in the intimation, namely, Bharatkumar H. Prajapati, Choksi Keshavlal Laljibhai Naik, Prakashkumar Vrajlal Soni, Ravi Prakashbhai Soni, Harshit Enterprise were cancelled suo moto and the petitioner had made purchase from the said suppliers prior to the cancellation. The petitioner provided ledger confirmation bill copy and bank statement.
2.5 Thereafter, the respondent issued the notice in Form GSTDRC-01 dated 23.05.2024 under Sec.74(1) of the GST Act on the ground that the Input Tax claimed by the petitioner from M/s. Nadol Traders, M/s.Harshit Enterprise and M/s. Vishnu Gold and M/s. Kabir Enterprise, do not commensurate with the details as appearing in form GSTR 3B filed by the petitioner.
2.6 It was also stated in the show-cause notice that the said dealers obtained the GST registration number by employing fraudulent means and the dealers are now not traceable / non existent at their registered premises.
2.7 The petitioner by reply dated 08.06.2024 in GST DRC-06, uploaded the documents and further filed a reply dated 21.06.2024 contending that the petitioner has made a bonafide claim for input tax credit. Petitioner also submitted all the relevant documents which were sought for by the respondent and further submitted that the GST registration of the suppliers were cancelled after the petitioner made purchases and therefore, the petitioner is a genuine and bonafide purchaser of the goods from the said suppliers and hence the Input Tax Credit availed by the petitioner should not be disallowed nor the petitioner should be compelled to reverse the same.
2.8 It is the case of the petitioner that there was a change in incumbency of the office of the respondent, and thereafter, another notice / reminder dated 11.04.2025 was issued, wherein, date of hearing was fixed on 15.04.2025 and the petitioner filed the reply on 14.04.2025 and remained present on 15.04.2025 i.e. the date of hearing. The petitioner, thereafter, vide letter dated 14.04.2025 informed the respondent for allowing the Input Tax Credit as the petitioner has availed the same on purchase made from the suppliers when the GST registration number was in force. The petitioner, by relying upon various decisions cited in the reply, submitted that as per the settled legal position, the Input Tax Credit claimed by the petitioner ought to have been allowed and the proceedings initiated against the petitioner should be dropped.
2.9 It appears that, thereafter, the impugned Orderin-Original dated 13.06.2025 was passed in Form GST DRC-07 by the respondent with the details considering the reply filed by the petitioner on 18.06.2024, 21.06.2024 and 24.06.2024 along with purchase ledger invoice and proof of bank payments. As the petitioner did not agree to reverse the inadmissible Input Tax Credit availed on the basis of the bogus suppliers, it was further recorded in the impugned order that the petitioner failed to provide evidence of actual physical movement of goods for the purchases made, though specifically asked by the respondent in the show-cause notice.
3 Being aggrieved, the petitioner has preferred this petition to quash and set aside the Order-in-Original dated 13.06.2025.
4 Learned advocate Mr.Ashutosh Dave for the petitioner submitted that as per the provision of Sec.75(6), the impugned order is passed by the respondent violating the rule of law and the principles of natural justice by not assigning any cogent reasons, as the respondent does not mention about the replies filed by the petitioner on 18.06.2024, 21.06.2024 and 24.06.2024. Reference to the replies have not been appreciated in its true spirit and straight away an inference have been drawn by holding that the response has remained unsatisfactory.
4.1 It was submitted that as per Sec.75(6) of the GST Act, the respondent-Officer is duty bound to set out the relevant facts, however, in the impugned order, the respondent- Officer has without any application of mind to the relevant facts as enunciated in the showcause notice by putting on the anvil the response of the petitioner, has passed the impugned order without dealing with any of the submissions advanced by the petitioner thereby fastening the tax liability by disallowing the Input Tax Credit legitimately claimed by the petitioner.
4.2 It was submitted that the petitioner drew the attention of the respondent with respect to the ‘Nil’ liability of the two dealers (page 116 and 117 of the memo of the paper book), whose names appear in the intimation issued under Form GST DRC-01A. The respondent has, however, chosen not to apply the mind and not even bothered to discuss the same in the impugned order. It was, therefore, submitted that the respondent was expected to at least deal with such material aspect in the impugned order once the same was raised by the petitioner.
4.3 It was submitted that the show-cause notice in Form DRC-01A does not mention the names of any dealer whose registration has been cancelled suo-moto and in turn, it refers to the intimation which was issued to the dealer for further reference. It was, therefore, submitted that the impugned show-cause notice in Form DRC-01, therefore lacks requisite details and it is well settled on the aspect to the contents of the show-cause notice and the propriety of the quasi-judicial authorities in rendering the final adjudication order within the contours of the showcause notice. It was, therefore, submitted that the respondent has travelled beyond the show-cause notice and the impugned order bespeaks of the facts that do not form part of the notice.
4.4 In support of his submissions, reliance was placed on a decision of the Hon’ble Allahabad High Court in the case of Vadilal Enterprises Ltd. v. State of U.P. 784 (Allahabad), wherein, the Hon’ble Allahabad High Court has held that in view of the provision of Sec.73 when the respondent have sought further explanation and not a word has been indicated that the petitioner has committed fraud, has given wilful misstatement or has suppressed material facts, which are the ingredients based on which provisions of Sec.74 of the Act can be invoked, and therefore, the jurisdiction exercised by the respondent to issue the notice under Sec.74 of the Act lacks requisite ingredients in the notice.
4.5 It was submitted that in the impugned order in para 4, the respondent has referred to the Inspection Report by the officers at the business premises of the firms and other documentary evidence. However, such documents referred to in para 4 of the impugned order have not been provided to the petitioner and if such documents would have been provided, the petitioner could have justified the same in the replies which were filed in the proceedings from time to time.
4.6 Learned advocate Mr. Ashutosh Dave, in support of such submissions, referred to the decision of the Hon’ble Apex Court in the case of Singrauli Super Thermal Power Station v. Ashwini Kumar Dubey [Civil Appeal No. 3856 of 2022, dated 5-7-2023], which in turn is referred by the Hon’ble Allahabad High Court in the case of Agmotex Fabrics (P.) Ltd. v. State of Uttar Pradesh 2/93 GSTL 157 (Allahabad), wherein, it is held by the Hon’ble Allahabad High Court that if the relied upon documents are not provided, it would amount to violation of principles of natural justice. It was further submitted that the respondent, while confirming the disallowance of Input Tax Credit claimed by the petitioner, has failed to provide the documents with respect to movement of the goods which is contrary to Rule 138 of the GST Rules as Rule 138(14) of the Rules edicts that the goods which forms part of the annexure to the rule, no e-way bill is required which includes the movement of the precious metals like gold, silver and the ornaments which are made using the precious metals. It was pointed out that the respondent has lost sight of such provision while holding that the petitioner does not hold the adequate documents to demonstrate the movement of goods. It was therefore submitted that the impugned order is liable to be quashed and set aside.
5 Having heard the learned advocate qua the petitioner and having considered the impugned order passed by the respondent disallowing the Input Tax Credit, we are of the opinion that as per provision of Sec.107 of the GST Act, the petitioner has an alternative efficacious remedy, and therefore, we refrain from entertaining this petition while exercising extraordinary jurisdiction under Article 227 of the Constitution of India.
5.1 With regard to the contention raised by the petitioner of not providing the copies of the relevant documents as referred to in the show-cause notice as well as in the impugned order, it is pertinent to note that the petitioner has not requested the respondent for supply of such copies of the documents in the replies filed by the petitioner. It also appears that the respondent while passing the impugned order has taken into consideration the non existence of the supplier of the goods to the petitioner which has resulted into non payment of the tax by such suppliers to the government and after examining the facts of each of the supplier in the impugned order, the respondent has held that the petitioner has failed to satisfy and provide the details of the movement of the goods. It is pertinent to note that the petitioner is dealing in precious metals and it would be necessary for the petitioner to satisfy the respondent with regard to the physical delivery or movement of the goods and in absence of such documents, the respondent was just in passing the impugned order. These observations are made by us in light of the contention raised by the petitioner and they are required to be further verified by the Appellate Authority and they may not be treated as conclusive as we are relegating the petitioner to avail the alternative efficacious remedy.
5.2 The above observations are made by us only to discard the contention of the petitioner that there is a violation of the principles of natural justice for not providing the documents in light of the decision in the case of Agmotex Fabrics Limited (supra), as well as in the case of Vadilal Enterprises Limited (supra), wherein, the contention with regard to assumption of jurisdiction in absence of any allegation of fraud, wilful misstatement or suppression is made out.
5.3 It is pertinent to note that the basis of the impugned show-cause notice is the fraudulent GST numbers availed by the suppliers of the petitioner. In such circumstances, it would be open for the petitioner to raise all the contentions which are raised in this petition before the Appellate Authority. The Hon’ble Supreme Court in the case of reported in Assistant Commissioner of State Tax v. Commercial Steel Ltd. 180/88 GST 799/52 GSTL 385 (SC)/2021 Lawsuit (SC) 702, has held as under:
“11. The respondent had a statutory remedy under section 107. Instead of availing of the remedy, the respondent instituted a petition under Article 226. The existence of an alternate remedy is not an absolute bar to the maintainability of a writ petition under Article 226 of the Constitution. But a writ petition can be entertained in exceptional circumstances where there is:
| (i) | a breach of fundamental rights; |
| (ii) | a violation of the principles of natural justice; |
| (iii) | an excess of jurisdiction; or |
| (iv) | a challenge to the vires of the statute or delegated legislation. |
12. In the present case, none of the above exceptions was established. There was, in fact, no violation of the principles of natural justice since a notice was served on the person in charge of the conveyance. In this backdrop, it was not appropriate for the High Court to entertain a writ petition. The assessment of facts would have to be carried out by the appellate authority. As a matter of fact, the High Court has while doing this exercise proceeded on the basis of surmises. However, since we are inclined to relegate the respondent to the pursuit of the alternate statutory remedy under Section 107, this Court makes no observation on the merits of the case of the respondent.
13. For the above reasons, we allow the appeal and set aside the impugned order of the High Court. The writ petition filed by the respondent shall stand dismissed. However, this shall not preclude the respondent from taking recourse to appropriate remedies which are available in terms of Section 107 of the CGST Act to pursue the grievance in regard to the action which has been adopted by the state in the present case.”
6 In view of the above dictum of law, we are not entertaining this petition and relegate the petitioner to avail the alternative remedy available under Sec.107 of the GST Act. The petition is accordingly dismissed with no orders as to cost.