Appeal Strategy (Firm is listed as having availed ineligible Input Tax Credit (ITC))

In many GST adjudications, Input Tax Credit (ITC) has been mechanically denied on the sweeping assumption that a “non-existent supplier” automatically implies “fake or goods-less supply.” This approach is legally flawed. ITC eligibility must be tested on evidence, not presumptions. Where the recipient holds valid tax invoices, contemporaneous e-way bills proving movement of goods, and bank records evidencing payment through banking channels, the allegation of fictitious supply collapses. If the goods were subsequently sold or consumed in manufacturing, the Department cannot accept outward supplies while simultaneously denying inward supplies. Further, supplier registration status must be examined at the time of transaction; retrospective cancellation cannot penalise a bona fide buyer who verified registration on the GST portal. If the supplier later defaults in tax payment, recovery lies against the supplier under Section 79, not the compliant recipient. Denial of ITC without investigating the recipient’s stock, consumption records, or premises reflects non-application of mind and violates settled judicial principles.

Your best response must attack this logic using the following legal grounds:

A. Proof of Movement of Goods (Physical Receipt)

The most critical allegation is that the invoices were “goods-less.” You must argue:

• E-way Bills are Conclusive: You possess valid E-way bills generated at the time of the transaction. The Department has not provided any evidence (like traffic camera footage or transporter statements) to prove these E-way bills were fake.
• Physical Receipt: You have used these goods in your business (e.g., for trading or manufacturing). If you sold these goods further, the Department cannot tax your sales (accepting you had goods to sell) while denying your purchases (claiming you never received goods).

B. Supplier Status “At the Time of Transaction”

• Active Registration: Argue that when you entered into the transaction, M/s Shiv Polymers was Active on the GST Portal. As a buyer, you are only required to verify the supplier’s status on the government portal.
• Retrospective Cancellation: You cannot be penalized if the supplier’s registration was cancelled retrospectively (backdated) after your transaction took place. You cannot predict the future compliance of your supplier.

C. Payment Compliance (Section 16)

• Bank Transfers: You have already submitted bank statements showing payments were made to the supplier. This proves the transaction was not a “paper transaction” or “bill trading” where cash usually flows back.
• Government Tax: You paid the tax to the supplier. If the supplier failed to deposit it to the Government, recovery should be initiated against the supplier, not the bona fide purchaser (you), as per various High Court judgments (e.g., D.Y. Beathel Enterprises, Presscom).

D. Lack of Investigation at Your End

• The investigation focused entirely on the Supplier’s premises found closed in 2023-2025.
• Argue that the Officer did not conduct an investigation at M/s ______ premises to verify stock registers or consumption records which would prove the goods were actually received and utilized.

3. Draft Reply / Appeal Structure

If you are filing an Appeal, use this structure:

Subject: Appeal against Order-in-Original No. [Insert Number] dated [Insert Date] in the case of M/s Sun Play (Noticee No. 221).

Ground 1: Bona Fide Purchase

“The Appellant is a bona fide purchaser who entered into transactions with M/s _____ when the supplier’s GST registration was active and valid. The Appellant verified the supplier’s existence via the GST portal, which is the only verification mechanism available to a taxpayer.”

Ground 2: Documentary Evidence of Supply

“The Adjudicating Authority failed to appreciate that the Appellant possesses valid Tax Invoices and E-way Bills. The E-way bills conclusively prove the physical movement of goods. The Department has offered no evidence to contradict the movement of vehicles recorded in these E-way bills.”

Ground 3: Proof of Payment

“The Appellant has made full payment of the transaction value plus tax to the supplier through banking channels (Refer to Bank Statements previously submitted). This negate the allegation of a ‘fake’ or ‘circular’ trading scheme.”

Ground 4: Recovery from Defaulter

“As per the doctrine of ‘Impossibility of Performance’, the Appellant cannot compel the supplier to pay tax. If the supplier  has defaulted or is non-existent, proceedings under Section 79 should be initiated against them, not the compliant recipient.”

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