Bogus ITC Allegations & Six Documentary Grounds Accepted by SC for Granting Relief

Introduction

Allegations of bogus or fake Input Tax Credit (ITC) have become frequent under the GST regime, with tax authorities often invoking Section 74 of the  CGST Act 2017, alleging fraud or suppression of facts. However, the Supreme Court has consistently protected bona fide recipients where statutory and commercial documents establish the genuineness of transactions.

The Court has laid down a clear principle that once the assessee discharges the initial burden by producing prescribed supporting documents, the onus shifts entirely to the department to prove fraud, collusion, or non-receipt of goods. In the absence of such proof, denial of ITC and invocation of Section 74 have been held to be unsustainable.

This article highlights the six key documentary grounds on which the Supreme Court has passed favourable judgments in bogus ITC cases.

1. Possession of Valid Tax Invoices

The Supreme Court has consistently held that possession of a valid tax invoice, containing all particulars prescribed under GST law, is a foundational requirement for availing ITC.

Where the assessee produces:

• GST-compliant tax invoices
• Correct GSTIN and tax details
• Proper reflection in books of account

the allegation of bogus ITC cannot survive on mere suspicion or supplier default.

The Court has clarified that existence of genuine invoices shifts the burden to the department to disprove their authenticity.

2. Documentary Proof of Receipt of Goods or Services

In several cases, the Supreme Court has accepted proof of actual receipt of goods or services as decisive evidence in favour of the assessee.

Documents such as:

• E-way bills
• Lorry receipts / transport documents
• Weighment slips
• Stock and consumption records

have been recognised as conclusive indicators of movement of goods.

The Court has held that unless the department proves that goods never moved, ITC cannot be treated as bogus.

3. Payment of Consideration Through Banking Channels

The Supreme Court has treated payments made through recognised banking channels as strong evidence of the genuineness of transactions.

Where the assessee demonstrates:

• NEFT / RTGS payments
• Bank statements
• Ledger confirmations

the allegation of sham or fictitious transactions stands substantially weakened.

The Court has observed that cashless payments negate allegations of fraud or collusion in the absence of contrary evidence.

4. Proper Disclosure in Returns and Books of Account

Filing of GST returns has been recognised by the Supreme Court as an act of full and voluntary disclosure.

Where ITC is:

• Reflected in GSTR-3B
• Supported by GSTR-1 data
• Properly recorded in purchase registers and accounts

the Court has held that there can be no allegation of suppression or wilful misstatement.

Accordingly, invocation of Section 74 fails in absence of concealment.

5. Absence of Evidence Showing Knowledge or Connivance

The Supreme Court has clearly ruled that ITC cannot be denied merely because the supplier is later found to be non-existent or non-compliant, unless the department proves that the recipient:

• Had knowledge of the fraud, or
• Actively colluded with the supplier

Documents such as:

• Supplier GST registration status at the time of transaction
• Vendor KYC records
• Compliance history

have been accepted as proof of bona fide conduct.

The Court has recognised the impossibility of expecting recipients to monitor suppliers’ tax payments.

6. Failure of the Department to Rebut Documentary Evidence

A recurring ground for favourable Supreme Court rulings is the failure of tax authorities to rebut documentary evidence produced by the assessee.

Where the department:

• Relies solely on third-party statements
• Does not conduct independent inquiry
• Fails to disprove transport, payment, or accounting records

the Court has held that documentary evidence must prevail over presumptions.

Denial of cross-examination and reliance on untested statements have been held to be violative of principles of natural justice.

Conclusion

The Supreme Court’s jurisprudence clearly establishes that bogus ITC allegations cannot be sustained where the assessee produces statutory and commercial documents proving genuineness of transactions. Once these six documentary grounds are satisfied, the burden shifts entirely to the department, and Section 74 cannot be invoked mechanically.

These rulings reinforce the principle that GST is a document-driven law, and that penal provisions must be applied strictly and sparingly.

Disclaimer

This article is for informational purposes only and does not constitute legal advice. Readers are advised to seek professional guidance based on facts of their specific case.