Bona Fide Purchaser Protected from Section 74 GST Proceedings: Allahabad  HC

Bona fide Purchaser protected from proceedings under Section 74 of GST Act: M/s Singhal Iron Traders Case

 In the case of M/S Singhal Iron Traders vs. Additional Commissioner and Another, WRIT TAX No. 1356 of 2022, decided on 26 September 2025, the issue before the Hon’ble Court was whether proceedings under Section 74 of the GST Act could validly be initiated against the purchaser when the transactions were made with a registered dealer at the time of purchase, and the supplier had duly filed returns and paid taxes, though its registration was cancelled at a later stage.

The petitioner, a proprietorship firm engaged in the trading and supply of iron scrap, had purchased iron scrap worth ₹44,26,271 (including CGST and SGST of ₹6,75,194) from M/s Shiv Iron Trading Co., Sikandera, Agra, during the period from February 2019 to March 2019. The purchases were supported by seven tax invoices and seven e-way bills, and the payment was made entirely through banking channels. At the time of the transaction, the selling dealer was duly registered under the GST Act. Subsequently, the selling dealer’s registration was cancelled on its own application. The supplier also filed GSTR-1 and GSTR-3B returns for the relevant period on time, and since GSTR-3B can only be filed after payment of due tax, it was clear that the supplier had already paid the tax to the government.

Despite these facts, the tax authorities initiated proceedings under Section 74 of the GST Act against the petitioner, alleging that the purchases were made from a non-existing dealer, based merely on later information that the supplier was found to be non-existent. The petitioner contended that the authorities had acted arbitrarily, as the supplier was registered at the time of purchase, and it had discharged its obligations by making genuine payments and maintaining proper documentation.

The Hon’ble Court observed that it was not in dispute that the supplier had filed GSTR-1 and GSTR-3B returns for the period in question, and without payment of taxes, the filing of GSTR-3B was impossible. Hence, it was evident that the taxes had been duly deposited. The Court further noted that no adverse inference could be drawn against the petitioner merely because the registration of the supplier was cancelled at a later stage. It was also the duty of the authorities to independently verify whether the supplier was in existence at the time of the transactions instead of relying solely on borrowed information.

The Court held that the proceedings under Section 74 of the GST Act were unjustified, as the petitioner had made bona fide purchases, paid the consideration through banking channels, and the supplier had filed necessary GST returns and paid the tax. Therefore, no liability could be fastened upon the petitioner merely because the supplier’s registration was later cancelled. The authorities were obligated to verify the facts before initiating proceedings.

The judgment thus laid down that a bona fide purchaser who buys goods from a registered dealer, pays the consideration through legal means, and where the supplier has filed returns and paid tax, cannot be penalized under Section 74 of the GST Act solely on the basis that the supplier’s registration was subsequently cancelled or the dealer was later found non-existent.

Conclusion-A bona fide purchaser who buys goods from a registered dealer, pays through banking channels, and where the supplier has filed returns and paid tax, cannot be penalized under Section 74 merely because the supplier’s registration was subsequently cancelled or the dealer was later found non-existent.

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