New Star Trading Company Vs Shri H C Verma (GSTAT Lucknow)
Summary : The GST Appellate Tribunal, Lucknow Bench, in New Star Trading Company Vs Shri H C Verma, upheld the denial of Input Tax Credit (ITC) amounting to ₹7,69,456 after finding that the disputed purchases were linked to suppliers whose existence and actual supply of goods could not be established. The Tribunal held that invoices, e-way bills, payment records and other documents were insufficient when independent evidence contradicted the claimed physical movement of goods. However, it set aside the penalties imposed by the adjudicating and appellate authorities and remanded the penalty issue for fresh determination.
The dispute arose from proceedings under Section 74 of the CGST Act, 2017. The appellant contended that it had purchased goods from registered suppliers, received valid tax invoices, made payments through banking channels and reflected the transactions in statutory GST returns. It argued that the department could not deny ITC merely because suppliers were subsequently found to be non-existent or had failed to discharge their tax liabilities. The appellant also questioned the application of Section 74 without adequate evidence establishing fraud, wilful misstatement or suppression of facts.
The Revenue relied on investigations concerning M/s Diamond Enterprises and M/s Raj Trade Link Corporation. Verification reports indicated that the suppliers were bogus or non-existent and that several vehicles mentioned in the disputed e-way bills could not have transported the goods as claimed. The discrepancies included invalid or untraceable vehicle registrations, expired permits, inconsistencies in vehicle particulars and transport records that did not support actual movement of goods. The Tribunal examined the investigation reports and found that the appellant had failed to rebut the material discrepancies with reliable evidence demonstrating genuine receipt of goods.
Addressing the statutory requirements, the Tribunal examined Sections 16(2) and 155 of the CGST Act and the judicial principles governing the burden of proving ITC eligibility. It held that the burden rests upon the person claiming credit to establish that the underlying transactions are genuine and that the goods were actually received. Documentary evidence such as invoices, banking transactions and e-way bills does not automatically establish eligibility where credible investigation findings indicate that the transactions were fictitious. The Tribunal therefore sustained the substantive ITC disallowance.
On the question of penalty, the Tribunal found that the authorities had imposed penalties without adequately considering the restriction against multiple penalties for the same act or omission under Section 75(13) of the CGST Act, 2017. It consequently set aside the penalties imposed in the order-in-original and order-in-appeal and remanded the matter to the adjudicating authority for redetermination in accordance with the statutory provisions. The substantive ITC demand remained undisturbed, while the penalty issue was reopened for fresh consideration. The order was pronounced on 28 October 2026.
