No ITC Denial Without Verifying Transaction Genuineness: HP HC

Valley Iron & Steel Co. Ltd. Vs State of H.P. & Ors. (Himachal Pradesh High Court)

GST authorities to conduct a factual verification of the genuineness of transactions before denying ITC. It provides a pathway for taxpayers to substantiate their claims through documentation, ensuring that administrative actions remain compliant with the principles of natural justice.

Overview

The High Court of Himachal Pradesh recently decided a writ petition filed by M/s. Valley Iron & Steel Co. Ltd. challenging the blocking of Input Tax Credit (ITC) and the validity of certain provisions under the GST Act. The petitioner initially sought to quash Section 16(2)(c) of the CGST/HPGST Act, arguing it forced taxpayers to perform the “impossible task” of ensuring suppliers actually paid the tax to the government.

The petitioner raised several critical points during the proceedings:

• Validity of Section 16(2)(c): Challenged as violative of Articles 14, 19(1)(g), 265, and 300A of the Constitution. (This relief was later not pressed, reserving the right for future litigation).
• Procedural Lapses: Asserted that authorities issued summary show cause notices and blocked ITC without adequately considering the petitioner’s replies or providing a proper adjudication order.
• Genuineness of Transactions: Maintained that purchases were made through valid documents and payments (including GST) were made to suppliers prior to any registration cancellations.

The Court’s Decision