M/s Patson Papers Pvt Ltd.

CASE STUDY
BRIEF FACTS OF THE CASE:
M/s Patson PapersPvt Ltd. engaged in business of supply of goods uncoated craft paper and paperboard (hereinafter referred to as appellant) is a registered entity under GST having GST no. 24AAJCP4644B1ZO, in Gujarat. On the basis of scrutiny of returns for the period F.Y. 2018-19 to 2023-24, a show cause notice was issued to the appellant alleging that that ineligible ITC amounting to Rs. 76,09,924/- (IGST 35,84,873/-, CGST 20,12,525/-, SGST 20,12,525/-), was claimed on the purchases made from the suppliers whose registrations were subsequently cancelled either suo moto or on the application of taxpayer under Section 74. The notice further alleged that invoices issued by a supplier named M/s Agarwal Coal Corporation Ltd. are without any supply of underlying services and the same has been issued showing supply of Cargo Handling, Clearing and Forwarding, Warehousing and other Services under SAAC-9967 expense for which expense was borne by M/s Agarwal and not the appellant thereby proposing the demand of Rs 4,67,768/- (CGST- 2,33,884/-, SGST- 2,33,884/-) along with the applicable interest and penalty under Section 74. It was alleged in SCN that the appellant received only Coal from the seller, however, in order to exhaust ITC accumulated in the Electronic Credit Ledger invoices for supply of abovementioned services were issued. A reply to SCN was given by the appellant along with all the submissions and relevant documentary evidences were also placed on record..However, the same was not considered at all and the Order in Original was passed to confirm the demand of tax, interest and penalty. Aggrieved, the taxpayer sought relief and moved an appeal before Commissioner(A).
Key issues covered in the case:

Whether ITC can be denied to the genuine buyer merely on account of cancelled registration of its Suppliers after a bonafide transaction?
Whether ITC of ?4,67,768/- on service invoices issued by M/s Agarwal Coal Corporation Ltd.is liable to be denied on the allegation that no actual services were supplied and invoices were issued only to pass on ITC?

Submissions by Appellant:
The appellant submitted the following: -

Impugned order passed by ignoring the merits of the case is null and void:

The impugned order has confirmed the demand of ITC by ignoring the submissions made by the appellant in reply to show cause notice. The adjudicating authority has not at all discussed the submissions in respect of suppliers where registration is still active, where no ITC was ever availed and where capital goods were purchased and physically verified by the government external agencies. Detailed Submissions in relation to all these cases were duly submitted in the reply to Show Cause notice but the same were conveniently brushed aside. Therefore, the impugned order is a non-speaking order which is against the settled principle of natural justice and therefore, deserves to be quashed.

Cancellation of registration on supplier’s application cannot be a valid ground of asking the appellant to revese the ITC: -

Appellant submitted that there are two cases in which cancellation of registration is done : Suo Motu basis or the other way is of application by the registered person.
When an application for cancellation of registration is filed by the supplier, it is properly verified by the proper officer and cancellation is allowed only no tax or dues or liabilities or compliances are pending at the end of the applicant. Merely cancellation of registration does not indicate that it is case of Suo motu cancellation and therefore asking for ITC reversal on all the purchases done from such suppliers should not lead to denial of eligible ITC. Moreover, appellant in its reply to SCN submitted all the requisite documents (invoices, weighment receipts and gate pass slips). Further it was submitted that tax was paid on reverse charge basis on the services of GTA availed which is clear indication of actual receipt of goods. Therefore, the appellant had submitted all the necessary documents to prove the actual receipt of goods or services and yet the impugned order has ignored these documents and denied ITC merely on the ground that no documents were submitted, which is factually incorrect.

Denial of ITC on the invoices issued by M/s Agarwal Coal Corporation Pvt Ltd is not sustainable:

In respect of the invoices issued by M/s Agarwal Coal Corporation Pvt Ltd, the impugned order has denied ITC alleging that no payment was made for coal handling services and that no such services were received. However, the appellant submitted that appellant has made payment for coal handling services against which TDS was deducted and deposited to the Government exchequer for the same which was presented in submissions via copy of TDS deduction ledger. Further, an agreement was entered with the M/s Agarwal Coal Corporation Pvt Ltd regarding the availment of coal handling and distribution charges. Thus, these services has been supplied and payment was made in compliance with the agreement. Further, appellant submitted that as this agreement was never asked for during the entire proceedings, the same was not provided. Impugned order brushed aside the submission of documentary evidence regarding availment of coal handling services on the basis that abovementioned supplier has issued invoices of coal handling and distribution charges to various firms including the appellant just to encash the accumulated ITC in their Electronic Credit Ledger. ITC has been denied merely on basis of allegations and there is no investigation carried out.
Appellant relied on the judgment given in case of Sunil Alcop Industry v. Commissioner of C.Ex. & ST., Jaipur [2020 (33) G.S.T.L. 428 (Tri. -Del)]

Demand raised without substantiating the allegations with cogent and corroborative evidence is not tenable:

The appellant submitted that the impugned order is passed in reckless manner without proper reading and analysis of submissions given in reply of SCN. Allegation of fraudulent availment of ITC cannot be placed merely on bald statements unless and until the same is also corroborated by sufficient and cogent evidence. Further, reliance was placed on judgments given in case of Kisco Castings India Ltd. v. Commissioner of C.Ex & ST, Chandigarh [2015 (329) E.L.T. 556 (Tri.-Del)] where it was held that onus to prove fraudulent availment is on revenue department.

Demand cannot be confirmed without initiating any recovery proceedings against the defaulter supplier:

The impugned order has denied ITC to the appellant without initiating any action against the supplier. Majority of the suppliers had cancelled registration on their own, which was approved by the department after verification. When no action has been taken against the supplier, denial of ITC to the recipient is arbitrary. Reliance was placed on judgements given in case of Suncraft Energy Pvt ltd and Another v. Assistant Commissioner, State Tax, Ballygunge charge and others in appeal number MAT 1218 of 2023 . Thus, the impugned SCN is alleging denial of ITC without any legal backing and deserves to be quashed.

Single SCN for multiple FYs is not tenable:

The appellant contended that the impugned SCN covered period from F.Y. 2018-19 to F.Y. 2023-24, therefore, in the instant case single notice has been issued for multiple financial years. As per the judgement given in case of M/S Vermax Technologie services ltd v. the Assistant Commissioner of Central Tax Bengaluru vide Order dated 04.09.2024 in WRIT PETITION no. 15810 of 2024 issuance of a single notice for multiple years is not in accordance with law and is therefore liable to be set aside.

Request to provide documents, statements recorded and materials relied upon

The impugned SCN has merely alleged that asssesse has made bogus purchases and claimed ITC on them, however, even after requesting to provide RUDs about 52 parties mentioned in the impugned SCN and OIO, Department provided RUDs relating to only 1 party. It is a settled principle of law that evidence which is not shown to assesee cannot be used against them without providing them the opportunity to controvert the same. This clearly indicates that the SCN was issued without merit and therefore should be quashed.

Request for Cross Examination

Learned Legal counsel submitted that a request for cross examination was raised by the appellant at the time of giving reply to impugned SCN as the right to cross examination flows from the principles of Natural justice that evidence. Thus, the provisions of Section 138 of Indian Evidence Act is not only a technical rule but it is a rule of essential justice. The testimony of a witness is not legal evidence until it undergoes cross examination. Reliance was placed on settled case law of Andaman Timber Industries v. Commissioner of Central Excise, Kolkata-II 2015 (324) E.L.T. 641 (S.C.). In the instant case, not providing such opportunity to assesee makes the SCN and adjudicating proceedings as invalid and therefore impugned order should be set aside.

·In case of contradictory decisions, the decision favouring the appellant should be allowed:

The appellant had relied upon various judicial pronouncements which have not been discussed in the impugned order. It is a settled law that where two views are possible, the view favourable to the assessee should be adopted. Therefore, the benefit of favourable decisions should be extended to the appellant.

Extended period under Sec. 74 of CGST act, 2017 is not invokable:

The impugned order has invoked provisions of section 74 without establishing fraud, wilful misstatement or suppression of facts. The appellant had duly recorded all transactions in books and disclosed the same. In absence of any intent to evade tax, invocation of extended period is not justified.

Demand of penalty is not sustainable

Appellant contended that penalty is not ordinarily imposable in each and every case of delayed/non-payment of tax. There should be presence of guilty mind. Further reference was given to judgment in case of Hindustan Steel v. State of Orissa [1978 2 ELT J 159 (Supreme Court)]. in which it was held that an order imposing penalty for failure to meet statutory obligation is a result of proceedings which are quasi judicial in nature and penalty should not ordinarily be imposed unless the person acted deliberately in defiance of law or was guilty of misconduct.

Judgement & Findings:
Based on the submissions given by legal counsel, the appellate authority observed the following findings: -
Findings on M/s Agarwal Coal Corporation Pvt. Ltd.

Appellate authority discussed that appellant has submitted copies of invoices issued by M/s Agarwal Coal Corporation Pvt Ltd. along with bank statements and form 26AS, evidencing that payments has been made to the said supplier. Commissioner(A) held that documents submitted can only be inferred that the appellant is in the possession of the invoices and has made payment to the supplier. However, in the absence of any supporting documentary evidence, the exact nature, scope and genuineness of the transaction cannot be ascertained. It was held that in terms of Sec. 16(2), the burden lies upon the recipient to establish that the services have actually been received and that all the conditions prescribed therein have been duly fulfilled. Mere possession of invoices and proof of payment, in the absence of supporting documents evidencing the actual receipt and nature of services, is not sufficient to avail ITC. Therefore, the contention regarding deduction of TDS was held to be insufficient to establish receipt of services. Accordingly, ITC amounting to Rs.4,67,768/-(CGST- Rs. 2,33,884/- SGST- Rs. 2,33,884/-)availed on such invoices was held to be inadmissible.

Findings on availment of ITC passed on by the Cancelled Suppliers

Further, Appellate authority held that the instant case involves a matter of disputed ITC, and to verify the genuineness of the transaction onus to prove lies on the appellant as envisaged in the GST law and the reference to landmark judgment given by Hon’ble SC in case of E com Gill Coffee Trading Pvt Ltd. (2023) 4 Centax 223 followed by judgment of Hon’ble HC of Allahabad in case of Malik Traders v. State of UP (2023) 11 Centax 285 (All.) wherein the courts held that burden to prove the eligibility of ITC has to prove beyond doubt the actual transactions, which can be proved by furnishing the name and address of the selling dealer, details of vehicle which delivered the goods, payment of freight charges, acknowledgment of taking delivery of goods, genuineness of transportation as well as transaction cannot be established.
Further reliance was placed on judgement of Hon’ble SC in the matter of Commissioner of Trade and Tax v. Shanti Kiran India Pvt Ltd. in Civil Appeals no. 2042-2047/2015 dated 09.10.2025 . wherein it was observed that when the cancellation of registration of the selling dealer takes place subsequent to the transaction in question, the purchasing dealer cannot be penalized for such subsequent developments and also held that the drawing adverse conclusions of collusion without any material evidence or proper enquiry is unsustainable in law.
Discussing about the issue for determination whether the appellant has rightfully availed the ITC passed on by the cancelled suppliers by duly receiving the goods and fulfilling the conditions prescribed u/s 16(2) of the CGST act, 2017 as consistently interpreted
The appellant is in possession of valid tax invoices issued by a registered supplier containing all mandatory particulars such as name, address, GSTIN of the supplier, description of goods, quantity, HSN, taxable value, applicable GST and vehicle details, thereby satisfying the requirement of Section 16(2)(a) read with Rule 36 of the CGST rules, 2017.
The appellant has also established actual receipt of goods as required u/s 16(2) by producing copy of E-way bills, Lorry receipts and GRN cum gate pass.
The alleged supplier has also filed GSTR-1 and GSTR-3B for the disputed period, evidencing reporting of outward supplies (as evidenced from GSTN common portal).
The appellant has also filed GSTR-1 and Gstr-3b for the disputed period, evidencing reporting of outward supplies and the appellant has discharged consideration along with applicable tax to the supplier through proper banking channels, as substantiated by bank statements and party ledger accounts thereby fulfilling the conditions of Sec. 16(2)(d)
Appellate authority held that appellant has fully complied with the conditions laid down under Sec. 16(2) , 41, 155 of CGST act 2017 and Rule 36 of CGST rules 2017 and also satisfactorily discharged the burden of proof cast upon them for eligibility of ITC. Acc. the ITC availed is legal, valid and admissible under law.

Accordingly, Appellate Authority held that appellant has furnished adequate documentary evidence substantiating that there was actual movement of goods from the supplier to the appellant place and that the appellant is rightfully eligible to avail ITC and thereby dropped the demand of tax amounting to 76,09,924/-(IGST 35,84,873/- , SGST 20,12,525/- CGST 20,12,525/-) and confirmed the remaining demand of Rs.4,67,768/-(CGST- Rs. 2,33,884/- SGST- Rs. 2,33,884/-)
AUTHOR’s COMMENT:
The Judgment given in the instant case upheld the principles of natural justice and instigates that the ITC denial cannot be done by revenue to the Bonafide and genuine buyers who had met all the conditions specified in the various provisions of CGST Act 2017. The current judgement follows the path of various Judicial precedents which have consistently held that a bona fide purchaser cannot be denied input tax credit merely on account of non-existent Supplier.. In a recent judgement in case of M/S Manoja Kumar Nayak vs Commissioner W.P.(C) no. 12682 of 2025 given by Orissa High Court where in it was categorically held that merely because the supplier is found to be fake or non-existent, it does not automatically lead to the conclusion that the recipient has committed fraud. There must be independent evidence establishing the recipient's involvement in fraud, collusion, or willful suppression. Therefore, the department cannot presume fraud on the part of the recipient based solely on the suppliers non-existent status. Thus, a non - existant Supplier can not be equated with fraud committed by the recipient.

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PJ case law/2026-27/02

·In case of contradictory decisions, the decision favouring the appellant should be allowed:

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