Court Rules Input Tax Credit Cannot Be Denied When Selling Dealers Were Registered at Transaction Time and Transactions Were Genuine
In a significant ruling on August 25, 2026, the Allahabad High Court overturned the Commercial Tax Tribunal’s decision that had upheld the reversal of Input Tax Credit (ITC) against M/s B.T.C. Industries Pvt. Ltd. The case centered on whether ITC could be denied merely because the selling dealers’ registrations were canceled after the transaction date.
The Court, presided over by Justice Piyush Agrawal, scrutinized the facts that the petitioner had purchased goods from two registered dealers — Kanheiya Trading Company, Mathura and Raj Trading Company, Meerut. Importantly, the Court noted that both dealers were duly registered when the transactions occurred, and the transactions were conducted through proper banking channels. Additionally, physical movement of goods was substantiated with supporting documents.
The Tribunal had reversed the ITC on the ground that the selling dealers’ registrations were canceled subsequent to the transactions, and had also enhanced the turnover of the petitioner based on alleged unverified invoices and suppression. However, the High Court held that reversal of ITC on this basis was legally unsustainable. The Court emphasized that ITC cannot be denied if the selling dealers were registered at the time of sale and proper transaction evidence exists.
Regarding the enhancement of turnover, the Court found that the Tribunal’s order was not supported by any concrete evidence of suppression. The enhancement must be commensurate with the suppression found during the survey, but the impugned order lacked any figures or specifics of undisclosed purchases or sales. The Court therefore held the turnover enhancement unsustainable.
Further, the Court observed that penalty proceedings initiated against the petitioner were dropped by the authorities, and no adverse inference could be drawn in the absence of any reversal of that order by a competent court or any pending proceedings.
This judgment aligns with precedent set in the case of M/s Safecon Lifescience Private Limited, where the Supreme Court affirmed that ITC benefits cannot be denied if the dealer was registered at the transaction time.
As a result, the Court allowed the revision petition, setting aside the Tribunal’s decision and restoring the petitioner’s right to claim ITC. This ruling provides clarity and relief to businesses relying on genuine transactions with registered dealers, reinforcing that post-transaction cancellation of dealer registration cannot be used to deny rightful tax credits.
Bottom Line:
Input Tax Credit (ITC) cannot be denied if the selling dealer was duly registered at the time of the transaction, and the transactions were conducted through proper channels with evidence of physical movement of goods.
Statutory provision(s):
Uttar Pradesh Value Added Tax Act, 2008 Section 54(1)(14)
