Decided 16 October 2026. The Agra Bench of GSTAT has held that a purchasing dealer who holds a valid tax invoice, e-way bill, transport receipt and proof of payment through banking channels cannot be denied input tax credit merely because the supplier was later found to be non-existent. Section 74 cannot be invoked without evidence that the buyer colluded in the fraud.
Case at a glance
| Case | State of U.P. (Assistant Commissioner) v. Hema Industries, Aligarh |
| Forum | GSTAT, State Bench Agra (Court I) |
| Appeal No. | APL/23/AGR/2026 (department's appeal) |
| Date of order | 16 October 2026 |
| Amount | Tax ₹1,53,282 + interest ₹37,554 + penalty ₹1,53,282 = ₹3,44,118 |
| Key provisions | Sections 16(2), 74 and 155 CGST/UPGST Act |
| Result | Department appeal dismissed; ITC upheld |
Facts of the case
The dealer, an Aligarh manufacturer of padlocks and metal goods, bought GP sheets worth ₹8,51,570 from a Lucknow supplier on an invoice dated 14.06.2021. In 2022 the CGST division reported that the supplier was non-existent and was issuing fake invoices.
The State tax officer denied ITC, alleging no actual supply, and confirmed tax, interest and penalty under section 74. The first appellate authority set this aside and the department appealed.
Issue before the Tribunal
Can ITC be denied under section 16(2) to a buyer with complete documents only because the supplier was later found non-existent, and can a section 74 penalty be imposed without proof of collusion?
What the Tribunal held
- The buyer produced the invoice, e-way bill, consignment note and bank payment proof. The GP sheets were used to make padlocks, and the department did not dispute the manufacture and sale of finished goods, which proved actual receipt.
- At the time of purchase the supplier held a valid GSTIN on the portal. Later cancellation or a finding of non-existence does not automatically take away a bona fide buyer's credit.
- Under section 155 the burden of proving ITC eligibility is on the buyer, but once it produces these documents the burden shifts to the department to show complicity, which it failed to do.
- To invoke section 74, the department must prove fraud or collusion. A purchaser cannot be made a guarantor of the supplier's compliance.
- The Tribunal relied on LGW Industries (Calcutta HC), Shaurya Alloys (Punjab & Haryana HC) and Quest Merchandising (Delhi HC).
Practical takeaways for taxpayers
- For every purchase, keep the invoice, e-way bill, LR/bilty, bank payment proof and a screenshot of the supplier's GSTIN status on the purchase date.
- Show consumption of the material in production (stock register, production records); it is strong evidence of actual receipt.
- When the department relies only on a "supplier non-existent" report, insist on evidence of your involvement before section 74 is invoked.
Frequently asked questions
Can ITC be reversed if my supplier is later found fake?
Not automatically. If you prove the purchase with documents and payment, and the department cannot show collusion, ITC is protected according to this ruling.
Who bears the burden of proof?
The buyer under section 155, but once it produces genuine documents, the department must rebut them with evidence.
Facing a similar GST dispute?
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This summary is based on the order of the GST Appellate Tribunal, State Bench Agra in Appeal No. APL/23/AGR/2026. It is general information, not legal advice; the outcome of any case depends on its own facts and the full text of the order.