Subsequently, proceedings under Section 74 of the GST Act were initiated against the petitioner on the allegation that the supplier’s registration had been cancelled on 31.01.2019 and the supplier was found non-existing, treating the purchases as from an unregistered/non-existent dealer. ITC of ₹1,95,048 was reversed and equal penalty imposed by the assessing authority, which was affirmed by the appellate authority, leading the petitioner to approach the High Court.

Held by court :  The High Court noted that the petitioner was a registered dealer who had generated valid e-way bills and made payments through banking channels to a supplier who was registered at the time of the transactions. The supplier had filed GSTR-1 and GSTR-3B for the relevant period, and since GSTR-3B can be filed only upon payment of due tax, the Court presumed that tax on the supplies stood discharged. In these circumstances, no adverse inference could be drawn against the purchaser merely because the supplier’s registration was cancelled later or the supplier was found non-existing at a subsequent stage.

The Court further held that the department could not base proceedings solely on “borrowed information” about non-existence of the supplier without independently verifying whether the firm existed at the time of supply. As there was no allegation of fraud or collusion by the petitioner, initiation of proceedings under Section 74 and denial of ITC were unjustified. The assessment and appellate orders were quashed and the writ petition was allowed.

Despite the non-filing, the petitioner computed its tax liability on the basis of available records and deposited the entire self-assessed tax, interest and late fees into the Electronic Cash Ledger. An affidavit along with the ledger extract was placed before the Court to show that the tax for the relevant period had been fully discharged. The petitioner, therefore, approached the High Court seeking quashing of the cancellation order and the appellate order, and prayed for restoration of registration, offering to file all pending returns now that the tax liability, interest and late fees stood paid in the Electronic Cash Ledger.

Held by court :  The Court noted that the petitioner had already deposited an amount of ₹46,93,112/- through various challans in the Electronic Cash Ledger on the GST portal under section 49 of the Gujarat SGST Act, 2017 read with Rule 87 of the Gujarat SGST Rules, 2017. This amount covered tax dues of ₹39,72,494/-, interest of ₹5,26,632/- and late fees of ₹1,35,020/- towards self-assessment tax for the period from March 2024 to June 2025. Considering that the liability had been discharged as if returns had been duly filed, and there were no other objections from the department, the Court inclined to grant relief.

In the interest of justice, the High Court permitted the petitioner to file the pending GST returns. It directed that the respondent authorities shall process such returns, determine tax liability in accordance with law after considering amounts already deposited in the Electronic Cash Ledger, and, if any additional demand arises, the petitioner shall pay it forthwith. Upon such compliance, the Court ordered that the cancellation of GST registration shall stand revoked. The petition was disposed of with these directions, with no order as to costs.