M/s Saniya Traders v. Addl. Commissioner Grade-2 (Allahabad High Court, 03.12.2025)
By CA Surekha S. Ahuja | 08 December 2025
The controversy around denial of Input Tax Credit (ITC) on the basis of alleged fake invoicing, retrospective cancellation, or supplier-side defaults continues to dominate GST litigation. The latest decision of the Allahabad High Court in Saniya Traders decisively reinforces a principle that is central to GST’s architecture:
A bona fide purchaser, dealing with a registered supplier who has reported the supply and paid GST, cannot be denied ITC merely on the basis of later departmental suspicion or retrospective cancellation.
This ruling provides a clear framework for distinguishing legitimate transactions from presumption-driven assessments and strengthens the legal position of compliant taxpayers.
Transaction Profile: All Statutory Conditions for ITC Satisfied
On 28 June 2021, Saniya Traders purchased scrap batteries from Mohan Enterprises (Bihar). The transaction was compliant on every statutory parameter:
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Supplier was actively registered on the date of supply.
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A valid tax invoice and e-way bill accompanied the supply.
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The transaction was declared in supplier’s GSTR-1.
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Corresponding GST was paid in GSTR-3B.
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Payment of consideration + GST was made through banking channels.
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Entry was auto-populated in GSTR-2A, confirming tax deposit.
No dispute existed on documentation, payment, identity of parties, or reporting obligations.
Yet, based on later intelligence alleging non-movement of goods by the supplier and others, authorities issued a Section 74 SCN, reversed ITC, and imposed interest and penalty.
Importantly, no allegation of fraud or collusion was ever made against Saniya Traders.
Legal Issues Considered
The High Court focused on three core issues:
(1) Whether ITC can be denied when the supplier was registered and had paid GST at the time of supply?
(2) Whether retrospective cancellation of supplier’s registration invalidates ITC already earned?
(3) Whether Section 74 can be invoked against a purchaser without any allegation of fraud or wilful misstatement?
Court’s Findings: A Clear and Authoritative Reaffirmation
Supplier’s Valid Registration + Tax Paid = ITC Cannot Be Denied
The Court held that once the supplier:
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was registered,
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issued a valid invoice,
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reported the supply in GSTR-1,
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paid tax through GSTR-3B, and
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the transaction appeared in GSTR-2A,
then Section 16(2) is fully satisfied.
The Court stressed that credit accrues based on facts existing at the time of the transaction, not on post-facto developments or departmental reinterpretations.
Retrospective Cancellation Cannot Undo Vested ITC
Relying on:
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Supreme Court: Shakti Kiran India Pvt. Ltd.,
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Allahabad HC: Solvi Enterprises,
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Allahabad HC: Khurja Scrap Trading Co.,
the Court held:
Retrospective cancellation cannot be weaponised to invalidate past, lawful transactions conducted during the period of valid registration.
The Department cannot rewrite the legal status of a completed transaction.
Section 74 Cannot Apply Without Evidence of Fraud or Suppression
The Court highlighted that:
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There was no evidence of fraud by the recipient.
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There was no allegation of collusion.
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All payments were via banking channels.
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Documents were untouched and unquestioned.
Thus, the jurisdictional precondition for invoking Section 74 did not exist.
The Department’s action was called arbitrary, perverse, and legally unsustainable.
Distinction from Ecom Bill Coffee Trading
The Department relied on Ecom Bill Coffee Trading Pvt. Ltd. to deny ITC.
The Court rejected this reliance because:
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In that case, supplier had not paid tax.
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There was no return reporting.
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Documentation was not corroborated.
In contrast, Saniya Traders involved full compliance, tax payment, and system-validated reporting.
Therefore, Ecom Bill had no application.
Final Decision
The High Court:
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Quashed the original order (20.12.2022)
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Quashed the appellate order (05.02.2024)
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Set aside the tax, interest, and penalty
The writ petition was allowed in full.
Why This Judgment Matters - A Broader Analytical Perspective
ITC is a Statutory Right, Not a Conditional Concession
The Court’s reasoning echoes established jurisprudence (Dai Ichi Karkaria, Eicher Motors):
once statutory conditions are met, credit becomes a vested right.
GST Does Not Impose Supplier-Due-Diligence Burdens on Purchasers
Purchasers are not expected to:
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inspect supplier premises,
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audit their inward supply chain, or
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verify upstream purchases.
GST relies on:
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registration validity,
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invoice,
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e-way bill,
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return filing,
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banking-channel payment,
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2A/2B entries.
Anything beyond this shifts the revenue’s responsibility onto the taxpayer—something the Court firmly rejected.
Intelligence Inputs Cannot Replace Evidence
The judgment is part of an expanding judicial trend:
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presumptions are not proof,
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template SCNs do not establish facts,
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mismatch reports are not conclusive,
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and transaction validity cannot be denied without direct evidence.
Retrospective Cancellation Must Be Sparingly Used
Courts are consistently holding that retrospective cancellation:
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cannot extinguish past genuine transactions,
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cannot justify belated departmental action,
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and cannot be used to penalise compliant dealers.
Practical Guidance for Industry, Professionals & Officers
For Businesses
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Maintain a transaction-date compliance file.
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Preserve invoice, e-way bill, payment proofs, and return summaries.
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Archive GSTR-2A/2B reports for each month.
For Tax Advisors
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Stress transaction-date registration as the legal anchor.
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Use Saniya Traders along with Shakti Kiran, Solvi Enterprises, and Khurja Scrap Trading to defend ITC.
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Challenge Section 74 where mens rea is absent.
For the Department
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Verify supplier’s tax payment before issuing SCNs.
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Reserve Section 74 for cases involving clear fraud or collusion.
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Avoid reliance on retrospective cancellation for completed transactions.
Closing Insight
The High Court’s message is unequivocal:
Where the supplier was registered, tax was paid, and the purchaser acted with full compliance, ITC cannot be denied—irrespective of later departmental suspicion or retrospective action.
Saniya Traders strengthens the integrity of the GST credit chain and restores fairness for bona fide taxpayers—exactly what the GST law intended.
