Tax officers chasing fake invoice rackets have a well-worn playbook: flag a supplier as non-existent after an investigation, then go after every buyer who ever dealt with that supplier for the input tax credit they claimed. The Goods and Services Tax Appellate Tribunal's Agra Bench has just reminded the department that the playbook has a limit. In an appeal filed by the Revenue against Safecon Lifesciences Private Limited, the Tribunal held that a supplier being alleged fictitious cannot, by itself, justify denying credit to a buyer who has evidence that the purchase actually happened.
The transaction at the centre of the dispute was not large. Safecon had bought goods worth roughly Rs 21.30 lakh from a supplier called Neon Pharma Chem in November 2019, under two tax invoices, and claimed input tax credit of Rs 3,83,400 on that purchase. The Revenue's case rested on an investigation report concerning Neon Pharma Chem and a statement recorded from a person who was present during that investigation, both suggesting the supplier was not a genuine, operating business. On that basis the department sought to reverse the credit Safecon had claimed.
Safecon had already won this fight once. The first appellate authority, the Additional Commissioner, Grade-II (Appeals), Agra, had ruled in the company's favour by an order dated 23 November 2022, accepting that the purchase was genuine notwithstanding the Revenue's suspicions about the supplier. Rather than let that order stand, the department carried the dispute to the Tribunal, which is where this latest round was fought and lost.
The Tribunal's reasoning turned on what it means to actually examine a bogus-supplier allegation rather than simply assert it. An investigation report and a bystander's statement about the supplier's affairs cannot be weighed in isolation from what the buyer itself can show about the transaction. Safecon had produced documents establishing the purchase, the movement of goods and their receipt, the kind of paper trail the GST regime expects a genuine buyer to maintain. Measured against that evidence, the Revenue's case built entirely around the supplier's side of the story did not hold up.
A detail that undercut the department's position further was the fate of Neon Pharma Chem's own GST registration. It had been cancelled at some point, feeding the non-existence narrative the Revenue relied on, but that cancellation was subsequently revoked and the registration restored. A supplier whose registration has been reinstated is a difficult fit for a department's claim that it never really existed in the first place, and the Tribunal treated the restoration as cutting directly against the Revenue's theory.
There is also a timing problem buried in the department's own case that the Tribunal's order brings into focus. The purchase took place in November 2019, the first appellate authority had already examined and accepted it as genuine by late 2022, and the Revenue chose to keep contesting the point years after the transaction closed and years after one of its own appellate officers had looked at the evidence and sided with the buyer. Each additional round of litigation over the same November 2019 invoices makes the department's reliance on an investigation into the supplier, rather than fresh evidence against Safecon itself, look thinner rather than stronger.
Litigation over input tax credit denied on supplier-side allegations has become a standing feature of GST practice, and this ruling adds to a growing line of tribunal authority insisting that the department do more than point to a tainted supplier. Buyers who keep their invoices, e-way bills, transport records and payment trail in order, as Safecon did, are increasingly well placed to resist a demand built solely on what investigators found, or thought they found, on the seller's end of the transaction.
For businesses dealing with vendors who later turn out to be under investigation, the lesson is to keep that documentation close rather than assume a clean purchase will be judged guilty by association. A tax department that wants to deny credit on these facts now has to grapple with the buyer's own paper trail and with whatever subsequently happens to the supplier's registration, rather than resting its case on an investigation report and a single bystander's statement.