The Madras High Court ruled in a dispute between Tvl. Sri Balajee Udyog, a Chennai-based proprietorship, and the Assistant Commissioner and Deputy Commissioner of GST. At issue was the cancellation of the proprietorship's GST registration over an input tax credit (ITC) claim allegedly based on fabricated documents.

Facts of the Case and the Court's Reasoning

During the tax audit, the Assistant Commissioner determined that the proprietorship's premises were too small to plausibly support the scale of business needed to justify the significant ITC being claimed on purchases. Consequently, in November 2024, the Assistant Commissioner issued a notice asking the proprietor to furnish proof of actual movement of goods to substantiate the ITC claim and to appear for a personal hearing. 

Despite the proprietor responding in writing and attending the hearing, the Assistant Commissioner was not satisfied with the explanation or supporting records and cancelled the GST registration in 2024. The proprietor appealed to the Deputy Commissioner, who then upheld the Assistant Commissioner's decision. The proprietor then challenged the decision before the High Court, seeking the annulment of the cancellation of GST registration.

The proprietor argued that sharing business premises with another entity should not justify cancellation, and that blocking ITC without a formal adjudication process was arbitrary. The High Court rejected both arguments.

The High Court concluded that the proprietor failed to produce basic supporting evidence that the goods had actually moved as claimed, such as freight payment records, lorry receipts, or loading and unloading charges. Additionally, the High Court stated that simply presenting printed copies of e-way bills was insufficient to prove that real transactions or the physical movement of goods had taken place, since these documents alone do not establish genuine commercial activity.

Furthermore, the Court noted that ITC claims rested on fake invoices and fabricated documentation, which is a serious ground going beyond a mere technicality like shared premises. As a result of these findings, the High Court confirmed previous decisions and the cancellation of GST registration.

Conclusion

The High Court's judgment reinforces that GST registration can be validly cancelled when there is credible evidence of fraudulent ITC claims backed by fake invoices. Moreover, the judgment clarifies that taxable persons cannot rely on procedural technicalities to escape the consequences of failing to substantiate genuine business transactions.