Bombay High Court Emphasizes Independent Verification Before GSTIN Cancellation for Alleged Fake ITC

Background of the Dispute

The matter in Florida Solvent Private Limited Vs Superintendent came before the Bombay High Court as a constitutional challenge to an order cancelling the assessee’s GST registration with retrospective effect under Section 29 of the CGST Act, 2017.

The core allegation was that the assessee had availed fraudulent Input Tax Credit (ITC) based on invoices issued by suppliers who were allegedly part of a chain of entities engaged in generating fake ITC without actual movement of goods or payment of tax to the Government.

The departmental authorities, relying largely on buyer-supplier network analysis, concluded that:

  • The assessee had sourced goods from vendors connected to an upstream entity identified as a fake ITC generator.
  • No real tax payment had occurred along this purchase trail.
  • The entire chain of entities, including the assessee, had contravened Section 16(2)(c) of the CGST Act, 2017.

Based on this analysis and references to prior demand orders and alleged non‑cooperation in investigation, the Superintendent ordered ab-initio cancellation of the assessee’s GST registration, invoking Section 29(2)(a), Section 29(2)(e) of the CGST Act, 2017 read with Rule 21(e) of the CGST Rules, 2017.

Department’s Reasoning in the Impugned Order

The operative portion of the Order‑in‑Original dated 04 December 2025 (issued on 05 December 2025) recorded that the authorities decided to maintain and continue the cancellation of GSTIN from inception, treating it as justified and sustainable under the GST law.

Key Findings by the Superintendent

In the reasoning portion, the Superintendent, CGST & Central Excise, Range-II, Division-II, Thane Commissionerate observed, inter alia:

  1. The case pertained specifically to supplies involving M/s. Swastik Trading, and not M/s. Zeel Enterprises, and the two matters were stated to be separate despite similarities.
  2. The assessee had relied on a Tax Demand Order (Ref No. ZD2703243056079A) concerning alleged fake ITC from M/s Zeel Enterprises, arguing that the matter was sub judice and that no adverse action should be taken till disposal of the appeal.
  3. The Superintendent rejected this contention and interpreted the said demand order as evidence of:
    • A prior history of availing fraudulent ITC; and
    • Non‑compliance with summons and failure to cooperate with investigation.
  4. On the basis of buyer-supplier network analysis, the authority concluded:
    • The assessee had received most supplies from vendors whose purchase chain eventually terminated in an entity with no further suppliers, which functioned purely as a fake ITC generator.
    • No actual tax had been paid in the chain of transactions.
    • All parties connected in this chain, from the fake ITC generator up to M/s Florida Solvent, had violated Section 16(2)(c) of the CGST Act, 2017.
  5. The order characterized the assessee’s conduct as a fraudulent exercise causing significant loss to the Government revenue and the State exchequer.
  6. It was further recorded that the scrutiny and investigation were ongoing, that the quantum of suspected fraud was substantial, and that it was “utmost necessity” to cancel the GSTIN ab initio to:
    • Curtail the alleged malpractice; and
    • Prevent further revenue leakage pending conclusion of investigation.

On this footing, the Superintendent concluded that cancellation of the assessee’s registration served the interest of Government revenue.