Madras High Court Upholds Cancellation of GST Registration Over Dubious E-Way Bills and Unproven Goods Movement

In a significant ruling emphasizing the sanctity of the Input Tax Credit (ITC) mechanism, the Madras High Court has validated the cancellation of a GST registration where the assessee failed to substantiate the actual physical movement of goods. The case, Tvl. Sri Balajee Udyog Vs Assistant Commissioner (ST), highlights the stringent approach of the judiciary and tax authorities towards suspicious transactions characterized by dubious transportation details and dual registrations at a single premise.

This comprehensive analysis delves into the factual matrix, the legal contentions raised, the statutory provisions invoked, and the ultimate rationale behind the High Court's dismissal of the writ petition.

Background of the Proceedings

The writ petition was filed by the assessee, Tvl. Sri Balajee Udyog, challenging an appellate order dated 27.01.2025. This appellate order had confirmed an earlier adjudication order dated 29.11.2024, which resulted in the cancellation of the assessee's GST registration.

The Revenue authorities had cancelled the registration with retrospective effect from 05.04.2022. The core allegations leading to this severe action included the misuse of ITC, the inability to prove the genuineness of transactions, and the existence of another registered entity operating from the exact same business premises.

The Revenue’s Case: Red Flags in Compliance

The Proper Officer and the Appellate Authority based their decisions on several critical irregularities observed during the verification process. The Department's investigation revealed a pattern of non-compliance and suspicious activities that fundamentally questioned the legitimacy of the assessee's business operations.

1. The "Tricycle" Anomaly in E-Way Bills

One of the most glaring discrepancies noted by the authorities concerned the transportation details furnished in the E-way bills. Upon scrutinizing the sales invoices and corresponding E-way bills, the officer discovered that for a substantial volume of goods, the mode of transport was listed as "TMYCYCLE/TRICYCLE."

Crucially, these entries lacked valid motor vehicle registration numbers. furthermore, Part B of the E-way bills was not updated. The Appellate Authority noted that considering the immense volume of goods—valued in crores—it was implausible for such cargo to be transported via non-motorized conveyances like tricycles. The authority reasoned that unless hundreds of tricycles were deployed simultaneously, which is logistically improbable, the movement of goods appeared fictitious.

2. Failure to Prove Physical Movement

The Department invoked Section 16(2)(b) of the TNGST Act, 2017 (pari materia with the CGST Act), which mandates that a registered person is eligible for ITC only if they have actually received the goods or services.