If you’re a genuine recipient of goods/services and later discover that your supplier’s GST registration was retrospectively cancelled, can your Input Tax Credit (ITC) be denied?
Let’s dive into what multiple High Courts have ruled and how a bona fide buyer can protect their ITC.
Legal Position Backed by Courts
Multiple High Courts (Calcutta, Delhi, Madras, Himachal Pradesh) have clarified that retrospective cancellation of a supplier’s GST registration does not automatically invalidate the recipient’s ITC.
Key Principle:
No automatic denial of ITC.
The burden lies on the GST Department to prove that the transaction was not genuine.
Conditions for Availing ITC – Section 16(2) of CGST Act
As long as the recipient has fulfilled these 4 core conditions, ITC cannot be denied:
| Condition | Explanation |
|---|---|
| ✅ Valid Tax Invoice | The invoice must comply with GST rules and be issued by a registered supplier. |
| ✅ Receipt of Goods/Services | Actual receipt of goods/services is necessary. |
| ✅ Tax Paid to Government | The supplier must have paid the tax to the government. |
| ✅ Return Filing | Recipient must have filed GSTR-3B claiming the ITC. |
Note: At the time of transaction, if the supplier’s GSTIN was active on the GST portal, the recipient acted in good faith.
Why Courts Ruled in Favor of Recipients
1.Genuine Transactions Should Not Be Penalized:
If the buyer did their part — received goods/services and paid taxes — denying ITC due to later cancellation of the supplier’s registration is unjust.
2. Burden of Proof Lies on Department:
Authorities must investigate and prove that the transaction was bogus. They cannot deny ITC without evidence.
3. Natural Justice Must Be Upheld:
ITC denial orders must offer a personal hearing and consider all submissions from the recipient.
4. ITC Is a Vested Right:
Once legitimately claimed, ITC cannot be arbitrarily taken away without a valid reason.
5. No Mechanism to Verify Supplier’s Tax Payment:
Recipients have no control over whether the supplier has paid the GST to the government. Penalizing the recipient for the supplier’s fault is inequitable.
What Should Recipients Do? – Checklist to Defend ITC
To protect your ITC in such cases, maintain the following documentation:
- ✔️ Valid GST invoice or debit note
- ✔️ E-way bill, lorry receipt, or delivery challan as proof of delivery
- ✔️ Bank payment proof via NEFT/RTGS
- ✔️ GSTR-2A/2B matching with GSTR-1 of supplier (at time of ITC claim)
- ✔️ Supplier communication records
- ✔️ Gate entry records, stock register updates
Even if GSTR-2A doesn’t reflect the entry, strong supporting documents can help defend your claim.
Example – How Retrospective GST Cancellation Can Affect You
Case:
You purchase ₹5 lakh worth of raw material from Supplier X in June 2023. At the time of invoice and delivery:
- Supplier’s GSTIN is valid on the portal.
- You pay the full amount including ₹90,000 GST.
- You file GSTR-3B and claim ITC.
Later:
In January 2024, you receive a notice that Supplier X’s GST registration was cancelled with effect from May 2023.
Verdict:
Your ITC should not be denied unless the department proves that Supplier X never supplied the goods or the transaction was fake.
What Should You Do as a Business or Tax Consultant?
✅ Do:
- Conduct supplier due diligence.
- Retain complete documentation.
- Defend claims with facts and logic.
- Request personal hearings if ITC is denied.
❌ Don’t:
- Panic if you receive a notice.
- Accept ITC denial without a reasoned order.
- Ignore supplier compliance reviews in future deals.
Final Thoughts
The GST law aims to curb fake transactions but not at the cost of genuine taxpayers. Courts have been clear — honest buyers should not suffer because of a supplier’s retrospective cancellation.
Always maintain strong documentation and be ready to challenge arbitrary ITC denials.
