Input Tax Credit Cannot Be Denied Merely Because Supplier’s Registration Was Cancelled Later: Allahabad High Court
The Allahabad High Court in Singhal Iron Traders Vs Additional Commissioner And Another addressed a recurring GST dispute on whether Input Tax Credit (ITC) can be denied to a buyer solely because the supplier’s GST registration was cancelled later. The Court held that ITC cannot be reversed when the supplier was duly registered at the time of supply, valid tax invoices were issued, e-way bills were generated, goods were actually received, and payments were made through banking channels. The buyer had also filed returns correctly, and there was no allegation of fraud, collusion, or bogus transactions. The Court emphasized that GST law does not expect buyers to foresee future defaults or cancellation of suppliers. Section 74, which applies only in cases of fraud or wilful misstatement, was wrongly invoked in the absence of any wrongdoing by the buyer. Relying on unverified assumptions about the supplier’s later non-existence was held impermissible. Consequently, the ITC reversal, penalty, and demand were quashed, reaffirming that honest buyers cannot be penalized for a supplier’s subsequent lapses.
“Sir, Supplier Ka Registration Cancel Ho Gaya Hai” –
Can GST ITC Be Denied for No Fault of the Buyer?
Allahabad High Court gives a straight answer
If you are in trading or manufacturing, you’ve probably heard this line from the GST department at least once:
“Aapke supplier ka registration cancel ho chuka hai, isliye aapka ITC galat hai.”
And naturally, the next question from the taxpayer is:
“Par jab maine maal kharida tha tab toh supplier registered tha?”
Exactly this practical issue came up before the Allahabad High Court in the case of
M/s Singhal Iron Traders vs Additional Commissioner & Another — and the Court didn’t mince words.
The Real-Life Story Behind the Case
Singhal Iron Traders is not some shell entity or paper firm.
It’s a regular iron scrap trader, doing day-to-day business like thousands of other GST dealers.
In August 2018, they purchased iron scrap from M/s Arvind Metal Suppliers, who at that time was:
GST registered
Issuing proper tax invoices
Generating e-way bills
Filing GST returns
Two invoices were raised. Goods moved with valid e-way bills.
Payment? Through bank. No cash. No shortcuts.
Total GST involved: ₹1,95,048
Everything looked absolutely normal.
Then Came the Twist
Much later, during departmental verification, the authorities found that:
- The supplier’s registration was cancelled in January 2019
- At the time of survey, the supplier was allegedly non-existing
And based on this single fact, the department concluded:
“Since supplier is non-existing, your ITC is wrong.”
So they:
- Issued notice under Section 74
- Reversed the entire ITC
- Imposed 100% penalty
- Passed order in DRC-07
No discussion on invoices.
No discussion on bank payment.
No discussion on e-way bills.
Let’s Pause Here and Apply Common Sense
Ask yourself honestly:
If you buy goods from a registered dealer today, pay GST, receive goods physically, and file returns properly…
Can someone expect you to track that supplier’s future life events?
This is exactly the point the High Court picked up.
What the High Court Said (In Simple Language)
The Court went step-by-step, like a practical auditor would.
Was the supplier registered at the time of supply?
YES.
That’s the only time that legally matters.
Were GST returns filed by the supplier?
YES. GSTR-1 and GSTR-3B were filed.
And the Court made a very important observation:
GSTR-3B cannot be filed unless tax is paid.
So once the return is filed, payment of tax is already embedded in the system.
Was the transaction genuine?
Absolutely.
- Banking channel payment
- E-way bills
- No allegation that vehicle didn’t exist
- No claim that goods didn’t move
Any fraud, collusion or fake billing by the buyer?
NONE. Zero.
And this point killed the department’s case.
Why Section 74 Failed Completely
Now let’s talk law
Section 74 applies ONLY when there is:
- Fraud
- Wilful misstatement
- Suppression of facts
The Court clearly said:
“You cannot casually invoke Section 74 just because later something went wrong at the supplier’s end.”
No fraud by buyer = No Section 74. Period.
What About Section 16 ?
Section 16 asks a simple question:
“Did you do what a reasonable buyer is expected to do?”
In this case:
Invoice from registered supplier
Goods received
Tax paid (through supplier’s return)
Return filed by buyer
Once these boxes are ticked, ITC becomes a vested right.
Department’s Biggest Mistake
The Court was very clear on this:
The department relied on borrowed information without verification.
In simple terms:
- They assumed the supplier was non-existing
- They didn’t verify whether the supplier existed at the time of transaction
- They simply passed the burden to the buyer
The Court said this is not how GST law works.
Very Important Line of the Judgment
You cannot punish the buyer for the future sins of the seller.
If this logic is allowed, then no ITC in India would ever be safe.
Final Decision of the Court
ITC reversal set aside
Penalty quashed
Section 74 proceedings declared invalid
Writ petition allowed
In short — full relief to the taxpayer.
Why This Judgment Is a Big Win for Honest Taxpayers
This ruling restores balance in GST law.
GST was never meant to be:
“Buyer is responsible for everything seller does forever”
Instead, it confirms:
Due diligence, not divine foresight, is required
Final Thought
If despite doing everything right, ITC can still be denied, then GST becomes a risk, not a tax.
Thankfully, judgments like Singhal Iron Traders remind the department that law is about reason, not fear.
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