1. Law has evolved; department has not
India has now completed more than eight years of GST, with several amendments, circulars and a rich body of High Court and Supreme Court jurisprudence on ITC, fraud and adjudication powers. On paper, the law is maturing; on the ground, section 74 adjudication often still looks like the early “trial‑and‑error” phase – huge demands raised mechanically, genuine ITC reversed, and registrations cancelled retrospectively without any real evaluation of consequences.
High Courts across the country and the Supreme Court (through pre‑GST credit jurisprudence that is still relied upon) have repeatedly said that a bona fide purchaser cannot be punished merely because the supplier has defaulted or his registration is cancelled later, especially with retrospective effect. Courts have also emphasised that section 74 is a special penal provision: it needs clear fraud, wilful misstatement or suppression of facts with intent to evade tax; it is not a universal extended‑limitation section for every kind of difference or mismatch.
Yet, day‑to‑day adjudication tells a different story. We still receive orders where these basic conditions are ignored, retrospective cancellation is treated as a magic wand, and demands are confirmed even when the taxpayer has produced full documentation. In ITC reversal and retrospective cancellation cases, genuine taxable persons are facing continuous harassment, while real defaulters often remain outside the net.
I write this not as an academic exercise, but from the standpoint of a practitioners who has already written multiple articles on these issues and still sees the same structural problems repeat in adjudication.
2. ITC denial on genuine buyers: courts are clear, department is not
2.1 Retrospective supplier cancellation does not wipe out bona fide ITC
One of the most misused grounds for ITC denial today is retrospective cancellation of the supplier’s registration. The typical departmental logic is very simple: “Supplier’s registration cancelled from back date → he was never valid → all ITC to buyer automatically ineligible.” This logic is not supported either by the Act or by recent judgments.
The Calcutta High Court has now given clear messages on this point. In Shyamalmay Paul vs. Assistant Commissioner, SGST (December 2025), the Court held that retrospective cancellation of the supplier’s registration, by itself, cannot be a ground to deny ITC to a bona fide purchaser who has fulfilled section 16 conditions and produced all primary documents (invoices, e‑way bills, bank payments, proof of receipt of goods). The Court set aside the appellate order because it had mechanically relied on retrospective cancellation without examining the documents on record, and remanded the matter with a direction to reconsider ITC after evaluating the evidence.
This approach is consistent with earlier Calcutta decisions like LGW Industries and with later national commentary, which stress that retrospective cancellation cannot automatically strip a purchaser of ITC where there are no finding of collusion and the supplier was validly registered at the time of transaction. Other High Courts have also warned that back‑dating registration cancellation has serious civil consequences, especially when used to attack ITC of buyers down the chain.
These GST rulings sit on the same doctrinal foundation as the Supreme Court line in earlier regimes (for example, Suresh Trading Co. type cases), where the Court protected purchasing dealers who relied on the fact that the supplier was registered at the time of sale; later cancellation could not retrospectively change that reality. The principle is simple: you cannot expect a genuine purchaser to predict future cancellation of the supplier’s registration.
In spite of this, we still see section 73/74 orders where the officer writes just one line: “As the supplier’s registration has been cancelled with retrospective effect, the ITC availed is inadmissible.” There is no enquiry into movement of goods, no evaluation of e‑way bills, no cross‑check of bank payments, and no analysis of stock or consumption. This is the exact opposite of what the courts are insisting upon.
2.2 Supplier default in GSTR‑3B is not automatic ITC reversal for buyer
A second shortcut frequently used is: “Supplier has not paid tax in GSTR‑3B or cash ledger → section 16(2)(c) condition fails → reverse ITC from buyer.” In effect, the entire compliance risk of the supplier is shifted onto the recipient.
The Tripura High Court in Malaya Rub‑Tech Industries v. Union of India (2026) has directly addressed this issue. The Court held that ITC cannot be denied to a bona fide purchasing dealer merely because the supplier failed to deposit GST, in the absence of fraud, collusion, or non‑bona fide conduct on the purchaser’s part. It applied the doctrine of “reading down” to hold that section 16(2)(c) cannot be used against innocent purchasers in non‑fraud proceedings under section 73, because such an interpretation would impose an impossible burden and lead to double taxation.
The judgment clearly notes that neither the show‑cause notice nor the order alleged any fraudulent conduct by the buyer, and that the proceedings were under section 73 (non‑fraud), so the transaction had to be treated as bona fide. On these facts, the demand was set aside and ITC was directed to be restored.
Similar themes appear in other High Court decisions compiled in recent case‑law digests: ITC denial for supplier default or GSTR‑2A/2B mismatch is unsustainable where the buyer proves genuine purchases through valid invoices, e‑way bills, bank payments, accounting records and actual use in business. Courts are drawing a clear line between fraudulent, collusive transactions (where section 74 can operate) and honest purchases where the buyer has done everything that the statute reasonably expects.
Despite this, many SCNs and orders still simply state that the supplier has not paid tax, reproduced section 16(2)(c), and concluded that the buyer’s ITC is inadmissible. There is no attempt to link the buyer to any fraud or bogus transaction. This is not adjudication; this is shifting the department’s own monitoring failure entirely onto genuine businesses.
3. Section 74 is not a substitute for section 73
3.1 Extended limitation and heavy penalties need real fraud
Section 74 is a penal, extended‑limitation provision, meant for serious cases where tax has not been paid or ITC has been wrongly availed “by reason of” fraud, wilful misstatement or suppression of facts to evade tax. These ingredients are not decorative; they are jurisdictional pre‑conditions.
Recent High Court rulings, compiled in 2026 case‑law round‑ups, are very clear. In Raghuvansh Agro Farms Ltd. v. State of U.P. (Allahabad HC, 2025), the Court quashed a section 74 demand by holding that mere allegations of circular trading based on survey findings are not enough unless the foundational ingredients of fraud or suppression are specifically pleaded and supported by evidence. The transactions there were reflected in GSTR‑1, GSTR‑2A and GSTR‑3B and supported by invoices, e‑way bills and bank statements; there was no concrete material of fraud by the purchaser.
The Court held that proceedings under section 74 are without jurisdiction if these statutory ingredients are absent, and that survey‑based assumptions cannot override documentary and portal‑based evidence. Similar themes appear in other High Court cases like Safecon Lifescience and Singhal Iron Traders, where ITC was allowed or 74 action was quashed because there was no real material to show fraud or collusion by the buyer.
Against this jurisprudence, the practice on ground is exactly the opposite. In many cases, the officer simply cuts and pastes the words “fraud, wilful misstatement, suppression” into the opening paragraph of the SCN and then proceeds as if every case is automatically a section 74 case. There is no specific factual narrative, no analysis of mens rea, and no segregation of simple mismatch/interpretation issues from actual evasion.
Such orders are vulnerable on two basic grounds:
- The conditions for invoking section 74 are not satisfied, so jurisdiction itself is missing.
- The orders violate natural justice because they do not give reasons, do not deal with submissions, and often travel beyond the original SCN.taxtmi+2
3.2 CBIC’s own instructions are being ignored
What makes the situation more worrying is that even CBIC’s own guidance on section 74 is often not followed in the field. Recent Board‑linked analyses summarise clear instructions that: section 74 must be invoked only where there is evidence of fraud, wilful misstatement or suppression with intent; SCNs must contain detailed, specific allegations; and orders under section 74(9) must address each representation and give speaking reasons.
However, many orders still treat section 74 as nothing more than a longer limitation period with 100% penalty. Replies are brushed aside with one‑line comments such as “explanation not satisfactory”, and adjudication becomes a mere confirmation exercise. This is one major reason why genuine taxpayers are forced to approach High Courts instead of getting justice at the adjudication stage itself.
4. Retrospective cancellation: a blunt weapon used casually
4.1 Serious civil consequences recognised by courts
Retrospective cancellation of registration under section 29 has become another harsh tool, especially when the department wants to indirectly attack ITC of buyers. Courts have repeatedly flagged its civil consequences.
In Shyamalmay Paul (Calcutta HC, 2025), the Court expressly noted that retrospective cancellation not only affects the supplier but also has serious impact on recipients’ ITC, and therefore such cancellation and subsequent appellate orders cannot be passed mechanically. The appellate authority’s order, which relied only on retrospective cancellation without examining evidence, was set aside as unreasoned and the matter was remanded for a fresh, reasoned decision.
Other High Courts, such as Punjab & Haryana, have also held that retrospective cancellation should not be ordered routinely; the authority must justify why back‑dating is necessary and proportionate, keeping in mind the chain of supplies and ITC of buyers.
Despite this, in day‑to‑day practice we still see cancellation orders that are one‑line: “Registration is cancelled with effect from [back date] due to non‑filing of returns.” There is no analysis of why retrospective effect is required and no discussion of how it will affect past transactions and ITC already availed by customers. These blunt orders are then used as the single ground to deny ITC to purchasers who have fully complied with section 16.
4.2 Failure to examine documents produced by taxpayers
A recurring theme in all these cases is judicial criticism of authorities for failing even to look at documents produced by taxpayers. In Shyamalmay Paul, the Calcutta High Court specifically observed that the appellate authority had not considered invoices, e‑way bills, bank statements and other evidence; it had merely treated retrospective cancellation as enough to deny ITC.
Similar criticism appears in other ITC denial cases where officers ignored GSTR‑1/3B data, stock records and payment trails, and simply concluded that ITC is inadmissible because the supplier is cancelled or has defaulted. Courts have remanded such matters with directions to examine evidence properly and pass detailed orders.
From the practitioner’s side, this is perhaps the most frustrating aspect: even when we file complete paper‑books with all documents, the final order often just repeats the SCN and confirms demand without any independent reasoning.
5. Main adjudication failures we see in practice
After eight years of GST practice, some patterns in adjudication are unfortunately very consistent:
- Mechanical use of section 74 – Almost every dispute, whether rate, classification, exemption, mismatch, or clerical error, is pushed under section 74 merely to enjoy extended limitation and higher penalty, without any real fraud or suppression being demonstrated.
- ITC denial due to supplier default or retrospective cancellation – Officers treat supplier’s non‑payment in GSTR‑3B or retrospective cancellation as an automatic ground to deny ITC to the buyer, ignoring High Court rulings like Malaya Rub‑Tech, Shyamalmay Paul, Singhal Iron Traders and similar cases where bona fide purchasers were protected.
- Retrospective cancellation by non‑speaking orders – Registration is cancelled from past dates without giving reasons or considering consequences, and these orders are later used as a shortcut to attack buyers’ ITC.
- Non‑consideration of replies and documents – Detailed replies and documentary evidence are brushed aside with generic remarks, without point‑wise findings or proper appreciation of facts.
- Orders travelling beyond the show‑cause notice – In some cases, final orders under section 74 introduce new grounds, new allegations or a different theory than the SCN, clearly violating basic Supreme Court jurisprudence on natural justice, and forming a frequent ground of challenge in writ petitions.
- Disregard of binding case law and CBIC instructions – Many orders do not even refer to binding High Court judgments or Board instructions on section 74 and ITC, forcing taxpayers to re‑litigate settled issues again and again.
6. What needs to change: from “target‑driven” to “law‑driven” adjudication
At this stage of GST, genuine taxpayers are not asking for any special concessions; they simply want adjudication to be law‑driven and consistent with judicial precedent.
Some minimum course‑corrections are urgently required:
- Use section 73 and 74 correctly:
Section 73 should be used where there is no fraud or suppression and the dispute is interpretational or procedural, while section 74 should be reserved for real fraud cases backed by strong material and a clear narrative in the SCN and order. - Protect bona fide purchasers in line with case law:
ITC should not be denied to buyers having proper invoices, proof of receipt of goods, bank payments and proper accounting merely because the supplier defaulted or was cancelled retrospectively. Authorities must follow Malaya Rub‑Tech, Shyamalmay Paul, Singhal Iron Traders and similar decisions. - Treat replies and evidence seriously:
Orders must discuss the taxpayer’s submissions and documents point‑by‑point, as required by section 74(9) and by basic natural justice, and give specific reasons where evidence is rejected. - Use retrospective cancellation sparingly and with reasons:
Officers must recognise that retrospective cancellation has serious civil consequences, including collateral damage to buyers’ ITC, and should clearly record why such drastic action is necessary in each case. - Train and monitor adjudicating officers on precedent:
Regular training on latest High Court and Supreme Court judgments, and internal monitoring of the quality of orders, is essential if GST is to move from fear‑based administration to a stable, predictable tax regime.
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Author’s conclusion
After more than eight years of GST, we should have moved from experimentation to stability. Instead, in many section 74 and ITC matters, we are still fighting the same basic battles: asking officers to read the law correctly, to respect documentary evidence, and to follow binding judgments. Genuine taxpayers, who are fully on the grid and compliant, are bearing the brunt of mechanical demands and harsh procedural tools, while true defaulters often remain untraceable.
If adjudication does not become more law‑driven and less target‑driven, confidence in the GST system will continue to erode. The real reforms needed are not only in the bare Act, but in the mindset, training and accountability of those who exercise quasi‑judicial powers. Unless these changes are made, we will keep writing articles and filing writ petitions on the same issues, and “ease of doing business” under GST will remain only a slogan on paper.
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