Section 155 of GST and the Burden of Proof: How Far Must the Recipient Go When the Supplier Defaults or Turns Non-Existent?
Overview
Section 155 of the Central Goods and Services Tax Act, 2017 is one of the most frequently cited provisions in present-day input tax credit disputes. It is also one of the most misunderstood. Officers routinely invoke it as if it places an unlimited and almost impossible burden upon the purchasing dealer to prove every link in the transaction chain, including matters that are often beyond the recipient’s control, such as the later conduct of the supplier, the supplier’s tax payment discipline, the continued existence of the supplier years after the transaction, and the availability of transport records long after the statutory period has run its course.
That reading is too broad and, in many cases, plainly unfair. Section 155 certainly places the burden of proving eligibility for input tax credit on the person who claims it, but that burden is not unstructured, infinite, or divorced from the rest of the GST Act and Rules. A recipient must prove the claim in the manner recognised by the statute and the rules. Once that is done through proper tax invoices, books of account, return disclosures, transport evidence where applicable, proof of payment, and other contemporaneous records, the issue is no longer whether the recipient has done nothing, but whether the department has tangible material to discredit those documents or prove collusion, sham dealing, or non-receipt of goods.
This issue has become extremely important in current GST practice. After four, five, or even six years, many assessees are being called upon to produce bulk records for each inward supply. Invoices and portal records are often available, e-way bills may still be traceable, bank payments can be obtained, but physical lorry receipts, weighment slips, toll slips, unloading registers, and other supporting records may not always survive in the ordinary course of business. Yet ITC is being denied in large numbers merely because the supplier later became non-existent, registration was cancelled retrospectively, or the department alleges that tax was not paid by the supplier. These disputes make Section 155 a live and urgent question for taxpayers and professionals alike.
This article examines Section 155 in its proper legal setting, its connection with Section 16 and the GST Rules, the kind of evidence that can reasonably be expected from the recipient, and the judicial trends that now shape the controversy. The discussion is intended as a practical and publication-ready note for taxpayers, consultants, and adjudicating professionals dealing with supplier-default and non-existent supplier allegations on a daily basis.
The statutory setting: Section 155 does not work in isolation
Section 155 reads, in substance, that where any person claims that he is eligible for input tax credit under the Act, the burden of proving such claim lies on such person. The language is simple, but its operation depends entirely on the substantive provisions governing ITC.
The first and most important of these is Section 16. Under Section 16(2), no registered person is entitled to input tax credit unless the prescribed conditions are satisfied: possession of a tax invoice or other prescribed document, receipt of goods or services, tax charged in respect of such supply having been actually paid to the Government, and furnishing of return by the claimant. Therefore, when Section 155 speaks of burden of proof, it is really referring to proof of these statutory conditions.
The rules complete this framework. Rule 36 of the CGST Rules deals with documentary conditions for availing ITC and ties the claim to possession of specified documents such as a tax invoice, debit note, bill of entry, or other prescribed tax-paying documents. Rule 56 requires maintenance of accounts by the registered person, including records of inward and outward supplies, stock, tax payable and paid, and other business records. Rule 138 and the e-way bill mechanism become relevant where transport of goods is involved and where an e-way bill is legally required.
Thus, Section 155 cannot be read as a free-standing weapon authorising the department to ask for any document it wishes. The burden must be understood in the context of what the Act and Rules require a recipient to maintain or prove. If the law requires tax invoice, return disclosure, receipt of goods, and supporting books, the taxpayer must prove those matters. But if the law does not expressly elevate every auxiliary transport paper into a mandatory condition for ITC, the absence of one such paper cannot automatically destroy the claim, particularly when the transaction is otherwise evidenced through a consistent documentary trail.
What exactly must the recipient prove?
In practical GST adjudication, Section 155 usually gets invoked in one of four situations: first, where the supplier is later found non-existent; second, where the supplier has defaulted in tax payment; third, where the department alleges fake invoice or circular trading; and fourth, where actual receipt of goods is doubted.
In such cases, the recipient must ordinarily be prepared to prove the following:
The identity of the supplier at the time of transaction, including GST registration status and invoice particulars.
The existence of a valid tax invoice or other prescribed document under Rule 36.
Disclosure of the supply in returns, especially reflection in the portal ecosystem where relevant.
Receipt of goods or services, proved through transport records, stock records, goods inward registers, consumption records, delivery acknowledgments, or other business evidence depending on the nature of trade.
Payment of consideration through banking channels, wherever made, to support genuineness of the transaction.
Consistency between books of account, invoice trail, tax returns, and commercial records.
That, however, is different from saying that the recipient must guarantee the future honesty, financial conduct, or continued existence of the supplier. The law places a burden to prove eligibility, not a burden to perform investigative functions that properly belong to the department. Once the recipient shows that the transaction was entered into with a registered supplier, supported by invoice, reflected in records, linked with payment and movement evidence, the enquiry must move from a bare suspicion to a reasoned adjudication based on evidence.
Supplier default and the recurring conflict under Section 16(2)(c)
One of the harshest disputes under GST arises from Section 16(2)(c), which requires that the tax charged in respect of the supply has actually been paid to the Government. The department frequently treats this clause as a direct basis to deny ITC to the recipient whenever the supplier has defaulted, disappeared, or turned out to be bogus.
This issue has produced a serious debate. On one side, the statutory text cannot be ignored: payment of tax to the Government is one of the conditions for ITC. On the other side, a bona fide buyer normally has no direct access to the supplier’s cash ledger, tax payment mechanism, or internal compliance conduct after the transaction is concluded. If the buyer has purchased from a registered supplier, paid value plus tax, recorded the purchase in books, reflected it in returns, and received the goods, can ITC still be denied merely because the supplier later defaults? That is the practical conflict that now dominates GST litigation.
Judicial responses have tried to strike a balance rather than read Section 16(2)(c) in a vacuum. The Madras High Court in D.Y. Beathel Enterprises has been repeatedly cited for the proposition that the department cannot straightaway proceed against the purchasing dealer without first taking action against the seller, and that a bona fide purchaser cannot be automatically penalised for the default of the supplier absent material of collusion. Though every case turns on its facts, this approach reflects a basic fairness principle: Section 155 does not convert the recipient into an insurer against every supplier-side default.
Similarly, later summaries and litigation discussions point out that action against the buyer becomes more justifiable only in exceptional situations, such as clear proof of collusion, circular trading, non-existent transactions, or total failure of the buyer to support receipt of goods with records. This is an important line for professionals. It means that while the recipient’s burden is real, it is not meant to punish honest trade merely because the supplier later falls into default.
The problem of “non-existent supplier” allegations
A very common pattern in present GST proceedings is this: years after the purchase, the department states that the supplier is non-existent, untraceable, or that the supplier’s registration has been cancelled retrospectively; on that basis alone, it proposes to deny ITC to the recipient. This allegation has become a standard template in investigation and assessment proceedings.
From the standpoint of Section 155, the correct question is not whether the supplier exists today, but whether the recipient can show that the supplier existed and was a registered taxable person at the time of the transaction, and whether the transaction itself was genuine. If the recipient can show contemporaneous registration details, proper invoices, e-way bills or transport evidence, bank payment, entry in books, and reflection in returns, a later finding that the supplier is unavailable at a different point in time cannot automatically nullify the claim.
This point has been reinforced in recent discussions on Madras High Court rulings where courts have indicated that the taxpayer may indeed be called upon to prove the existence of the supplier at the relevant time and the genuineness of the transaction through surrounding records, but the adjudicating authority cannot reject the claim by demanding non-statutory material as if no other evidence matters. That is a more legally sound reading of Section 155.
Rules and evidence: what the department can ask, and what it cannot absolutise
Professionals often ask: if Section 155 places the burden on the recipient, can the department ask for lorry receipts, weighment slips, toll receipts, unloading slips, gate registers, and driver statements? The short answer is that the department can certainly seek evidence relevant to receipt and movement of goods where such facts are disputed. But that does not mean every one of these documents is a statutory precondition in every case.
The GST law recognises different kinds of proof depending on the nature of the transaction. The statute does not say that an e-way bill is mandatory in every ITC case regardless of threshold or exemption, nor does it say that toll receipts or weighbridge slips are the only acceptable proof of physical movement. Therefore, the correct legal position is evidentiary, not ritualistic. If movement of goods is disputed, the recipient must show it through reasonably available and credible business records. These may include invoice, e-way bill, bilty or LR, freight payment, inward stock register, production or consumption records, delivery proof, transporter confirmation, bank payment, and matching return disclosures.
The Allahabad High Court line discussed in later professional summaries is useful here. It has been noted that where valid e-way bills, tax invoices, bilty/LR, bank payments, and GST return disclosures remain uncontroverted, the department cannot insist on extra-statutory proofs such as toll receipts as if they are mandatory under the Act or Rules. This is important because many adjudication orders today elevate non-mandated evidence into a fatal condition for ITC. Section 155 does not justify that approach.
The contrary line: when courts say invoice and payment alone are not enough
Any balanced article on Section 155 must also acknowledge the stricter line of decisions. The Supreme Court in the 2023 decision under the KVAT regime, widely discussed by professional commentators, held that mere production of supplier invoices and proof of payment is not sufficient where the dealer must prove actual movement and receipt of goods. Though that case arose under VAT law, courts and departments frequently read it along with Section 155 of the CGST Act because the underlying principle of burden of proof is similar.
Likewise, the Madras High Court in Devi Traders upheld denial of ITC where the petitioners failed to show documentary proof of actual receipt of goods and accompanying movement records; the judgment observed that burden under the GST enactments and Rules lies on the recipient to show that the goods were indeed received. This line cannot be ignored. It reminds taxpayers that ITC is not secured merely by uploading invoices or relying on portal reflection.
But these stricter judgments do not mean that every case of missing LR, toll slip, or weighment slip must end in denial. What they really establish is that the claimant must prove actual receipt in a manner recognised by law. The burden is evidentiary and factual. If a recipient has no meaningful record at all beyond invoice and cheque, the claim becomes weak. If, however, the recipient can show a chain of credible supporting material, the department cannot reject all of it merely because one preferred document is unavailable.
The emerging corrective trend: Akal Trade Links and the rejection of impossible standards
This emerging balance is reflected strongly in the recent Madras High Court ruling in Akal Trade Links v. Assistant Commissioner (ST). The Court held that ITC could not be denied merely because lorry receipts and weighment slips were not produced when the supplier was registered during the relevant period, the invoices themselves contained vehicle numbers, and the supplier had filed returns and paid tax on the disputed supplies.
The significance of this decision is not that transport documents have become irrelevant. The significance is that the Court refused to reduce Section 155 to an impossible checklist. The presence of vehicle details in invoices, the supplier’s registration status at the relevant time, and proof that the supplier had filed returns and discharged tax made it necessary for the officer to conduct a fuller examination into genuineness instead of mechanically rejecting the ITC claim for want of LR or weighment slips alone.
This ruling is particularly valuable for present disputes involving older years. It recognises a business reality: invoices, returns, and bank records are often preserved more reliably than every physical transport slip. If the law is applied with commercial common sense, Section 155 must be satisfied through the totality of evidence, not through a single document fetish.
Natural justice and the limits of retrospective document demand
Another recurring abuse in Section 155 disputes is the bulk demand for documents not even specified in the show cause notice. Taxpayers are sometimes called upon, at the adjudication stage itself, to furnish materials that were never clearly demanded in the SCN, and adverse orders are then passed for non-production. The Madras High Court has indicated that liability cannot be confirmed on the basis of documents not asked for in the show cause notice and that such matters require reconsideration with proper procedural fairness.
This is not merely a natural justice point; it is also a Section 155 point. The burden of proof on the claimant does not mean the department can change the evidentiary case midway or require unlimited records without first stating the exact defect alleged. If the case is that goods were not received, the SCN must say so. If the case is that the supplier was non-existent, the material for that allegation should be disclosed. If the case is collusion, that allegation must be put clearly. Only then can the recipient meaningfully discharge the burden under Section 155.
A practical illustration: when burden is discharged and when it is not
Two examples will make the position clearer.
Example 1: burden likely discharged
A steel trader purchases goods from a registered supplier in July 2021. The trader has a tax invoice, e-way bill, LR, bank statement showing payment of value plus GST, stock inward entry, and subsequent sale of the same goods. The invoice appears in portal records and the supplier had an active registration at the time of supply. Three years later, the supplier becomes non-traceable and registration is cancelled retrospectively. In such a case, the recipient has a strong argument that Section 155 stands discharged through contemporaneous records. Unless the department can show fraud, circularity, forged documents, or collusion, denial of ITC would be difficult to justify.
Example 2: burden not discharged
A dealer relies only on invoice copies and says payment was made by cheque, but has no transport record, no inward stock record, no e-way bill where one was required, no material showing receipt or use of goods, and no explanation of how the goods entered the business stream. If the supplier is later found bogus or non-existent, the ITC claim becomes vulnerable because the claimant has not produced the kind of evidence contemplated under Section 16 read with Rule 36 and the record-keeping obligations under the Rules.
The difference between the two situations is not merely sympathy. It is the quality of proof.
What taxpayers and professionals should preserve
Given present trends, prudent taxpayers should maintain a layered evidence file for inward supplies, especially in goods transactions. A practical checklist would include:
Tax invoice and vendor master details.
Proof of supplier registration status at the time of transaction.
E-way bill where required and transport documents such as bilty or LR where available.
Bank proof of payment of value plus GST.
Goods inward register, stock register, weighment or unloading record where business practice generates such records.
Consumption, production, resale, or onward supply records showing commercial use of goods.
GSTR reflection and reconciliation in books.
Not every transaction will generate every document. Service industries, low-value supplies, exempted movements, or sector-specific practices may differ. Still, the broader point remains: Section 155 is best met by preserving a coherent commercial trail rather than relying on one single document.
Professional position that emerges from the case law
A workable legal position now emerges from the combined reading of the statute, the rules, and case law.
First, Section 155 undeniably places the initial burden on the recipient claiming ITC. Second, that burden must be discharged in the manner contemplated by Section 16 and the relevant GST Rules, not by producing imaginary or unlimited forms of proof. Third, where the recipient produces proper contemporaneous records showing genuine purchase and receipt, the department cannot deny ITC merely because the supplier later defaults, disappears, or because one class of supporting document is unavailable. Fourth, where the department alleges collusion, fake invoicing, or sham transactions, the burden cannot remain frozen forever on the assessee; the department must bring some cogent material to discredit the documentary trail.
This balance is vital. If Section 155 is stretched too far, it punishes honest trade and turns ITC into an uncertain concession. If it is read too loosely, it may encourage abuse of the credit chain. The law therefore requires a middle path: strict proof of genuine transactions, but not impossible proof of matters beyond the recipient’s reasonable reach.
Conclusion
Section 155 is important because it reminds every recipient that input tax credit is a claim that must be proved, not assumed. But it is equally important to remember what the section does not say. It does not say that every purchasing dealer must guarantee the future conduct of the supplier. It does not say that every ITC claim fails merely because the supplier later becomes non-existent. It does not say that the absence of one transport or auxiliary record, years after the event, automatically destroys an otherwise genuine transaction.
The correct approach under GST is more balanced and more practical. The recipient must prove eligibility through the documents and records that the Act, Rules, and ordinary business discipline contemplate: invoice, books, returns, payment trail, and reasonably available evidence of receipt and movement of goods or services. Once that is done, Section 155 stands substantially discharged. At that stage, the department must do more than merely raise suspicion based on supplier default or later cancellation; it must show why the transaction was not genuine, why the evidence is unreliable, or why collusion should be inferred.
For taxpayers and professionals, this is the real significance of the present jurisprudence. Section 155 is not a charter for arbitrary denial of ITC. Properly read, it is a rule of evidentiary discipline, not a licence for impossible demands. Used in that balanced manner, it can protect revenue without crushing genuine business. That is the reading most consistent with the design of GST, the language of the Act and Rules, and the fairness that every adjudication process must ultimately preserve.
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