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Post factum GST Registration Cancellation – Input tax credit (ITC) cannot be denied

Nowadays, the GST officers has started issuing notice demanding reversal of Input Tax Credit availed on purchase made from registered person whose registration has been cancelled with retrospective effect on account of bogus transactions. It would be tantamount to undue hardship on the part of the purchaser. In this article, we will discuss the Calcutta High Court judgement which is favorable for the genuine buyers i.e., the case of Sanchita Kundu & Anr which held that the input tax credit shall be allowed in case of genuine transactions made before the cancellation of GST registration.

In the above judgement, the petitioners were aggrieved by the action of the department denying the benefit of the Input Tax Credit and asked the petitioners to make reversal of Input Tax Credit claimed along with the payment of penalty and interest on grounds that the registration of the suppliers in question had already been cancelled with retrospective effect.

The petitioners submitted that all the transactions were genuine and valid as they have legitimate tax invoice and fulfilled all the conditions of section 16(2) of the CGST Act, 2017 including payment of consideration through proper banking channels. The name of concerned suppliers were available at the government portal as registered taxable persons. In further they have also complied with the mechanisms introduced by the government to match Input Tax Credit with GSTR-2A. They have done whatever is possible in this regard.  The benefit to avail Input Tax Credit cannot be denied in the hands of buyer if the suppliers appeared to be fake later unless department specified the exact reason/charge.

The court relied on the decisions of Calcutta High Court in the case of M/s. LGW Industries Limited & Ors. Vs. Union of India & Ors. and directed the department to disposed of the case of petitioner by passing a reasoned and speaking order after giving effective opportunity of being heard.

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