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The issue of Input Tax Credit (ITC) under the GST regime has been a contentious subject, particularly when suppliers’ registrations are retrospectively cancelled. This article delves into recent court cases shedding light on this matter and its ramifications for taxpayers.

Input Tax Credit (‘ITC’) under GST has always been a matter of discussion and creates a lot of buzz around. In this article, we tried to articulate a situation by referring certain court rulings where a taxpayer has claimed ITC on the supplies made by the vendor whose GST registration got cancelled retrospectively. The jurisdictional assessing authorities have rejected the claim of the taxpayer while on the other hand, the taxpayer has the sufficient documentary evidences in the form of invoices, e-way bill, bank statement showing payment of taxes and value of goods/services to the vendor. This is really a matter of debate between the taxpayer and the authorities and has piled up a lot of litigation.

First, we will discuss the case of TVL. Cleon Optobiz (P.) Ltd. v. Assistant Commissioner (ST) – [2024] 158 691 (Madras).

Facts of the Case

The taxpayer is a registered person under GST laws and files GST returns regularly. The department by the order, reversed the ITC claimed by the taxpayer in respect of purchases made from M/s. Prince Sales Agency on the ground that the registration of the said entity has been cancelled from retrospective effect. However, at the time of purchase the said entity was active under GST.

Taxpayer’s Submission

It was submitted that the taxpayer cannot be penalised because the GST registration of M/s. Prince Sales Agency was cancelled subsequently with retrospective effect. The taxpayer submitted the relevant invoices, e-way bills and bank statements with regard to proof of payment against the relevant invoices.

Department’s Contention

It was submitted that M/s. Prince Sales Agency applied for GST registration in February 2020 and such registration was granted on 15.03.2020. In the very first year of operation, a huge turnover of about Rs.50,00,000/- was claimed by the said entity. Out of this, about Rs.11,00,000/- is attributable to alleged purchases by the taxpayer. Since this involves the production and consideration of relevant documents, the taxpayer should avail of the statutory remedy and not approach this Court under Article 226 of the Constitution of India.

Judgment of the Court

The impugned order is liable to be quashed for not duly considering the documentary evidence placed on record by the taxpayer to establish that the purchases were genuine. Hence, the impugned order is quashed. As a corollary, the matter is remanded for reconsideration by the assessing officer. The taxpayer is granted leave to submit any additional documents within ten days from the date of receipt of a copy of this order. Upon receipt thereof, the assessing officer is directed to provide a reasonable opportunity to the taxpayer and thereafter issue a fresh assessment order within four weeks therefrom.

Second is the case of M/S. GARGO TRADERS [2023 (6) TMI 533 – CALCUTTA HIGH COURT].

Facts of the Case

The petitioner being the registered taxable person claimed credit of input tax against supply made from Global Bitumen. The transactions in question were genuine and valid. The petitioner with due diligence verified the genuineness, identity and name of the supplier as registered taxable person on the Government Portal which was showing its registration as valid and existing at the time of transaction.

Admittedly at the time of transaction, the name of the supplier as registered taxable person was already available with the Government record and the petitioner has paid the amount of purchased articles as well as tax on the same through bank and not in cash.

The assessing officer, on the other hand, rejected the claim of the petitioner on the ground that the supplier from whom the petitioner claimed to have purchased the goods in question are all fake and non-existing and the bank accounts open by the supplier is on the basis of fake document and the claim of the petitioner of Input Tax Credit are not supported by any relevant document. Also, the petitioner has not verified the genuineness and identity of the supplier whether it was a registered taxable person before entering into the transaction with the supplier.

Judgment of the Court

This Court finds that without proper verification, it cannot be said that there was any failure on the part of the petitioner in compliance of any obligation required under the statute before entering into the transactions in question.

The authorities only taking into consideration of the cancellation of registration of the supplier with retrospective effect have rejected the claim of the petitioner without considering the documents relied by the petitioner.

In view of the above, the impugned orders are set aside. The authorities is directed to consider the grievance of the petitioner afresh by taking into consideration of the documents which the petitioner intends to rely in support of his claim.

Last but not the least, in the case of M/s LGW Industries Limited [2021 (12) TMI 834 – CALCUTTA HIGH COURT], the High Court has observed that,

“Considering the facts as recorded subject to further verification it cannot be said that that there was any failure on the part of the petitioners in compliance of any obligation required under the statute before entering the transactions in question or for verification of the genuineness of the suppliers in question.

Consequently, the high court remanded the matter back to the concerned adjudicating authority for reconsidering the matter and to adjudication the case fresh. The following directions were issued:

“If it is found upon considering the relevant documents that all the purchases and transactions in question are genuine and supported by valid documents and transactions in question were made before the cancellation of registration of those suppliers and after taking into consideration the judgments of the Supreme Court and various High Courts which have been referred in this order and in that event the petitioners shall be given the benefit of input tax credit in question.”


In light of above, a reference may be drawn that where:

  • A taxpayer is claiming ITC on the purchase made by it from a vendor who is also registered under GST
  • And subsequently whose registration got cancelled retrospectively,
  • The taxpayer has in its possession the copy of invoices, e-way bill and bank statement evidencing the payment to vendor and other corroborative documents

In that case, the authorities cannot order to reverse the ITC merely on the ground that the registration of the supplier of goods/services is cancelled retrospectively.


About the Author:Ruchika Bhagat

The author is Ruchika Bhagat, FCA helping foreign companies in setting up and closing businesses in India and complying with various tax laws applicable to foreign companies while establishing a business in India. Neeraj Bhagat & Co. Chartered Accountants is a well-established Chartered Accountancy firm founded in the year 1997 with its head office in New Delhi.

Author Bio

Neeraj Bhagat & Co. is helping foreign companies in opening up of Liaison/ Branch Office in India and complying with various tax laws applicable to foreign companies while establishing a business in India. Neeraj Bhagat is the founder of Neeraj Bhagat & Co. Chartered Accountants, a Chartered View Full Profile

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April 2024