Section 155 Cannot Force Buyers to Prove Supplier Default Under GST

Section 155, NGTP and Retrospective Cancellation: Why Buyers Are Being Asked to Prove the Impossible

In GST practice today, one line is heard again and again from departmental officers: “Section 155 puts the burden on you. You must prove your ITC. If your supplier is NGTP or cancelled, reverse the credit.” On paper it sounds simple. In real life, it means buyers are being asked to prove things the law never expected them to control, while the department itself is not proving its NGTP and non-existence allegations with proper evidence.

This article looks at what section 155 really says, how it is being misused in NGTP and retrospective-cancellation cases, why section 76 is the correct remedy against defaulting suppliers, and how this culture can be pushed back using the Act and the case law.

1. What section 155 really says – and what it does not say

Section 155 of the CGST Act is a short provision. It says:

“Where any person claims that he is eligible for input tax credit under this Act, the burden of proving such claim shall lie on such person.”

In simple language, this means:

• If you claim ITC, you must be ready to prove your own claim.
• You must show that your side of the transaction satisfies the ITC conditions:
  • you have a valid tax invoice;
  • you actually received the goods or services;
  • you paid the consideration, including tax;
  • you filed your returns correctly and claimed ITC in accordance with section 16(2).

Section 155 speaks about your evidence, not about your control over third parties. It does not say:

• “You must guarantee that your supplier has deposited every rupee of tax.”
• “You must prove that your supplier will never be cancelled or tagged NGTP.”
• “If the supplier defaults in future, your ITC automatically becomes wrong.”

A bona fide dealer can reasonably be asked to prove his own purchases and supplies. He cannot be asked to prove the entire upstream chain beyond what is visible to him (portal status, returns, confirmations, and documents in his possession). So, in law:

• Section 155 is a burden-of-proof rule for eligibility.
• It is not a licence to demand that buyers prove the internal conduct or future behaviour of suppliers.

2. How section 155 is being misused in NGTP and retrospective-cancellation cases

On the ground, NGTP and retrospective-cancellation cases are following a different script.

2.1 The new departmental script

The pattern is becoming familiar:

• Supplier side
  • Backend analytics or DGGI flags a supplier as “NGTP / non-existent / risky”.
  • Registration is cancelled, quite often retrospectively, via a checkbox-style order under section 29(2) with minimal narrative.
• Buyer side
  • Buyers who purchased from that supplier and claimed ITC receive SCNs and DRC-01 notices under section 73 or 74.
  • Notices say, in substance:
    • “Your supplier is NGTP / cancelled retrospectively.”
    • “Under section 155, burden lies on you, so you must reverse ITC, pay tax and interest, and in 74 cases suffer 100% penalty.”

What is missing in these files:

• No inspection reports or statements about the supplier are shared.
• No consignment-wise proof that goods did not move is placed on record.
• The supplier’s cancellation order itself is often non-speaking, with a single line reference to section 29(2) and no detailed reasons.
• There is no serious examination of the buyer’s invoices, e-way bills, lorry receipts, weighment slips, bank payments, stock records and returns.

Section 155 is being used as a convenient slogan: “Burden on you. We need not show proof.”

2.2 Why this misuse is legally wrong

There are at least three legal problems with this approach:

1. Imposing an impossible burden

Buyers can prove what they actually control:

• invoice,
• receipt of goods,
• payment,
• their own returns.

They cannot reasonably prove what the supplier did or did not do with the tax after the sale, or whether the supplier will later be cancelled. Reading section 155 as if buyers must prove supplier behaviour turns it into an impossible burden the legislature never intended.

2. Ignoring the department’s own burden

Courts have repeatedly held that retrospective cancellation alone is not enough to deny ITC. Authorities must examine:

• genuineness of transactions, and
• compliance with the conditions in section 16(2).

In other words, the department has its own evidentiary burden: it must prove that supplies were not genuine, or that the buyer colluded in fraud. Section 155 does not erase that duty. It simply says the buyer must prove his side of the story; it does not say the department can deny ITC without proving anything on its side.

3 .Violating natural justice

If the department relies on NGTP or cancellation against the buyer, natural justice demands that it disclose the basis: inspection reports, field enquiries, statements, and other material. Without this, the buyer is defending himself against an invisible case. Labelling a supplier “NGTP” and pointing to a bare cancellation order is not proof in any fair sense.

Section 155 was written to ensure that buyers come with their documents. It was not written to allow officers to say, “You prove everything; we will prove nothing.”

3. Section 76 – the forgotten remedy against defaulting suppliers

While buyers are being pushed under section 155 and section 74, one important provision is quietly ignored: section 76.

3.1 What section 76 actually says

Section 76 deals with situations where a person collects tax but does not pay it to the Government. In essence, it says:

• If someone collects any amount as tax and fails to remit it, the proper officer shall demand and recover that amount, with interest and penalty.

The logic is simple and fair:

• If a supplier has collected GST from the buyer, the Government’s remedy lies against that supplier.
• The buyer, who has already paid tax in good faith, should not be punished for the supplier’s default by losing ITC and then paying the same tax again.

3.2 Jharkhand High Court’s message

In the Jharkhand High Court decision involving R.K. Transport & Constructions, the Court sent a clear signal:

• State GST authorities are duty-bound to act under section 76 against any person who collects tax and does not remit it.
• They cannot hide behind jurisdiction excuses such as “supplier is under CGST, we cannot act”; section 76 is wide enough to cover such situations and imposes an obligation on the officer.

This directly answers a key fairness question:

• If a supplier collected GST from the buyer and did not pay it, the honest legal route is section 76 against the supplier, not section 74 against the buyer who already paid tax.

Ignoring section 76, leaving defaulting suppliers untouched, and going after buyers instead, is the opposite of what a balanced GST system should do.

4. ITC denial and retrospective cancellation – what courts are really saying

Recent High Court decisions are beginning to restore the balance between buyer and department.

4.1 Himachal Pradesh line

Himachal Pradesh High Court has held that ITC cannot be denied solely because the supplier’s registration was cancelled with retrospective effect. Before denying ITC, officers must:

• look at invoices, e-way bills, lorry receipts, weighment slips, transport records;
• examine bank payments and stock registers; and
• test whether the buyer has complied with section 16(2).

If documents show genuine supply and compliance, retrospective cancellation by itself is not enough.

4.2 Calcutta and other High Courts

Calcutta High Court and other courts have emphasised:

• ITC entitlement is determined at the time of transaction. If the supplier was registered and the buyer met section 16(2) conditions, ITC does not disappear merely because the supplier is later cancelled.
• Authorities must inquire whether tax was actually paid by the supplier and whether the transaction was genuine; they cannot mechanically treat cancellation as proof against the buyer.

Orders denying ITC solely on retrospective cancellation have been quashed, with directions to conduct proper, document-based inquiries.

4.3 Tripura and the reading of section 16(2)(c)

Tripura High Court has taken a particularly important step:

• It upheld the validity of section 16(2)(c), which links ITC to tax being paid.
• But it read down its application, holding that ITC cannot be denied to bona fide purchasers merely because suppliers failed to deposit tax, absent fraud or collusion.

The Court recognised that buyers cannot be asked to do the impossible—predict and control supplier compliance beyond the reasonable checks the law expects. Denial should target sham and collusive transactions, not honest trade.

Together, these judgments send one clear message: NGTP tags, retrospective cancellations and supplier defaults are not magic wands. The department must do the hard work of proving that a transaction is not genuine or that the buyer colluded in fraud. Section 155 does not allow officers to skip that work.

5. Is it law to force buyers to reverse ITC for supplier default? Straight answer

On the statute and case law, the straight answer is no, not in the way it is being done today.

The Act allows ITC denial where:

• section 16(2) conditions are not met (no invoice, no receipt, no payment, no returns), or
• the transaction is not genuine (no actual movement of goods/services, fake invoices), or
• the buyer is part of a fraudulent chain.

It does not say:

• that every supplier default or NGTP tagging automatically cancels the buyer’s ITC; or
• that the department may ignore section 76 against defaulting suppliers and instead punish buyers who have already paid tax in good faith.

So, when officers insist:

“Your supplier is NGTP or cancelled; under section 155 you must prove everything and reverse ITC,”

without producing proof of sham supply or collusion, they are not acting in line with the Act or the emerging case law. They are using practice, analytics and portal labels to stretch the law beyond its fair limits.

6. How to respond when officers say “everything under section 155”

In a typical NGTP / retrospective-cancellation ITC case, a structured response can help.

Step 1 – Show you have discharged your burden under section 155

Set out clearly, in your reply:

• Tax invoices (with GSTIN, HSN, quantity, value, tax).
• Evidence of receipt:
  • e-way bills and lorry receipts,
  • weighment slips,
  • gate registers,
  • stock entries.
• Bank statements showing payment to the supplier.
• GSTR-2A/2B and GSTR-3B showing ITC claimed in good faith.
• Portal screenshots showing that the supplier was active and registered on the date of supply.

Then state in simple language:

“Section 155 obliges me to prove my eligibility for ITC. These documents show that I have complied with section 16(2). I cannot reasonably be asked to control or predict what my supplier did later with the tax.”

Step 2 – Push the burden back to the department on NGTP and fraud

Demand, in writing:

• Copies of the supplier’s cancellation order and show-cause notice under section 29(2).
• Inspection reports, field enquiry records and statements forming the basis of NGTP tagging.
• Any material that shows non-movement of goods, sham transport, circular payments, or collusion.

Then add:

“Without such material, NGTP and cancellation are only labels. Labels are not proof. Section 155 does not relieve the department from its duty to prove non-genuine supply or my collusion.”

Support this point with references to Himachal, Calcutta, Madras and Tripura decisions holding that ITC cannot be denied solely on retrospective cancellation or supplier default; genuineness and section 16(2) compliance must be examined.

Step 3 – Invoke section 76 and the Jharkhand logic

Include a specific plea:

“If the supplier has collected tax from me and has not remitted it, the proper statutory remedy lies in section 76 against that supplier. Punishing me under section 74, by denying ITC and demanding tax which I have already paid, is contrary to the scheme of the Act and the High Court’s message in R.K. Transport & Constructions, which emphasises the duty to proceed against defaulting tax-collectors.”

This forces the officer to confront the department’s own inaction against defaulting suppliers.

7. Why administration is not acting fairly – and what can change it

My question, “Why is administration not fair and transparent?” goes beyond one file. The reasons are systemic:

• Risk-first culture: Analytics and NGTP lists are treated as proof because they look sophisticated, even when they are only flags for further investigation.
• Portal convenience: Tick-box REG-19 and auto-generated orders feel efficient. Writing detailed, reasoned orders feels slow and burdensome.
• Revenue pressure: There is strong pressure to “deliver results” in fake ITC cases. That pressure pushes officers towards shortcuts.

The law, however, is slowly pushing practice back toward fairness:

• High Courts are quashing non-speaking cancellations and mechanical ITC denials and, in some cases, are using strong language about economic death and misuse of powers.
• The Supreme Court is now examining key questions about ITC denial based solely on suppliers’ retrospective cancellation and the scope of section 16(2)(c). A strong judgment from the apex court will force changes in departmental SOPs and training.

Real correction will come from:

• clear Supreme Court guidance,
• CBIC / GST Council circulars on NGTP, section 29(2), section 155 and section 76, and
• persistent case-by-case resistance by practitioners using these statutory and judicial arguments.

Conclusion

The present NGTP and retrospective-cancellation machinery is built for bulk risk action, not for transaction-level proof. Section 155 has become a convenient slogan: buyers are being told to “prove everything” while the department avoids proving non-existence, fraud or collusion, and ignores the remedy against defaulting suppliers under section 76.

The Act, read fairly, expects two different things:

• from buyers: proof of their own transactions and compliance with section 16(2);
• from the department: proof of non-genuine supply or buyer collusion before denying ITC, and proper use of section 76 against those who collect tax and do not pay it.

Every well-prepared reply, every reasoned appellate ground and every successful writ that uses this logic helps push the system away from punishment without proof and towards a GST administration that is strong against fraud but also fair to genuine taxpayers.