SC to Examine if ITC Can Be Denied to a Buyer When a Supplier’s Registration is Cancelled Retrospectively.
Issue
Can a purchasing taxpayer (assessee) be denied their claim for Input Tax Credit (ITC) solely on the ground that the supplier’s GST registration was cancelled suo motu (by the department) with retrospective effect, even if the transactions were genuine and supported by tax invoices?
Facts
The assessee (Roshan Sharma) claimed ITC on inward supplies for which they possessed genuine, tax-paid invoices.
The GST department denied this ITC. The sole reason for the denial was that the assessee’s supplier had its GST registration cancelled suo motu by the department, with that cancellation being applied retrospectively (i.e., back-dated to cover the period of the transactions).
The assessee first approached the High Court (HC), which set aside the original demand order. The HC found a breach of natural justice (lack of opportunity for cross-examination) and remanded the case for a fresh consideration.
On remand, the adjudicating authority reaffirmed the demand, again denying the ITC.
The assessee filed a second writ petition. This time, the High Court dismissed the petition, stating that the assessee had an “effective alternative remedy” (i.e., a statutory appeal) and should pursue that route.
The assessee then filed a Special Leave Petition (SLP) in the Supreme Court, challenging this dismissal.
Decision
The Supreme Court has issued a notice on the Special Leave Petition, agreeing to examine the matter.
The Court recorded the assessee’s primary legal argument: that ITC should not be denied when the purchase is genuine, even if the supplier’s registration is cancelled later.
The matter has been listed for a final hearing on December 8, 2025.
Key Takeaways
Major Legal Question Sub Judice: The Supreme Court’s decision to issue a notice means this critical issue is now sub judice. The final judgment will have a nationwide impact on the rights of bona fide purchasers under GST.
Bona Fide Purchaser vs. Departmental Action: The core of the dispute is whether a purchasing dealer, who has complied with all conditions of Section 16 of the CGST Act (has an invoice, has received goods, has paid tax), can be penalized for a subsequent default by the supplier that is outside of their control.
High Court’s “Alternate Remedy” Approach: The case also highlights a common procedural hurdle. High Courts are often reluctant to interfere in writ petitions (even on strong legal grounds) if a statutory appeal route is available, forcing taxpayers into a longer litigation path.
Prevailing Judicial View: Numerous High Courts have previously held that a buyer’s ITC cannot be denied solely on the ground of a supplier’s retrospective registration cancellation. The department must prove that the transaction itself was fraudulent or a sham. The Supreme Court will now provide the final, binding word on this principle.