Confirmation of ITC Reversal Solely Due to Subsequent Supplier Cancellation Without Examining Furnished Documents Is Invalid

By | July 30, 2026
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Confirmation of ITC Reversal Solely Due to Subsequent Supplier Cancellation Without Examining Furnished Documents Is Invalid

Confirmation of ITC Reversal Solely Due to Subsequent Supplier Cancellation Without Examining Furnished Documents Is Invalid

Issue

Whether an adjudication order confirming the reversal of Input Tax Credit (ITC) solely because the supplier’s registration was subsequently cancelled is sustainable when the taxpayer furnished supporting purchase documents under a Section 73 show-cause notice.

Facts

  • ITC Claim: The petitioner, a registered purchaser, claimed Input Tax Credit (ITC) on inward supplies purchased from an identified supplier.

  • Intimation & Documents: In response to initial departmental queries, the petitioner produced bank statements, tax invoices, e-way bills, ledger extracts, and GSTR-2A/2B screenshots.

  • Show-Cause Notice: The Revenue issued a Show-Cause Notice (SCN) under Section 73 proposing ITC reversal and asking for original invoices, e-way bill copies, purchase registers, lorry receipts, and proof of payment.

  • Adjudication Basis: The adjudicating authority confirmed the ITC reversal solely on the ground that the supplier’s GST registration was subsequently cancelled as non-existent, without evaluating or appraising the documents submitted by the petitioner.

  • Provisional Switching of Sections: The final order was passed by invoking Section 74 (fraud/suppression), whereas the original SCN had been issued under Section 73 (non-fraud).

  • Writ Petition: The petitioner challenged the assessment order before the High Court for violation of principles of natural justice and non-consideration of submitted evidence.

Decision

  • Passing an adjudication order under Section 74 when the SCN was explicitly issued under Section 73 vitiates the entire assessment proceeding.

  • While the burden to establish an ITC claim rests on the taxpayer, the adjudicating authority cannot ignore primary documentary evidence (invoices, e-way bills, bank statements, ledger extracts, GSTR-2A/2B) furnished on record.

  • Confirmation of ITC reversal solely based on the subsequent cancellation of the supplier’s registration as non-existent, without appraising the submitted purchase documents or granting an opportunity to supply additional materials, violates natural justice.

  • The impugned order was set aside, and the matter was remanded to the authority for fresh consideration after granting a reasonable opportunity of being heard. Decided in favor of the assessee / matter remanded.

Key Takeaways

  • Duty to Appraise Evidence: Adjudicating officers must examine and record findings on supporting documents (invoices, bank statements, e-way bills) produced by a purchaser rather than relying blindly on post-facto supplier cancellation.

  • No Section Switching: The Revenue cannot issue a Show-Cause Notice under Section 73 and subsequently pass a final demand order under Section 74 without giving the taxpayer notice of fraud or wilful misstatement allegations.

  • Opportunity to Cure Defects: If the assessing authority finds discrepancies or gaps in the ITC documentation provided, it must afford the taxpayer a fair opportunity to produce additional corroborative proof before penalizing them.

HIGH COURT OF MADRAS
Clear Secured Service (P.) Ltd.
v.
Assistant Commissioner (ST)
Senthilkumar Ramamoorthy, J.
WP No. 23402 of 2026
WMP Nos. 25362 & 25363 of 2026
JULY  1, 2026
K. Guruprasad for the Petitioner. Ms. G. Dhana Madhri, Government Counsel (Tax) for the Respondent.
ORDER
1. An assessment order under Section 74 is the subject of challenge in this writ petition.
2. Show cause notice dated 26.02.2025 was received by the petitioner calling upon the petitioner to show cause as to why the Input Tax Credit (ITC) claimed by the petitioner for supplies received from Jay Steels should not be reversed. In response, the petitioner filed a reply on 27.01.2025 enclosing proof of payment, copies of tax invoices, e-way bills, ledger extract and screenshot of the GSTR 2A & 2B. The order impugned herein was issued pursuant thereto.
3. Adverting to the impugned order, learned counsel for the petitioner submits that the tax proposal was confirmed solely on the ground that the supplier’s registration was cancelled on 27.03.2024 by categorising such supplier as non-existent.
4. Ms. G. Dhana Madhri, learned Government Counsel (Tax), accepts notice on behalf of the respondent. She submits that bill trading activities are carried on by making payments through banking channels. In the absence of documents establishing actual movement of goods, she submits that no case is made out to interfere with the order.
5. On perusal of the show cause notice dated 26.02.2025, it follows that such notice was issued under Section 73 of applicable GST statutes. The petitioner was called upon to submit original tax invoices, e-way bill copies, purchase register, lorry receipt and proof of payment. By reply dated 27.01.2025 to the intimation, the petitioner had provided bank statement, tax invoices, e-way bills, ledgers and the GSTR 2A & 2B returns.
6. The burden of proof in relation to a claim for ITC is statutorily imposed on the person claiming such credit. To that extent, the respondent cannot be faulted for calling for proof that the supplies received by the petitioner were genuine. As discussed above, the petitioner has submitted several documents of relevance in this regard. These documents should have been duly considered and, if there was any shortcoming, the petitioner should have been given an opportunity to submit additional documents. Instead, the tax proposal was confirmed solely on the ground that the supplier was declared as non-existent with effect from 27.03.2024. This approach cannot be countenanced especially considering the fact that the order was issued under Section 74 although the show cause notice states in more than one place that it has been issued under Section 73.
7. Considering these aspects, the impugned order is set aside and the matter is remanded for re-consideration. After providing a reasonable opportunity to the petitioner, a fresh order shall be issued within three months from the date of receipt of a copy of this order.
8. The writ petition is disposed of on the above terms. Consequently, connected miscellaneous petitions are closed. There shall be no order as to costs.