Reversal of Input Tax Credit Solely Due to Retrospective Cancellation of Supplier’s Registration Without Document Evaluation Is Invalid

Reversal of Input Tax Credit Solely Due to Retrospective Cancellation of Supplier’s Registration Without Document Evaluation Is Invalid

Issue

Whether the reversal of Input Tax Credit (ITC) under Section 73 can be confirmed solely on the ground of retrospective cancellation of the supplier’s registration, without considering the documentary evidence submitted by the purchaser and after switching to Section 74 in the final order.

Facts

• The petitioner, a registered purchaser, availed Input Tax Credit (ITC) on inward supplies received from an identified supplier.

• In response to an initial departmental intimation, the petitioner submitted supporting evidence, including bank statements, tax invoices, e-way bills, ledger extracts, and GSTR-2A/2B screenshots.

• A Show Cause Notice (SCN) was subsequently issued under Section 73 proposing ITC reversal and requesting original invoices, e-way bills, purchase registers, lorry receipts, and payment proofs.

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

• Furthermore, while the SCN was issued under Section 73 (non-fraud cases), the adjudicating authority passed the final assessment order invoking Section 74 (fraud/suppression cases).

• The petitioner challenged the assessment order by filing a writ petition before the High Court.

Decision

• The petitioner produced substantial documentary evidence (bank statements, invoices, e-way bills, ledgers, and GSTR-2A/2B returns) that required due appraisal by the authority.

• While the burden of proof to establish an ITC claim rests on the purchaser, the authority must afford a fair opportunity to furnish further material if any deficiency exists.

• Confirming ITC reversal solely because the supplier was later found non-existent, without scrutinizing the submitted records, violates principles of natural justice and cannot be sustained.

• Passing a final order under Section 74 when the SCN was issued under Section 73 fundamentally vitiates the adjudication process.

• The impugned order was set aside, and the matter was remanded to the adjudicating authority for fresh consideration after giving a reasonable opportunity of hearing.

Key Takeaways

• Duty to Evaluate Documents: The tax authority cannot summarily reject an ITC claim based on the supplier’s subsequent registration cancellation without evaluating the purchaser’s documentary proof of genuine transaction and payment.

• Procedural Flaw in Jurisdiction Switch: An adjudication proceeding initiated under Section 73 (non-fraud) cannot culminate in an order passed under Section 74 (fraud/suppression), as this violates natural justice and procedural due process.

• Opportunity to Cure Shortcomings: If the tax authority finds the submitted evidence inadequate to discharge the burden of proof under Section 16, it must grant the assessee a specific opportunity to produce supplementary evidence before confirming the demand.