Input Tax Credit Cannot Be Summarily Denied To A Purchaser Solely Because The Supplier’s Registration Was Cancelled Retrospectively Post the Transaction Period

By | June 13, 2026
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Input Tax Credit Cannot Be Summarily Denied To A Purchaser Solely Because The Supplier’s Registration Was Cancelled Retrospectively Post the Transaction Period

Issue

Whether the tax authorities are justified under Section 16 and Section 73 of the CGST/WBGST Act, 2017, in denying Input Tax Credit (ITC) and creating a tax demand against a registered purchaser on the sole ground that the supplier’s GST registration was subsequently cancelled with retrospective effect covering the period of the transaction.

Facts

  • Taxpayer Compliance: The petitioner is a registered taxpayer who purchased goods and availed of legitimate Input Tax Credit (ITC) during the period from April 2021 to July 2021.

  • Retrospective Cancellation: Long after the transactions were concluded, the tax authority cancelled the supplier’s GST registration with retrospective effect, dating back to a period prior to April 2021.

  • Revenue’s Action: Relying solely on this retrospective cancellation, the adjudicating authority treated the tax invoices issued by the supplier as invalid, alleging that the transactions were made with a non-existent entity.

  • Impugned Order: The authority passed an order under Section 73 (non-fraud adjudication), confirming the denial of ITC and raising a formal tax demand for reversal against the petitioner.

Decision

  • Held, In Favor of Assessee: The impugned order denying the ITC and creating the tax demand is quashed and set aside. The matter is remanded for a fresh, objective adjudication.

  • Prima Facie Case Established: The petitioner successfully established a prima facie case showing that at the actual time of the transaction (April to July 2021), the supplier’s registration was active on the government portal, and the invoices were validly generated.

  • Arbitrary Reliance on Retrospective Actions: The revenue cannot mechanically invalidate genuine commercial transactions or penalize a compliant buyer by utilizing a subsequent administrative action (retrospective cancellation) without independent corroborative evidence of fraud or circular trading.

Key Takeaways

  • Vulnerability of Retrospective Orders: A retrospective cancellation of a seller’s GST registration does not automatically translate into a retroactive disqualification of a buyer’s ITC, provided the buyer can prove the transactions were genuine when they occurred.

  • Onus on Revenue for Verification: The tax department cannot ease its burden of proof by relying entirely on a portal status change. To deny ITC under Section 16, the department must look beyond the retrospective order and independently prove that no goods were delivered or that the buyer was complicit in a tax evasion scheme.

  • Portal Status Reliance: Registered purchasers are legally entitled to rely on the real-time active status of a supplier on the GST Common Portal. Subsequent administrative crackdowns on the supplier cannot be retrofitted to penalize a compliant buyer who acted in good faith.

HIGH COURT OF CALCUTTA
Barun Kumar Biswas
v.
Union of India
Smita Das De, J.
WPA No. 4699 of 2026
MAY  18, 2026
Ms. Micky Chowdhury and B.N. Pal for the Petitioner. Anjan Chakraborty, Ms. Avantika Chakraborty, K.K. Maity and Kaushik Dey, CGST for the Respondent.
ORDER
1. The petitioner in the instant case challenges , inter alia, the legality and validity of the order dated 3.12.2025 passed by the respondent no.2
2. The main grievance of the petitioner is with regard to the denial of eligible Input Tax Credit on valid invoices issued by the supplier M/s. Adrian Infra Services Private Ltd. during the period from April 2021 to June 2021 as per Section 16 read with Section 31 of Central Goods Services Tax 2017 and Rule 36 of Central Goods Service Tax Rules, 2017.
3. The petitioner submits that the respondent authorities have cancelled the supplier’s registration retrospectively from 28.11.2019 thereby, invaliding the invoices issued during the period from April 2021 to July 2021 as per Section 16 read with Section 31 and Rule 36 and instruction No. 02/2022-GST dated 22.03.2022 (para 7 of Annexure B).
4. It is further submitted by the petitioner that the adjudicating authority has held that the petitioner has availed Input Tax Credit irregularly amounting to Rs. 1,24,16,354 (CGST Rs. 62,08,177) and SGST-Rs. 62,08, 177/-) under Section 73 (9) of the CGST Act, 2017 read with the corresponding provisions of the WBGST Act, 2017.
5. Thereafter on 10th September, 2025 a show cause notice has been issued under Section 73 of the Central Goods and Services Act, 2017, (hereinafter referred to as the said Act) for the financial year 2021-2022 by the respondent authority. The petitioner duly submitted its reply to the said show cause notice and contended that it had availed input tax credit (ITC) upon compliance with all the conditions stipulated under Section 16(2) of the said Act.
6. Thereafter the petitioner has challenged the retrospective cancellation of the supplier registration with effect from 28.11.2019 and the consequential invalidation of all the invoices issued during the period from April 2021 to July 2021 as being arbitrary, illegal and contrary to the provisions of the Section 16(2) of the said Act and Rules and instruction No. 2/2022-GST dated 22.03.2022 issued by the Central Board of Indirect Taxes and Customs.
7. Learned counsel appearing for the respondent authorities vehemently opposes the same and draws the attention of this Court to paragraph 13 and 14 of the writ petition to demonstrate that the petitioner has illegally availed the ITC, on all invoices issued by the supplier whose registration has already been cancelled suo motu with effect from 28.11.2019.
8. In this context, the petitioner submits by relying upon the paragraph 18 of the writ petition, that the registration has been cancelled by the respondent authorities retrospectively with effect from 28.11.2019 and such retrospective cancellation cannot in-validate invoices issued during the period when the supplier was registered and active on the GST portal.
9. The petitioner places reliance upon a judgement of a Coordinate Bench of this Court with regard to the issue of remaining cases to respondent authorities for considering afresh the issue of the entitlement to the benefit of input tax credit in question, by considering the documents which the petitioner intends to rely upon in support of the claim of genuineness of the transactions and the respondents has been directed to consider whether the payment on purchases in question along with GST were actually paid to the supplier and also to consider whether the purchases were made before or after the cancellation of the registration of the suppliers in compliance of the statutory obligation regarding verification of the identity of the suppliers. A further reliance has also been placed upon a judgment of the Coordinate Bench of this Court wherein it has been observed in the case of Shyamalmay Paul v. Asstt. Commissioner SGST  (Calcutta) which is reproduced below:
“22.Accordingly, the order of the appellate authority dated May 16, 2025 insofar as it relates to discrepancy under serial no. 3 is concerned , is set aside.
24. The appellate authority is directed to pass a reasoned order as the discrepancy no. 3 only is concerned after giving an opportunity of hearing to the petitioner to his authorized representative and to communicate the same immediately thereafter.”
10. The petitioner further relies upon another Division Bench’s judgement of this Court in the case of Jyoti Tar Products (P.) Ltd. v. Deputy Commissioner, State Tax Shibpur Charge /108 GST 791/95 GSTL 392 (Calcutta) Calcutta by relying upon paragraphs 16 and 22 which is reproduced below:
“16. However, this appears to be not the allegation in the pre-show cause notice as the only allegation was that the three suppliers registration has been cancelled.
22. The exercise appears to be have not been done by the adjudicating authority and, therefore, we are of the view that the matter has to be readjudicated by taking note of all the factual issues bearing in mind the legal principles laid down in various decisions. Though the reply to the pre-show cause notice dated 6.10.2023 gives the necessary details and the documents which have been annexed , we are of the view that the appellants should submit a fresh reply dealing with all issues with liberty to place the decisions of the various courts on which they seek to place reliance.”
11. After hearing the rival contention of the parties and upon perusal of the available records I find that the petitioner has been able to make out a prima facie case. Interference is warranted at this stage.
12. I direct the respondent to revisit the issue and consider the same in light of the two Division Bench’s judgements within a period of 8 weeks by passing a reasoned order in accordance with law. Such decision shall be communicated within a week thereafter.
13. With the above observation and directions, the Writ Petition is allowed ad disposed of, by quashing and setting aside the Order dated 03.12.2025.
14. Since the affidavit has not been called for, the allegations contained in the writ petition are deemed to have been denied and not admitted.