The Goods and Services Tax Appellate Tribunal (GSTAT), Delhi State Bench, has held that input tax credit cannot be denied merely because a supplier’s GST registration is subsequently cancelled with retrospective effect, when the supplier was registered on the dates of the invoices and no independent case of ineligible credit has been established.
The bench of Arun Kumar Singal (Judicial Member) and Sanjeev Kumar Jain (Technical Member) upheld the setting aside of a ₹37,184 input tax credit demand, along with interest and a ₹10,000 penalty. It also directed that any amount deposited against the demand, including the appellate pre-deposit, be refunded in accordance with law.
The bench criticised the department for pursuing avoidable litigation involving an amount below ₹50,000, observing that this had caused unnecessary harassment to the taxpayer.
The respondent/assessee is a proprietary concern dealing in computer systems and peripherals, purchased laptop computers from Maa Gayatri Infotech through five invoices issued in September and October 2018. The invoices had a total value of ₹2,43,750 and charged central and State tax at 9% each.
The dispute concerned input tax credit of ₹37,184 claimed for the financial year 2018–19.
Following scrutiny of the taxpayer’s returns under Section 61 of the Central Goods and Services Tax Act, 2017, the department issued a show cause notice under Section 73. Its allegation was that the supplier’s registration had been cancelled suo motu retrospectively from the date of registration, making the credit inadmissible.
The tribunal noted that this was the entire allegation in the notice. The department had not alleged that the taxpayer failed to receive the goods, that the invoices were fabricated, or that the supplier had failed to pay tax.
Nevertheless, the adjudicating authority confirmed the credit demand with interest and imposed a ₹10,000 penalty. It relied on Section 16(2)(a) and a CBIC instruction dealing with credit claimed on invoices issued by suppliers whose registrations were retrospectively cancelled.
The taxpayer challenged the demand and produced the five purchase invoices, GSTR-2A screenshots reflecting the transactions, the supplier’s ledger account, bank statements and portal records showing the supplier’s return filings.
The first appellate authority allowed the appeal on September 29, 2025. It found that the supplier had filed GSTR-1 and GSTR-3B returns for the relevant period and that the taxpayer had satisfied the conditions for claiming credit.
The department subsequently approached GSTAT, arguing that retrospective cancellation undermined the validity of the supplier’s invoices. It also contended that payment through banking channels and reflection of invoices in GSTR-2A did not establish that the supplier had actually paid the tax to the government.
Examining Section 16(2)(a), the tribunal held that the requirement of possessing an invoice issued by a registered supplier must be assessed with reference to the date on which the invoice was issued.
On all five invoice dates, the supplier held a GST registration, and the common portal showed it as a registered taxable person.
The bench reasoned that a purchaser can ascertain a supplier’s registration status only from the information available on the portal. A later departmental decision cancelling that registration retrospectively does not, by itself, invalidate credit claimed on transactions undertaken while the supplier appeared registered.
The tribunal acknowledged the proper officer’s power under Section 29(2) to cancel a registration retrospectively. However, it held that the provision does not declare every intervening invoice nonexistent or automatically extinguish credit claimed by third-party purchasers.
It also referred to Section 29(3), which preserves the supplier’s liability to pay tax and other dues despite cancellation. The statute, the bench observed, contains no corresponding provision automatically withdrawing the credit of purchasers.
The adjudicating authority had relied on paragraph 7 of Annexure B to CBIC Instruction No. 02/2022-GST dated March 22, 2022, concerning invoices issued after the effective date of retrospective cancellation.
The tribunal held that the instruction provides parameters for scrutiny of returns. It cannot introduce a disqualification absent from Section 16 or bind an appellate authority deciding whether credit is legally admissible.
According to the bench, retrospective cancellation may justify an inquiry into whether the transaction was genuine and whether tax was paid. It cannot substitute for that inquiry.
In this case, the taxpayer’s invoices identified the laptops by model and serial number. The transactions appeared in GSTR-2A, and banking records showed payments to the supplier. The department had not questioned these documents.
The tribunal agreed with the department’s general proposition that payment by a purchaser to a supplier is not equivalent to payment by the supplier to the government.
However, the first appellate authority had considered more than the taxpayer’s bank statements. It had examined the supplier’s return filings, including GSTR-3B returns for September and October 2018.
More significantly, during the tribunal hearing, the departmental representative admitted that the supplier had deposited tax. His reservation was that he was unsure whether the taxpayer’s credit corresponded to the supplier’s ledger entry.
The bench held that uncertainty about the department’s own records could not support a demand when no specific deficiency or illegality in the taxpayer’s credit had been identified.
It therefore concluded that the requirement under Section 16(2)(c), concerning actual payment of tax to the government, stood satisfied on the facts of the case.
The tribunal also invoked Section 75(7), which prohibits confirmation of a demand on grounds other than those specified in the show cause notice.
The original notice relied solely on retrospective cancellation of the supplier’s registration. It did not allege non-payment of tax.
The department could not defend that demand in appeal on the different ground that the supplier might not have paid tax, particularly when the contention was expressed as a doubt rather than an established fact.
The department relied on the Supreme Court’s decision in State of Karnataka v. Ecom Gill Coffee Trading Private Limited, concerning the purchasing dealer’s burden to establish genuine transactions and movement of goods.
The tribunal recognised that Section 155 places the burden of proving credit eligibility on the claimant. However, it distinguished the cited decision because the genuineness of the purchases had been specifically disputed there.
In the present case, the taxpayer had never been asked to establish delivery of goods or informed that receipt of the goods was in doubt.
The bench also distinguished Aastha Enterprises v. State of Bihar, explaining that it concerned a supplier’s failure to pay tax, whereas tax payment had been admitted in the present proceedings.
Although the disputed tax and penalty were each below the ₹50,000 threshold mentioned in Section 112(2), the tribunal heard the appeal on merits because the department pressed it as a recurring question of principle.
The bench observed that the reviewing authority should have carefully examined the merits before recommending litigation involving such a small amount.
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