The Madras High Court has ruled that Input Tax Credit (ITC) cannot be rejected merely because the supplier’s GST registration was cancelled retrospectively, particularly when the transactions were undertaken while the supplier was a registered taxpayer.
The bench of Justice Senthilkumar Ramamoorthy emphasized that the tax department must first examine whether the underlying transactions were genuine before disallowing ITC.
The bench passed the order while allowing a batch of writ petitions challenging assessment orders that had denied ITC solely on the basis of the retrospective cancellation of the supplier’s GST registration.
The petitioner/assessee challenged three separate assessment orders relating to the financial years 2019-20, 2020-21, and 2021-22. The assessing authority had denied Input Tax Credit on purchases made from a supplier whose GST registration was subsequently cancelled with retrospective effect from 1 July 2017.
According to the assessment orders, the retrospective cancellation of the supplier’s registration was treated as sufficient reason to reject the purchaser’s ITC claim.
The petitioner contended that the supplier was a duly registered taxable person at the time the transactions were entered into and that genuine tax invoices had been issued for the supplies. It was argued that retrospective cancellation could not automatically invalidate legitimate transactions already completed.
The petitioner relied upon an earlier decision of the Madras High Court in Engineering Tools Corporation v. Assistant Commissioner (ST), wherein the Court had held that ITC cannot be denied solely because the supplier’s registration was retrospectively cancelled.
The earlier judgment had clarified that the department must verify whether: the supplier existed at the relevant point of time; goods were actually supplied; tax invoices were genuine; e-way bills, lorry receipts, delivery challans and payment proofs supported the transactions.
Only after examining these documents could the department determine the admissibility of ITC.
The State contended that certain invoices had been issued after the supplier’s actual cancellation date. It also argued that the petitioner had failed to produce sufficient evidence proving actual receipt of goods and the genuineness of the transactions.
However, the Court noted that the impugned assessment orders themselves had rejected ITC solely because of the retrospective cancellation of the supplier’s registration without properly examining documentary evidence relating to the supplies.
The Court observed that the respondent itself admitted that the supplier’s GST registration had actually been cancelled only by an order dated 6 December 2022, whereas most of the disputed transactions had taken place much earlier.
The Court held that retrospective cancellation alone cannot be the sole ground for denying Input Tax Credit.
The court reiterated that the assessing authority must examine whether the purchaser has established the genuineness of the transaction through documentary evidence such as: Tax invoices; E-way bills; Lorry receipts; Delivery challans; Proof of payment; and Other supporting records.
Unless these documents are examined and found deficient, ITC cannot be disallowed merely because the supplier’s registration was retrospectively cancelled.
Holding that the assessment orders suffered from legal infirmity, the High Court set aside all three impugned orders and remanded the matters to the assessing authority for fresh consideration.
The Court directed the department to provide the petitioner with a reasonable opportunity of hearing and pass fresh assessment orders within three months after examining all relevant documents and determining whether the transactions were genuine.
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