Calcutta High Court: ITC Cannot Be Denied Solely Due to Supplier’s Retrospective Cancellatio
Case Title: Shyamalmay Paul v. Assistant Commissioner of State Tax
Writ Petition (Admn.) No. 708 of 2025
Judgment Date: 15 July 2025
—
Case Overview
The Calcutta High Court has ruled that input tax credit (ITC) cannot be denied to a recipient merely because the supplier’s GST registration was cancelled with retrospective effect, provided the supplier was registered at the time of the transaction.
—
Key Facts
The assessee procured goods from a supplier who was GST-registered on the date of supply.
The assessee held valid tax invoices, had received the goods, and had paid consideration including GST.
The supplier’s GST registration was cancelled retrospectively after the transaction.
ITC was denied, and interest and penalties were imposed solely based on the retrospective cancellation.
—
Legal Issues Considered
1. Does the retrospective cancellation of GST registration of the supplier automatically invalidate the recipient’s entitlement to ITC?
2. Are revenue authorities required to conduct a factual inquiry into the supplier’s tax compliance before reversing ITC?
—
Arguments
Assessee:
Fulfilled all conditions under Section 16(2) of the CGST Act, 2017.
The supplier was a registered person on the date of supply.
There was no finding on whether the supplier remitted the tax to the government.
Revenue:
Argued that retrospective cancellation invalidates the supplier’s registration status for ITC eligibility.
Denial of ITC was automatic, based on the cancellation, without further investigation.
—
Court’s Observations
ITC entitlement is determined at the time of supply. If the supplier was registered on that date, the recipient’s claim stands, subject to confirmation of tax payment.
Authorities failed to determine whether the supplier had remitted the tax.
Denial of ITC without such inquiry is arbitrary and contrary to GST’s self-assessment mechanism.
Referred to precedents including MSK Projects (P) Ltd. v. Commissioner, CGST (Madras HC) to reinforce that retrospective cancellation alone is insufficient.
—
Judgment
Quashed the orders denying ITC and imposing penalties.
Directed revenue authorities to:
Conduct a focused inquiry into whether the supplier paid tax on the transactions.
Proceed against the recipient only if the supplier defaulted and tax recovery from the supplier is not possible.
—
Key Takeaways
Retrospective cancellation of a supplier’s GST registration does not automatically void ITC if the supplier was registered at the time of supply.
Authorities must establish supplier default and attempt recovery from the supplier before denying ITC to the recipient.
This judgment strengthens the protection for bona fide recipients acting in good faith.