Major GST Relief: Genuine Buyers Protected from Supplier GST Flaws

In its recent decision in Shyamalmay Paul vs. Assistant Commissioner, SGST (December 2025), the Calcutta High Court reaffirmed that Input Tax Credit (ITC) cannot be denied to a purchasing dealer solely because the supplier's GST registration was cancelled with retrospective effect.

Key Highlights of the Case

1. The Dispute: The petitioner, a registered taxpayer, challenged an order passed by the SGST Appellate Authority which upheld the denial of ITC on purchases made from suppliers whose registrations were later cancelled retrospectively.
2. The Evidence: The petitioner had submitted substantial evidence to prove the genuineness of the transactions, including:

• Tax Invoices and E-way bills
• Transport documents
• Bank statements showing payments to the supplier
• Party ledgers and proof of physical movement of goods.

3. The Issue: The tax authorities rejected the ITC claim "mechanically," arguing that since the supplier's registration was cancelled retrospectively, the transactions were deemed non-existent or fraudulent.

Court's Findings and Ruling

1. Validity at Time of Supply: The Court noted that at the time of the transaction, the supplier's registration was active and valid on the government portal. The purchaser cannot be expected to foresee a future retrospective cancellation.
2. Bona Fide Transactions: If a purchaser has complied with Section 16(2) of the WBGST/CGST Act (possession of invoice, receipt of goods, and payment of tax), the benefit of ITC cannot be denied unless collusion or fraud on the part of the purchaser is proved.
3. Failure of Duty by Authorities: The Court criticized the authorities for failing to evaluate the documents provided by the petitioner. It held that simply citing a retrospective cancellation without verifying the actual movement of goods and authenticity of payments is insufficient to deny ITC.
4. Remand for Re-Adjudication: The High Court set aside the appellate order and remanded the matter back to the adjudicating authority to pass a reasoned order after verifying the submitted documents and checking if the supplier had actually paid the tax at the time of the transaction.

Significance of the Ruling

This judgment aligns with earlier precedents like LGW Industries and Gargo Traders, providing significant relief to honest taxpayers. It establishes that:

• Retrospective cancellation is not a "silver bullet" for the tax department to deny ITC.
• The burden of proving fraud lies on the department if the taxpayer provides valid statutory documents.
• Taxpayers are protected from being penalized for the subsequent non-compliance or registration issues of their suppliers.

The decision reinforces the principle that an honest buyer should not be penalized for the subsequent defaults or registration issues of a third-party supplier.

This ruling arrives at a critical time, as the Supreme Court is also currently reviewing similar matters involving the retrospective denial of tax credits, signaling a potential nationwide standardization of these protections.

Source: Click Here

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