ITC risk when supplier GSTIN cancelled prospectively - Belagavi case

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Hafiz Patel

student

27 Points Posted on 18 May 2026

I'm a student researching practical GST compliance gaps. I pulled public data and found a Belagavi-based food manufacturer, Nile Agro Foods (GSTIN 29AAECN0546R1ZV),
whose registration was cancelled on 29-02-2024.

Suppose a buyer received an invoice from them after that cancellation date (say March

2024) and claimed ITC on it. The buyer did not know the supplier was cancelled.

My question:
1. In practice, does the GST portal block that ITC automatically in GSTR-2B, or does the buyer only find out during scrutiny/audit?
2. What exactly happens to the buyer - do they receive a demand notice? Is the ITC reversed with interest?
3. I've read the Karnataka AAR in Nandini
  Enterprises (KAR ADRG 06/2019) that says
  ITC must be reversed when the supplier's registration is cancelled. Does this still hold after recent High Court judgments on retrospective cancellation? (I know this cancellation is prospective, not retrospective.)
4. Most importantly: Have any practitioners here actually seen a client lose ITC because their supplier's registration was cancelled, and they didn't know? How common is this?

Thank you for sharing your practical experience. I'm trying to understand if this is a real pain point or just a theoretical risk.

Replies (3)

Quick Summary

Buyer ITC on invoices issued after supplier GST cancellation faces real risk. Portal may not block ITC immediately; issue often arises during audit or DRC-01 scrutiny. Authorities may demand reversal with interest, though courts increasingly protect genuine buyers with proper due diligence.

Aashok FC Advisory

Finance Compliance Consultant

1035 Points Posted on 18 May 2026

GST portal does not always instantly block such ITC automatically.
Buyers often discover the issue later during scrutiny/audit.
If invoice is issued after supplier’s prospective cancellation date, ITC risk is real because supplier was unregistered on invoice date.
Department may seek ITC reversal with interest through DRC-01 proceedings.
However, modern High Court jurisprudence increasingly protects bona fide buyers where transactions are genuine and properly documented.
Strong documentation and vendor due diligence become crucial in defending ITC.

Hafiz Patel

student

27 Points Posted on 18 May 2026

Thank you for the detailed reply. That's very helpful. To dig a bit deeper:

1. In your experience, what specific documents or due diligence practices actually help a buyer successfully defend ITC in these cases? Is it just the tax invoice and payment proof, or do they need more like supplier registration verification screenshots, bank statements, transport documents?
2. For a typical mid-size manufacturer, what is the rough cost and timeline of fighting a DRC-01 proceeding over ITC denial due to supplier cancellation even if they eventually win?

Aashok FC Advisory

Finance Compliance Consultant

1035 Points Posted on 20 May 2026

Claiming ITC from a cancelled supplier poses a real financial risk because the GST portal does not always provide an immediate alert. While authorities may issue demand notices for reversal with interest, current judicial trends are increasingly supportive of genuine, well-documented transactions. To protect yourself, keep comprehensive proof of payment, delivery, and initial vendor verification to demonstrate that your business acted in good faith.