Can't deny input tax credit if seller's GST registration cancelled, says HC
This story was originally published at 20:18 IST on 1 October 2026
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NEW DELHI – The Punjab and Haryana High Court Thursday held that input tax credit cannot be denied to a purchasing dealer solely on the basis that the selling dealer's Goods and Services Tax registration is cancelled. Section 16(2)(c) of the Central Goods and Services Tax Act, 2017 makes the availment of input tax credit conditional upon the actual payment of tax to the government by the supplier. However, there are instances of no payment of tax being made to the government and it was found that the GST registration of the supplier was cancelled.
The subsequent cancellation, including retrospective cancellation, of the GST registration of the selling dealer; the reflection of 'nil' or short tax liability in the return of the selling dealer; or the receipt of an alert or intimation from some source or complaint, may furnish a legitimate starting point for an inquiry for GST department, said the court. But this inquiry will not, by itself, constitute the basis for denial or reversal of input tax credit availed by the purchasing dealer, said the court.
The high court said that before issuing a show cause notice to a purchasing dealer founded upon Section 16(2)(c) of the 2017 Act, the proper officer has to apply his mind to the material available and record his satisfaction. The proper officer should see the particulars of the selling dealer, the invoices, the tax periods and the amount of input tax credit involved, said the court. The officer should examine whether the tax charged has not been paid at all, has been short paid, or has been discharged through utilisation of input tax credit which is itself inadmissible, said the court. It should also see the circumstances in which the selling dealer has failed to deposit the tax, it added.
If the GST department is invoking its power to determine short-tax paid or input tax credit wrongly availed, its notice will itself contain the foundational facts from which the inference of fraud, wilful misstatement or suppression of facts on the part of the noticee is drawn, said the court. The fraud of the selling dealer will not be attributed to the purchasing dealer unless the notice discloses the facts connecting the purchasing dealer with such fraud, it said.
The burden for proving eligibility for an input tax credit lies upon the purchasing dealer, said the court. The purchasing dealer may discharge the burden by producing material such as the tax invoice; proof of receipt of goods or services, including e-way bills, transport receipts, weighbridge slips and stock and consumption records, it said. The proper officer will consider such material and deal with it in the order, it added.
Where the denial of input tax credit is premised upon the retrospective cancellation of the GST registration of the selling dealer, the proper officer will examine the grounds on which, and the date from which, the registration has been cancelled, said the court. The officer should see whether such grounds have any bearing on the genuineness of the particular supply made to the purchasing dealer, it said.
The high court was hearing a bunch of 424 petitions on the scope of Section 16(2)(c) of the 2017 Act. The court was dealing with the obligation cast upon a purchasing dealer who has already paid tax to the supplier, to ensure the tax had been deposited with the government, when there was no means to access or ascertain this. The court asked the GST department to deal with the cases according to the guidelines issued by it. End
Reported by Surya Tripathi
Edited by Avishek Dutta
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