The Calcutta High Court, in a significant ruling dated 4 November 2025 in [2025] 180 taxmann 415, held that retrospective cancellation of a supplier’s GST registration cannot, by itself, be a valid ground for denying input tax credit (ITC) to a bona fide purchaser. The Court emphasized that GST authorities must provide proper reasoning, examine all documentary evidence, and ensure compliance with Section 16 of the CGST Act before denying credit. Mechanical or blanket denial of ITC merely because the supplier’s registration was retrospectively cancelled was held to be arbitrary and legally unsustainable. This decision reinforces the importance of reasoned adjudication and protects genuine buyers from penal consequences arising due to the lapses of their suppliers.
Facts of the Case
- A buyer (registered taxable person) had availed input tax credit (ITC) on supplies received from a supplier.
- Subsequently, the supplier’s GST registration was cancelled with retrospective effect. On that basis, the GST Department denied the buyer’s ITC.
- The buyer challenged the denial, contending that at the time of supply, the supplier was validly registered; the buyer had valid tax invoices, payment proof, and evidence of receipt of goods.
Calcutta HC’s ruling
- The Court held that retrospective cancellation of a supplier’s GST registration cannot, by itself, be a valid and conclusive ground to deny the purchaser’s ITC.
- The buyer’s compliance under CGST Act, 2017 / corresponding State GST law — especially conditions under Section 16(2) (valid tax invoice, actual receipt of goods/services, tax paid, return filed) — must be given due weight.
- The adjudicating/appellate authorities must examine and evaluate the documentary evidence (invoices, e-way bills, bank payment proofs, transport/eway-bills, GSTR-2A/2B returns, etc.) already on record — they cannot mechanically reject ITC based on retrospective cancellation alone.
- If the authorities deny ITC solely on cancellation, without any concrete finding of fraud, collusion, or failure in compliance, the order is a non-speaking order (i.e. lacking proper reasoning) — and hence unsustainable in law.
- Accordingly, the Court set aside the impugned order and remanded the matter to the authorities for fresh adjudication — requiring a reasoned order after considering all evidence, and giving the buyer a proper hearing opportunity.
Legal/Practical Implications
- The judgment protects bona-fide purchasers: purchasers who dealt with valid registered suppliers and complied with all statutory requirements should not be punished because the supplier’s registration was cancelled later on.
- It reinforces the principle that denial of ITC must be based on evidence of non-genuineness, fraud, or collusion — not just on a retrospective technical cancellation.
- It underscores the importance of proper documentation and due diligence: maintaining tax invoices, payment records (via bank), transport/e-way bills, proper GSTR reconciliation — which strengthen the buyer’s claim.
- It places an obligation on GST authorities to pass reasoned, speaking orders, not summary or mechanical rejections. This mitigates risk of arbitrary denial and enhances procedural fairness.
- For litigants and tax practitioners: this provides a strong precedent to challenge ITC denials where retrospective supplier-deregistration is used as the sole ground.
Related Developments & Similar Cases
- Earlier, in 2023, the Calcutta HC in Gargo Traders v. Joint Commissioner, Commercial Taxes had held that retrospective cancellation cannot be the sole ground to deny ITC, when supplier was valid at time of supply and purchaser complied with tax requirements.
- More recently (2025), in Niranjan Paul v. Assistant Commissioner of State Tax, the Court reiterated these principles — remanding a matter where ITC was denied citing retrospective cancellation without proper verification of records.
- The authorities (adjudicating/appellate) are directed to reconsider ITC claims in light of these judgments and ensure fair and reasoned adjudication.
Conclusion
The Calcutta High Court’s ruling makes it clear that retrospective cancellation of a supplier’s GST registration cannot automatically justify the denial of ITC. Tax authorities must conduct a meaningful evaluation of the buyer’s documents, compliance with Section 16, and the genuineness of the underlying transactions. Any order that denies ITC without proper reasoning, verification, or evidence becomes a non-speaking and unsustainable order in law.
This judgment strengthens the rights of bona fide purchasers and reiterates that the GST regime cannot penalize compliant taxpayers for lapses committed by their suppliers. It also reinforces the need for fair, transparent, and reasoned adjudication, thereby offering an important safeguard against arbitrary ITC reversals based solely on retrospective registration cancellation.