ITC cannot be denied to the Recipient merely because of retrospective cancellation of supplier’s GSTIN without examination of genuineness of the transaction

The Hon’ble Himachal Pradesh High Court in M/S HIMALAYA COMMUNICATION PVT. LTD. VERSUS UNION OF INDIA AND OTHERS - 2025 (6) TMI 586 - HIMACHAL PRADESH HIGH COURT held that Input Tax Credit (“ITC”) cannot be denied solely on the ground of retrospective cancellation of supplier’s GST registration without first examining the genuineness of the transaction and relevant documents.

Facts:

M/s Himalaya Communication Private Limited (“the Petitioner”) filed a writ petition seeking relief against denial of ITC by the Department. The Petitioner challenged two orders dated January 10, 2025 and March 31, 2024 passed by Union of India and Others (“the Respondents”) whereby the Petitioner's claim for ITC was rejected. The Respondents rejected the claim for ITC, solely on the ground that the GST registration of the supplier had been cancelled retrospectively.

The Petitioner submitted that the tax was duly paid to the supplier, all requisite documents were in place, and the supplier had filed the relevant GSTR-3B return showing discharge of tax liability. Despite this, without evaluating the authenticity of the underlying transaction, the Respondents had invoked Section 16(2) of the Central Goods and Services Tax Act, 2017 (“the CGST Act”) and thereafter issued a show cause notice (“theSCN”) and denied the ITC.

Issue:

Whether ITC can be denied merely on account of retrospective cancellation of the supplier’s GST registration, without evaluating the genuineness of the underlying transaction and documents?

Held:

The Hon’ble Himachal Pradesh High Court in M/S HIMALAYA COMMUNICATION PVT. LTD. VERSUS UNION OF INDIA AND OTHERS - 2025 (6) TMI 586 - HIMACHAL PRADESH HIGH COURTheld as under:

• The Respondents sole basis for denial of ITC was the retrospective cancellation of the supplier’s GST registration. However, there was no material on record to show that the Respondents had examined whether the transaction in question was genuine or not.
• Held that, before initiating proceedings to deny ITC under Section 16(2) of the CGST Act, the authorities were required to examine the documents to verify the nature of the transaction. Such an exercise was not undertaken in the instant case.
• Accordingly, the Court set aside the impugned orders dated January 10, 2025 and March 31, 2024 and remanded the matter back to the Adjudicating Authority for fresh consideration.

 (Author can be reached at [email protected])