TaxTMI 
TaxTMI 
17 Oct 2026 
A Later Cancellation Does Not Automatically Establish an Earlier ITC Default
Retrospective cancellation of a supplier's GST registration raises legitimate questions about earlier transactions. However, it does not, by itself, establish that every invoice the supplier issued was invalid, that goods were never delivered, or that tax was not paid. These are separate questions that require examination of the relevant transactions and records. A cancellation entry may justify an inquiry, but it cannot, by itself, supply every fact necessary to deny input tax credit. This distinction is particularly important where the supplier appeared as a registered person when the purchaser acquired the goods.
The principle was examined in Ram Manohar Meena Versus SRH Technologies. - 2026 (10) TMI 929 - GSTAT NEW DELHI. The GSTAT, Delhi Bench, comprising Shri Arun Kumar Singal, Member (Judicial), and Shri Sanjeev Kumar Jain, Member (Technical), decided Appeal No. APL/59/DEL/2026. The departmental appeal challenged the relief granted to SRH Technologies, a proprietorship trading in computer systems and peripherals. The Tribunal upheld the purchaser's ITC of Rs. 37,184, rejected the related interest and Rs. 10,000 penalty, and directed the refund of amounts deposited against the demand in accordance with law. Its reasoning addressed registration status, the scope of scrutiny instructions, tax-payment evidence and the limits imposed by the show-cause notice.
The Notice Must Identify the Actual Ground for Denying Credit
SRH Technologies purchased laptops from M/s Maa Gayatri Infotech under five invoices issued in September and October 2018. During scrutiny of its returns for financial year 2018-19, the Department issued Form GST ASMT-10 on 28.03.2023, followed by Form GST DRC-01A on 26.10.2023. The show-cause notice dated 09.11.2023, issued under Section 73 of the CGST Act, 2017, proposed recovery because the supplier's registration had been cancelled retrospectively from 01.07.2017. Significantly, the notice did not allege that goods were not received, the invoices were fictitious or the supplier had failed to pay tax.
The adjudication order dated 20.12.2023 confirmed the demand, relying principally on Section 16(2)(a) of the CGST Act, 2017 and a departmental scrutiny instruction. The purchaser appealed on 19.03.2024, furnishing invoices, Form GSTR-2A entries, the supplier ledger, bank records and portal information concerning the supplier's returns. The First Appellate Authority allowed the appeal on 29.09.2025. Following a review order dated 20.01.2026, the Department approached GSTAT under Section 112(3) of the CGST Act, 2017. The dispute reaching the Tribunal had to be examined against the allegation actually made, not against other possible allegations that the notice had never raised.
Registration Status on the Invoice Date Matters
Section 16(2)(a) of the CGST Act, 2017 requires possession of a prescribed tax-paying document, including a tax invoice issued by a supplier registered under the enactment. The Tribunal read this requirement by reference to the date of issuance. The five invoices were dated 22.09.2018, 28.09.2018, 29.09.2018, 03.10.2018 and 04.10.2018. On those dates, the supplier held registration granted by the Department, and the common portal showed a registered person. The invoices carried its GSTIN. The purchaser had dealt with a supplier whose registration existed when the invoices were issued.
The Department's reliance on Rule 36(1)(a) of the CGST Rules, 2017 did not change that conclusion. That provision applies only to invoices issued under Section 31 of the CGST Act, 2017. The Tribunal rejected the attempt to invalidate these invoices solely through the supplier's later retrospective cancellation. This does not make an active GSTIN conclusive proof of a genuine purchase. An invoice from a registered person may still be challenged on evidence of fictitious supply, non-receipt or another statutory failure. The narrower conclusion is that later cancellation alone did not establish failure of the invoice-related condition in this case.
The Effective Date and the Date of Cancellation Are Different
A cancellation order may be passed on one date but take effect from an earlier date. Those dates must not be confused. Here, the retrospective effective date was 01.07.2017, preceding the purchases. The First Appellate Authority had described the transactions as preceding the effective date of cancellation. The Tribunal corrected that statement: the purchases did not precede the retrospective effective date; they preceded the later cancellation decision. The cancellation order itself had not been produced, so its precise date and grounds were unknown. The Tribunal relied on the available registration and return records when examining the chronology.
Section 29(2) of the CGST Act, 2017 permits retrospective cancellation, and the Tribunal did not question that power. Its point was that the provision does not expressly declare every intervening invoice invalid or automatically withdraw purchasers' credit. Section 29(3) of the CGST Act, 2017 also preserves the supplier's liability for earlier periods. For example, cancellation ordered later with effect from July 2017 does not, without further examination, prove that a documented purchase in September 2018 never occurred. The retrospective entry and the legal consequences for the particular purchaser must be examined separately. That distinction preserves inquiry into suspect transactions without treating every purchaser as automatically ineligible.
A Scrutiny Instruction Cannot Create a New Statutory Disqualification
The adjudicating authority relied on paragraph 7 of Annexure B to Instruction No.02/2022-GST dated 22.03.2022. That paragraph addressed ITC on invoices issued after the effective date of a supplier's retrospective cancellation. The Tribunal examined the instruction in its setting: it prescribed a standard operating procedure for scrutiny, with Annexure B identifying matters requiring examination. The authority had treated the cancellation-related parameter as sufficient to conclude that the credit was inadmissible. The inquiry effectively stopped at the discrepancy the system identified.
The Tribunal rejected that approach. An administrative instruction could guide scrutiny but could not add a disqualification not provided in Section 16 of the CGST Act, 2017. Nor could it compel an appellate authority to deny credit without examining the law and evidence. A simple distinction explains the principle: a system flag may tell an officer which transactions need investigation; it does not establish the investigation's result. The officer must examine whether the goods were received, whether tax was paid and whether any other relevant condition failed. The instruction could initiate scrutiny, but it could not replace the factual and legal basis required for denial.
Payment to the Supplier Is Different From Payment to the Government
The Department correctly submitted that a purchaser's payment to its supplier does not, by itself, establish the supplier's payment to the Government. Section 16(2)(c) of the CGST Act, 2017 imposes a separate tax-payment condition, subject to the applicable statutory framework. A purchaser may pay the entire invoice through banking channels, but that bank entry alone does not establish how the supplier discharged the corresponding liability. The Tribunal expressly recognised this distinction. It did not hold that an invoice, bank payment or assertion of good faith necessarily satisfies every condition for ITC.
However, the purchaser's case did not rest on bank records alone. The invoices appeared in Form GSTR-2A, and portal records showed the supplier's Form GSTR-3B filings for the relevant months. During the Tribunal hearing, the Department's representative also accepted that the supplier had deposited tax, while expressing uncertainty about whether the respondent's credit corresponded to that deposit. On the overall record, the Tribunal found the condition satisfied. This was an evidentiary conclusion in the particular case, not a universal rule that Form GSTR-2A entries or Form GSTR-3B filing conclusively prove tax payment for every disputed invoice. Those records must be assessed with the allegations and other available material.
A Demand Cannot Be Defended on a Ground Missing From the Notice
In appeal, the Department argued that it had not verified the supplier's tax payment. However, neither the show-cause notice nor the adjudication order alleged non-payment of tax on the five invoices. The demand was based only on retrospective cancellation. Section 75(7) of the CGST Act, 2017 prohibits confirming a demand on grounds not stated in the notice. The Department could not support that demand by introducing a new, unproven doubt about tax payment. The purchaser had to know the allegation it was expected to answer.
The supplier's returns and ledgers were available to the same Commissionerate, but the Department produced no evidence of non-payment. Its representative's uncertainty about linking the payment to the purchaser's credit did not establish that the claim was defective. The purchaser's duty to prove eligibility remained, but departmental uncertainty could not replace a clear, evidence-supported allegation.
The Purchaser's Burden Remains but Must Be Applied to the Actual Dispute
The Department relied on The State of Karnataka Versus M/s Ecom Gill Coffee Trading Private Limited - 2023 (3) TMI 533 - Supreme Court. Under Section 70 of the Karnataka Value Added Tax Act, 2003, the Supreme Court emphasised the purchasing dealer's burden to prove its ITC claim. Where genuineness was disputed, invoices and cheque payments alone were insufficient. Evidence of actual transactions and movement, including delivery, transport and freight particulars, was relevant. The decision rejected the proposition that documentary invoicing and financial transfers necessarily proved genuine purchases.
The Delhi Tribunal accepted that Section 155 of the CGST Act, 2017 likewise places the burden on the claimant to establish eligibility. It distinguished the facts, not the existence of that burden. In SRH Technologies, the notice had not challenged receipt or movement of goods; it relied only on cancellation. The purchaser supplied transaction records, and the Department did not question those documents. The burden of proof did not permit sustaining a demand on an allegation never properly raised. Equally, the judgment does not excuse purchasers from retaining delivery and other supporting evidence merely because an initial notice concerns registration status.
Established Supplier Non-Payment Differs From Doubt About Payment
The Department also cited M/s Aastha Enterprises Versus The State of Bihar through the Commissioner of Commercial State Taxes, New Secretariat, Patna, The Joint Commissioner, State Taxes, Shahabad Circle, Bhojpur at Ara, Bihar. - 2023 (8) TMI 1038 - PATNA HIGH COURT. That case concerned a supplier who collected tax but did not pay it to the Government. The Patna High Court treated the statutory ITC conditions as cumulative: proof of purchase and payment to the supplier did not dispense with the tax-payment requirement. The availability of proceedings against the defaulting supplier did not, by itself, establish the purchaser's entitlement. The distinction mattered because SRH Technologies did not address established supplier non-payment.
The First Appellate Authority in SRH Technologies had also referred to recovery from the supplier under Section 76 of the CGST Act, 2017. However, the Tribunal's decision should not be presented as establishing that the Department must invariably exhaust recovery against a supplier before examining the recipient's credit. Its decisive findings concerned the invalidity of cancellation as the sole ground, the notice's limited scope and the evidence of tax payment. Supplier recovery and purchaser eligibility are related but distinct statutory questions. The result did not create a general immunity from recipient proceedings wherever recovery powers against the supplier are available.
ITC Conditions Must Be Applied for the Relevant Tax Period
The credit related to financial year 2018-19. The Tribunal therefore examined the requirements applicable during that period. It noted that the First Appellate Authority had additionally tested the claim against clauses (aa) and (ba) of Section 16(2) of the CGST Act, 2017. Those clauses were inserted later and did not govern the disputed credit. The error did not affect the result because the First Appellate Authority had found those conditions satisfied. Nevertheless, the observation highlights the importance of identifying the applicable statutory version before deciding eligibility.
A historical ITC dispute cannot be determined simply by applying today's provisions to an earlier transaction. Similarly, a conclusion on 2018-19 cannot carry forward into later periods without examining amendments that have since become applicable. Form GSTR-2A was relevant evidence in this case, but its evidentiary use should not be confused with applying a subsequently inserted condition retrospectively. The tax period determines the governing framework; the records establish compliance within that framework. Professionals should therefore distinguish the transaction date, relevant return period, amendment commencement dates and later cancellation chronology.
A Low-Value Appeal Still Requires Careful Review
The disputed ITC was Rs. 37,184, and the penalty was Rs. 10,000. Both were below the threshold mentioned in Section 112(2) of the CGST Act, 2017. That provision gives the Tribunal discretion to refuse admission of qualifying low-value appeals; it does not impose an absolute prohibition. The Department pressed the matter as involving a recurring question of principle, and the Tribunal heard it on merits. The dismissal was therefore not merely a threshold disposal based on the amount.
After rejecting the appeal, the Tribunal commented on the avoidable litigation imposed on the taxpayer and called for careful scrutiny before similar appeals were filed. No costs were imposed. The practical responsibility of review is not discharged merely by identifying an adverse appellate result. The reviewing authority should examine the notice, evidence, findings and departmental records before deciding that further litigation is justified. A recurring legal issue may warrant consideration, but calling a case a matter of principle cannot cure missing allegations or unsupported factual objections.
The ITC Demand, Interest and Penalty Did Not Survive
The Tribunal dismissed the departmental appeal, leaving the purchaser free from the Rs. 37,184 ITC demand, related interest, and Rs. 10,000 penalty. The Tribunal directed that amounts deposited against that demand, including the first-appeal pre-deposit, be refunded in accordance with law. No specific refund deadline or interest rate was prescribed.
Retrospective cancellation alone could not justify denial of the earlier credit. However, the purchaser's duty to establish eligibility and the conditions of Section 16(2)(c) of the CGST Act, 2017 remained intact. The decision upheld relief from this demand; it did not grant automatic protection to every purchase from a supplier whose registration was cancelled retrospectively.
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