Input tax credit disallowance may be reopened for limited document verification where suppliers cannot be traced.

Where input tax credit is disallowed because the suppliers cannot be traced, a limited opportunity may be granted to the assessee to produce supporting records before the assessment is finalised. The Kerala HC applied the approach in M. Trade Links and interfered with the assessment only to the extent necessary to allow production and verification of the relevant documents. The disallowance was therefore set aside to a limited extent, and the assessing authority was directed to complete the assessment after considering the materials submitted within the stipulated time.

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Issues: Whether the disallowance of input tax credit under Section 16(2)(c) and Section 16(4) of the CGST/SGST Acts was liable to be interfered with and the assessee afforded an opportunity to produce supporting documents.

Analysis: The disallowance arose from the assessee's inability to trace the suppliers concerned. The Court found that the case stood on similar footing to an earlier decision of the same Court in which further opportunity had been granted to produce documents relating to the disputed transactions. On that basis, the assessee was entitled to a similar limited opportunity in the light of the circulars referred to in M. Trade Links. The impugned assessment was therefore interfered with only to the extent necessary to permit production and verification of the relevant materials.

Conclusion: The disallowance of input tax credit was set aside to a limited extent, and the assessee was permitted to produce the required documents within the stipulated time, after which the assessing authority was to complete the assessment accordingly.

Final Conclusion: The petitioner obtained partial relief on the input tax credit dispute, with the assessment kept alive only to the extent necessary for fresh verification of documents.

Ratio Decidendi: Where disallowance of input tax credit is based on non-traceability of suppliers, a limited opportunity may be granted to produce supporting documents before final assessment is sustained.

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