DENIAL OF ITC DUE TO SUPPLIERS REGISTRATION HAS BEEN CANCELLED UNDER SECTION 29(2)(e)

[Mehul Pandya]

DEAR EXPERT,

MY QUERY IS UNDER.

I am manufacturing firm. I am purchasing raw material from different suppliers. Sometimes we are purchasing from agents. So we dont know the supplier personally. We have received 3 different DRC-01 for the F.Y. 2018-19 stating that suppliers registration cancelled suo moto. hence ITC need to reverse. initially they have issued summon to us and we have supplied documents as they required. but off the record, they told us that when ever any suppliers GST number cancelled we demand ITC from the receipient too. in one notice they even not issued DRC-01A. We have documents like invoice, E-way bill, payment proof. What can be done in this case.

[Sadanand Bulbule]

Dear querist

The general observation is that If the registration was live as on the date of purchases of goods/services, then you have a strong case and judicial rulings are in your favour.

However the subject purchases are alleged to have been made from the dealers involved in fraud, wilful misstatement or suppression of facts in terms of Section 29[2][e], then it is difficult for you to convince the authorities satisfactorily as regards to the entitlement of ITC on such purchases, unless you strongly substantiate all the conditions of Section 16 with unimpeachable evidences.

[Raam Srinivasan Swaminathan Kalpathi]

If you do not intend to reverse ITC with applicable interest u/s. 50, then be prepared for a long drawn battle with the department.  To assist, you may keep the following documents ready, viz.

a) Supplier tax invoice - please check if the supplier invoice conforms to the details mandated as per Rule 46

b) e-way bill

c) Vehicle details with ack. of the your company taking delivery

d) Payment details for the said invoice

e) Proof for physical movement of the goods to the location of the recipient, etc.

Kindly also scrupulously follow paradigm SC ruling in the case of Ecom Gill Coffee Trading Private Limited - 2023 (3) TMI 533 - SUPREME COURT.  Thanks  

[Shilpi Jain]

If the supplier registration was active at the time you took the credit, its a good case to fight. Though the battle will take time and some money as well.

Look at the amount and the cost involved to decide. 

2018-19 is a period when these provisions were not in place. So all the more a good case to fight.

[Sadanand Bulbule]

Dear querist

Please note that the provisions ofRule 86A of the CGST Rules may also play its role in the situation explained by you.

[KASTURI SETHI]

Dear Querist,

The burden of proof is cast upon the department regarding the allegation of fraud etc. There is a plethora of judgements  available on this issue in your favour. You have been dragged into litigation. 

AI Summary

Manufacturing firm battles ITC denial over suppliers' GST cancellations under Section 29(2)(e); documentation and legal strategy crucial. A manufacturing firm is facing issues with Input Tax Credit (ITC) denial due to the cancellation of their suppliers' GST registration under Section 29(2)(e). The firm received notices demanding ITC reversal for the fiscal year 2018-19. Experts suggest that if the supplier's registration was active during the purchase, the firm has a strong case. However, if the suppliers are involved in fraud, it becomes challenging to claim ITC. Recommendations include preparing comprehensive documentation and being ready for prolonged legal proceedings. The burden of proof lies with the department, and past rulings may support the firm's case.