ITC Declined

[ABHAY BHAGALI]

In the financial year. 2223, we have purchased good as a single Invoice from a supplier who issued an e-way bill and we paid the money to him as well. The supplier has filed GSTR-1 but not filed GSTR-3B with the tax to the government. His GST registration was canceled suo motto, from the prior date of the invoice issued to us. We received an intimation ASMT 10 and DRC 01A for declining the ITC of said invoice. Thereafter, the supplier was forced by us to pay the basic tax and penalty which he has done from his login portal using DRC-03, in the comment section he has mentioned the invoice details and the intimation of the notice to us with ARN number and paid to the government. When we approach to the GST officer, he declined the ITC credit utilization and issued us a show cause notice with penalty. We are arguing with the GST office stating that all conditions in mentioned in section 16 (2) has been fulfilled. The ITC declined charge should be dropped and same should be allowed fully.

The GST officer has declined to do so and forcing us to go to appeal, please advise.

[KASTURI SETHI]

Once the Adjudication Order is passed, only appeal is the remedy. If you opt for rectification, that will not be permitted by the Adjudicating Authority. So file appeal within stipulated period under Section 107 of CGST Act.

You are not at fault. The supplier is the defaulter. The buyer should not suffer due to the supplier's fault. There are so many case laws in your favour.

Chances are bright because Govt. dues stand paid with interest and penalty as informed by you.

What is the date of issuance of the Adjudication Order ?  What is period involved ? What are the dates of invoices on which ITC has been denied ?

[ABHAY BHAGALI]

I have replied to SCN on 8/3/25. Order yet to be passed. The supplier invoice was Aug 22. His registration was cancelled suo motto from June 22. My question is if in the present scenario if all conditions as per section 16 (2) meets how come the officer deny ITC.

[KASTURI SETHI]

 What is the date of issuance of the Order for cancellation  of GSTIN ? 

 It appears that  GSTIN has been cancelled retrospectively. 

 Pl. confirm.

[ABHAY BHAGALI]

Yes the registration is cancelled before date of the invoice. DRC 07 received today reason unsatisfactory reply. Penalty with interest has been levied.

[ABHAY BHAGALI]

The GST registration of supplier is cancelled from June 22 and issuance order is not known 

[KASTURI SETHI]

How the date of issuance of order not known ? Any Adjudication Order cannot be issued without date and without DIN. Has the Adjudicating Authority signed without date ?  There must  be despatch no. and date of despatch ? 

 Re-check pl.

[KASTURI SETHI]

Without full facts relevant case law cannot be posted in your favour.

[Shilpi Jain]

As per law ITC cannot be denied by officer but there are no mechanisms in place to stop the officer from issuing such notices. You will have to file the appeal and take your matter to the next appeal level where you could expect some relief

[ABHAY BHAGALI]

Thanks.Mam, Sethi sir I am taking closure order date from supplier. I will post 

[KASTURI SETHI]

If the GSTIN has been cancelled retrospectively,  there is a plethora of judgements of High Courts  in your favour. That is why I am asking for the date of issuance of Adjudication Order.

[Shilpi Jain]

All these are unwanted litigations created by department. Genuine Taxpayer is under loss due to all of this.

[ABHAY BHAGALI]

Kind attn Mr. Sethi sir

Invoice date 31/08/22

Registration of supplier cancelled suo motto effective from 30 June 2022. This order was issued to the supplier on 18/5/2023. Section 29 (2) C

[KASTURI SETHI]

(i) ITC cannot be denied due to retrospective cancellation of GSTIN of the supplier. You have taken ITC on valid invoices issued by the supplier who was duly registered with the department at the time of taking ITC. Registration Certificate was issued by Govt. of India/ State Govt. The issuance of GST Registration Certificate cannot be denied by the department.

(ii) Still personal hearing is to be held. You can file additional submissions in the course of personal hearing. You are to ensure that the letter of additional submissions is recorded in the record of personal hearing which is to be signed by the Adjudicating Authority and Noticee both. Also request for photo copy of the Record of Personal Hearing.

(iii) You can rely upon the following case laws :-

1. TMI Issue ID Nos. 438959, 435143 & 416068

Also peruse all the case laws mentioned in the judgments on the basis of which High Courts have issued Orders.

[KASTURI SETHI]

Gauhati High Court has held that purchasing dealer cannot be punished, if selling dealer failed to deposit tax. Relevant portion of the judgement is appended below

2024 (8) TMI 836 - GAUHATI HIGH COURT - NATIONAL PLASTO MOULDING, M/S. SOCIETY SOAP WORKS AND ANR, JUGAL KISHORE DAGA, ABHAY ASSOCIATES AND ANR, MADHU JAIN, MAHABIR PRASAD MAHENDRA KUMAR, DIPANKAR BANIK, VIJAY TRADING CO., TOLARAM SURENDAR KUMAR KUNDALIA AND ANR, SURENDER KUMAR KUNDALIA, GUNCHAND DALCHAND, HEMKARAN STORES, M/S. RATHI TRADERS AND ANR,. VERSUS THE STATE OF ASSAM, THE COMMISSIONER OF STATE TAXES (EARLIER KNOWN AS THE COMMISSIONER OF TAXES) GUWAHATI, THE SUPERINTENDENT OF TAXES, NISHANT SALES CORPORATION, THE UNION OF INDIA, THE COMMISSIONER CENTRAL GOODS AND SERVICE TAX GUWAHATI, THE ASSISTANT COMMISSIONER CENTRAL GOODS ANA SERVICE TAX TEZPUR, JVL AGRO INDUSTRIES LTD.,

Validity of Sections 16 (2) (c) and 16 (2) (d) of the Assam Goods and Services Tax Act, 2017 as well as the validity of Sections 16 (2) (c) and 16 (2) (d) of the Central Goods and Services Tax Act, 2017 - whether purchasing dealer cannot be punished for the act of the selling dealer in case the selling dealer had failed to deposit the tax collected by it? - HELD THAT:- The controversy raised in this batch of writ petitions is squarely covered by the decision of the Delhi High Court in the case of On ON QUEST MERCHANDISING INDIA PVT. LTD., SUVASINI CHARITABLE TRUST, ARISE INDIA LIMITED, VINAYAK TREXIM, K.R. ANAND, APARICI CERAMICA, ARUN JAIN (HUF), DAMSON TECHNOLOGIES PVT. LTD., SOLVOCHEM, M/S. MEENU TRADING CO., & MAHAN POLYMERS VERSUS GOVERNMENT OF NCT OF DELHI & ORS. & COMMISSIONER OF TRADE & TAXES, DELHI AND ORS. [2017 (10) TMI 1020 - DELHI HIGH COURT] where it was held that 'the default assessment orders of tax, interest and penalty issued under Sections 32 and 33 of the DVAT Act, and the orders of the OHA and Appellate Tribunal insofar as they create and affirm demands created against the Petitioner purchasing dealers by invoking Section 9 (2) (g) of the DVAT Act for the default of the selling dealer, and which have been challenged in each of the petitions, are hereby set aside.'

Hence, the show cause notices impugned in the present writ petitions and the consequential orders are set aside. However, the Department is free to act in those cases, where the purchase transactions are not bona fide, in accordance with law.

The writ petition is disposed off.

AI Summary

Buyer Challenges Denied ITC Due to Supplier's Lapse; Advised to Appeal Under Section 107 of CGST Act. A buyer faced issues with Input Tax Credit (ITC) due to a supplier's failure to file GSTR-3B, despite having filed GSTR-1 and paid taxes with penalties using DRC-03. The supplier's GST registration was canceled retrospectively, leading to the buyer receiving a show cause notice and penalty. The buyer argued that all conditions under Section 16(2) were met, but the GST officer denied ITC credit utilization, suggesting an appeal under Section 107 of the CGST Act. The forum participants advised that the buyer should appeal, citing case laws supporting the buyer's position, as the supplier's fault should not penalize the buyer.