Notice issued by SGST against DRC-01A u/s 74.

[Jignesh Sitapara]

One of my client has received a DRC-01A  u/s 74 notice from the SGST department. Now in this case we have the original tax invoicel and e-way bill (not available any other transporting proof) as per section 16(2) and have also made the payment within 180 days as per the rules. Now the registration of the consignor has been cancelled and it has also been cancelled from the date when the number was taken, so please guide me what should I do in this case.

[Sanjeev Agarwal]

Opinion

Based on the facts stated, ITC should not be denied merely because the supplier's GST registration has been cancelled retrospectively, provided the recipient proves that the transaction was genuine and complies with Section 16 of the CGST Act.

In your case, the following conditions appear to be satisfied:

• Original tax invoice is available.

• E-way bill is available.

• Payment to the supplier has been made within 180 days through banking channels.

• Goods were actually received and accounted for.

The department must establish that the transaction is bogus or that there was collusion between the supplier and recipient before denying ITC. Mere retrospective cancellation of the supplier's registration does not automatically disentitle a bona fide purchaser from claiming ITC.

However, your case may be strengthened by producing additional evidence, if available, such as:

• Stock register entries.

• Purchase ledger.

• Bank payment proof.

• Goods receipt note (GRN).

• Consumption records or subsequent sale invoices.

• Any transporter acknowledgment or delivery proof.

Suggested Reply to DRC-01A

In your reply, specifically contend that:

1. All conditions prescribed under Section 16(2) of the CGST Act have been fulfilled.

2. The purchases are genuine and supported by documentary evidence.

3. ITC cannot be denied solely because the supplier's registration was cancelled retrospectively.

4. Unless the department proves that the transaction itself is fictitious or fraudulent, denial of ITC is unsustainable in law.

5. Request that the proposed demand be dropped.

If the supplier's registration has been cancelled from the date of initial registration (void ab initio), the department may adopt a stricter stand. In such a situation, the outcome will primarily depend on the strength of evidence proving actual receipt and utilization of goods and the bona fide conduct of the recipient. Therefore, file a detailed and well-supported reply to DRC-01A with all available documentary evidence.

AI Summary

Input tax credit eligibility faces scrutiny when a supplier's registration is retrospectively cancelled despite invoice and payment records. Input tax credit eligibility is queried following a DRC-01A intimation under section 74 where the supplier's registration was cancelled retrospectively. The recipient holds the original tax invoice and e-way bill, lacks further transport proof, and states that supplier payment was made within 180 days. The issue concerns the impact of retrospective cancellation on input tax credit and the evidence required to establish compliance with section 16(2).