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.

[KALLESHAMURTHY MURTHY K.N.]

Sir,

You have to prove the genuineness of the transaction. Mere holding of an invoice and an e-Way bill and even payment are not sufficient to avail ITC.

In a recent decision in the case of Bhandari Scrap Traders v. Union of India & Ors., - 2026 (7) TMI 1839 - SC Order, the Hon'ble Supreme Court upheld the constitutional validity of Section 16(2)(c) of the CGST Act, 2017. The Court affirmed that the condition requiring the supplier to deposit the tax for the recipient to avail ITC is constitutionally valid. It seems that there is a bogus transaction by a fictitious supplier. Unless you prove the receipt of goods from reliable sources, you have to reverse the ITC and interest. Since the case is invoked u/s 74, you have to pay a penalty also u/s 122(1), subject to the stage of the adjudication proceedings.

[KASTURI SETHI]

Dear Sir, Perfect reply. In case ITC has been availed fraudulently, no pro-party judgment will help. If the party is honest and sincere, there will be no dearth of documentary evidences. The query itself shows that the transaction is not genuine. Why only two documents ? It is a crucial question.

AI Summary

Input tax credit eligibility requires proof of genuine goods receipt despite a supplier's retrospective registration cancellation.
Input tax credit following retrospective cancellation of a supplier's GST registration depends on whether the recipient can establish a genuine transaction and compliance with credit conditions. Original invoices, e-way bills and timely bank payment may support the claim but may not alone prove actual receipt of goods. The recipient should provide stock records, purchase ledgers, goods-receipt notes, consumption or sale records, and delivery evidence. Cancellation from the supplier's initial registration date may invite stricter scrutiny, with inadequate proof creating exposure to reversal of credit, interest and penalty.