GST ITC on Purchases Where Supplier GSTIN Is Cancelled

Introduction

A supplier's GST registration may be cancelled — either voluntarily, by the department, or retrospectively. When this happens, the buyer faces a critical question: Can ITC still be claimed on invoices issued by the supplier?

The answer depends on whether the transaction is genuine and whether the buyer acted in good faith. The Supreme Court and various High Courts have protected bona fide purchasers in such situations.

This guide explains the legal framework, the judicial precedents, and the practical remedies.

Legal Framework: Section 16(2)(c) of the CGST Act, 2017

ITC Condition: Payment of Tax to Government

Section 16(2)(c) provides that ITC can be claimed only if the tax charged by the supplier has been paid to the government. Where the supplier's registration is cancelled and tax is not paid, ITC may be denied.

The Bona Fide Purchaser Protection

The Supreme Court in Additional Commissioner Grade 2 & Anr. v. M/s Safecon Lifescience Private Limited (SLP (C) No. 23993 of 2026 dated July 17, 2026) dismissed the Revenue's SLP, affirming that proceedings under Section 74 cannot be initiated to deny ITC to a bona fide purchaser who has established the genuineness of the transaction through tax invoices, e-way bills, transport documents, banking channel payments, and returns.

The court held that ITC cannot be denied merely because the supplier's registration was subsequently cancelled, in the absence of any finding of fraud, wilful misstatement, or suppression of facts on the part of the recipient.

Judicial Precedents

Supreme Court

Safecon Lifescience: ITC cannot be denied to a bona fide purchaser solely because the supplier's registration was retrospectively cancelled.
The court emphasized that the genuineness of the transaction must be established through documentary evidence.

Allahabad High Court

Singhal Iron Traders: ITC cannot be denied for subsequent GSTIN cancellation.
My Auto World: ITC appearing in one GSTIN can be adjusted in another GSTIN on which the demand was raised.

Delhi High Court

ITC cannot be denied where the supplier inadvertently raised the invoice on a different address and GSTIN, if the transaction is genuine.

Documentation Required to Establish Genuineness

Tax Invoice: Valid tax invoice from the supplier.
E-Way Bill: E-way bill for the movement of goods.
Transport Documents: Bilty or transport receipts.
Bank Payment Proof: Payment through banking channels.
GST Returns: Supplier's GSTR-1 and GSTR-3B for the relevant period.
Correspondence: Any communication with the supplier.

Best Practices

Conduct Due Diligence: Verify the supplier's GSTIN status before engaging.
Maintain Documentation: Maintain all documents supporting the genuineness of the transaction.
Monitor Supplier Compliance: Track the supplier's filing status.
Respond to Notices: Respond promptly to any notices from the department.
Seek Professional Assistance: Where the supplier's status is uncertain, seek guidance.

Conclusion

ITC on purchases where the supplier's GSTIN is cancelled is protected for bona fide purchasers who can establish the genuineness of the transaction. The Supreme Court has affirmed this protection. Proper documentation is essential to defend ITC claims.

Facing ITC issues due to supplier GSTIN cancellation? Anuj Desai & Associates provides expert guidance on defending ITC claims. Contact us today.

Contact us:

Email: office@anujdesaiassociates.com
Phone: 9619456656
Website: https://anujdesaiassociates.com
LinkedIn: linkedin.com/in/ca-anuj-desai-122547230

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