ITC Cannot Be Denied Solely Due to Retrospective Cancellation of Supplier’s GSTIN
Background
In Himalaya Communication Pvt. Ltd. v. Union of India & Ors., the Himachal Pradesh High Court clarified that Input Tax Credit (ITC) cannot be denied merely because the supplier’s GST registration was cancelled with retrospective effect. Before taking such action, authorities must examine the genuineness of the transaction and the relevant documentation.
Case Overview
Petitioner: M/s Himalaya Communication Pvt. Ltd.
Respondents: Union of India & Others
The Petitioner challenged two departmental orders dated January 10, 2025, and March 31, 2024. These orders rejected the Petitioner’s ITC claim based solely on the retrospective cancellation of the supplier’s GST registration.
However, the Petitioner asserted that:
- Tax had been properly paid to the supplier.
- All required documents were submitted.
- The supplier’s GSTR-3B return reflected the tax discharge.
Even so, the Respondents denied ITC without verifying the transaction’s legitimacy or reviewing the supporting documents. As a result, they issued a Show Cause Notice (SCN) under Section 16(2) of the CGST Act.
Key Legal Question
Can ITC be denied only due to the supplier’s retrospective GSTIN cancellation, without verifying the transaction’s authenticity?
Court’s Findings
The High Court ruled in favor of the Petitioner. It observed the following:
- The department relied entirely on the cancellation of the supplier’s registration without examining the actual transaction.
- Authorities are obligated to evaluate supporting documents and assess whether the transaction was genuine.
- Since no such inquiry was conducted, the denial of ITC was procedurally flawed.
Accordingly, the Court:
- Set aside the impugned orders.
- Remanded the case back to the Adjudicating Authority for a fresh, proper examination.
Conclusion
This judgment reinforces a critical principle: ITC denial must be based on facts and documentation, not merely on procedural lapses such as retrospective GSTIN cancellation. Therefore, tax authorities must act fairly and assess the substance of the transaction, not just its formal compliance.
