Judgments on ITC reversal for retro cancellation of regitration of supplier

When registrations are cancelled by the departments-

In many cases the department is cancelling the registrations of suppliers. There can be various stances when a registration can be cancelled.-

• When the supplier is not filing the returns
• When the supplier is found to be non existent.
• The supplier’s registration was taken by means of fraud
• The supplier is indulged in fake invoicing.

In all these cases the ITC of recipient is also challenged. The department asks the recipient to reverse the ITC.

In a recent judgment of M/s.Engineering Tools Corporation Vs The Assistant Commissioner (ST).

Points to be added to make a reply to notice for ITC reversal-

It becomes difficult for the recipient. Department will say that because you availed ITC of fake supplier, reverse it.

Here we will discuss the plea that a recipient can take to protect his ITC.

1- The ITC was taken after fulfilling all the conditions of GST Law

The conditions are given under the section 16 of CGST Act and the rules made thereunder.As per those rules following are the conditions required to be fulfilled for claiming ITC-

• The buyer should have an invoice
• The buyer should file his GSTR 3b
• He should have receiver the supply
• The supplier paid the tax to the government
• The buyer made the payment to the supplier within 180 days
• The GSTR 1 was filed by supplier and was reflecting in GSTR 2b of recipient (notified wef – w.e.f. 1.1.2021 via Notification No. 82/2020

Some other conditions in rules may also be there. But in any of these conditions reversal of ITC on cancellation of registration of supplier is not included. Neither law nor rules have any such condition. Thus there is no legal backing for ITC reversal in these cases.

2- It is not possible for the recipient to check the status of supplier all the time

The supplier is registered by the department. Once the goods are bought the buyer has no obligation to check the status of supplier.

3- lex non cogit ad impossibilia rule

The buyer purchased the goods, say on 1st Jan 2019. he registration of supplier was cancelled on 3rd March 2023 with retrospective effect. How the buyer can even see the future to know that his registration will be cancelled in future.

Buyes has no possible means to know it at the time of purchase. The rule of lex non cogit ad impossibilia applies here.

How can you expect someone to do the impossible. No one can see the event of future.

4- First make the recovery from the supplier- Judgment

In the case of Gargo traders it was held by the honourable court that first of all the recovery should be made from the seller. In these cases also the first party to the proceedings is seller and bot the recipient.

5- The supplier was given registration and liability to collect and deposit tax by Lawmaker

The scheme of law makes the supplier liable to deposit the tax. The recipient is required to pay the tax amount to the supplier. The recipient is not made liable to directly deposit it to the govt. How he can force the supplier to pay to the govt?

6- your transaction is genuine- Evidence

The genuine transactions should be allowed by the authorities. In case of E-com coffee gill  honourable Supreme court held that the transactions genuinely should be proved by the recipient and if he proves it, he should be eligible for the input tax credit.

LGW Industries is the another judgments where the ITC of Buyer was allowed.

Keep ready the evidences to prove genuinely of transactions-

• Proof of payment
• Proof of movement of goods
• Proof of goods receipt
• copy of PO
• other documents from third parties substantiating the transcation

7- No ITC reversal for genuine transaction – Judgments

In the case of genuine transactions ITC should be available. In case of on quest merchandising it was held that the buyer should be allowed to take ITC for genuine transactions.