Supplier GST Cancelled, No Tax Paid ITC Claim Denied by Allahabad HC
In a key ruling, the Allahabad High Court rejected a buyer’s input tax credit (ITC) claim where the supplier’s GST registration was cancelled, and tax wasn’t paid. The judgment underlines the taxpayer’s responsibility to ensure supplier GST compliance—even if the purchase was genuine.
What Was the Case About?
- The buyer claimed ITC under Section 16 of the CGST Act.
- Supplier’s registration was cancelled retrospectively.
Court’s Verdict:
The High Court upheld the Section 74 order, stating:
“Once the supplier failed to deposit tax and registration stood cancelled, the buyer cannot claim ITC.”
Key Legal Takeaways for Taxpayers
- Section 16(2)(c) of CGST Act makes ITC conditional on actual tax payment to the government.
- If supplier doesn’t pay tax, ITC claim becomes invalid—even if invoice and payment exist.
- Buyer must perform due diligence on supplier’s GST status.
What Is Section 74 of the CGST Act?
| Provision | Explanation |
|---|---|
| Section 74 | Deals with tax evasion involving fraud, suppression, or wilful misstatement |
| Applies to | Buyer/recipient who availed ITC wrongly or fraudulently |
| Penalty | 15% to 100% of tax amount + interest + tax due |
Why Supplier GST Cancellation Matters
Supplier GST cancelled status means:
- Tax authorities can disallow ITC to the buyer under Section 16(2)(c) and Section 74.
Expert Tip: What Buyers Should Do Now
Before claiming ITC:
- Verify GSTIN on gst.gov.in
- Check registration status (Active/Suspended/Cancelled)
- Cross-check GSTR-2B vs GSTR-1 data
- Avoid vendors who:
- Frequently cancel registrations
- Fail to file GSTR-3B
- Don’t reflect in your GSTR-2B
Practical Example
Let’s say:
- You purchase goods worth ₹5 lakh.
- Supplier issues invoice and takes money.
- They don’t file returns or pay tax on that invoice.
Result:
You also face a demand notice under Section 74.
Legal Reference
- CGST Act Section 16(2)(c) – Conditions for availing ITC
- CGST Act Section 74 – Tax evasion & fraud provisions
- Allahabad High Court Judgment – [Writ Tax No. 746 of 2023]
FAQ: Supplier GST Cancelled
Q1: Can I still claim ITC if I paid the supplier?
Not if they didn’t pay tax to the govt. Section 16(2)(c) blocks ITC.
Q2: What if I didn’t know supplier GST was cancelled?
Ignorance is not a defence.
Q3: Is Section 74 always invoked?
Usually if fraud/suppression is alleged. Otherwise, Section 73 applies.
Final Thoughts
This ruling reinforces that Input Tax Credit is not automatic.
Buyers must verify that suppliers are compliant with GST laws—especially tax payments and registration status.
Summary
Supplier GST cancelled and no tax paid? Allahabad HC rules buyer can’t claim ITC under Section 74. Know why due diligence is crucial for ITC.
Need Help With GST Notices or ITC Reconciliation?
Our GST experts at Efiletax can help you reply to Section 74 notices, reconcile GSTR-2B, and prevent ITC loss.