GST input credit when Vendor GST registration cancelled

 

Introduction:

The Goods and Services Tax (GST) authorities are currently conducting inquiries into the input tax credit (ITC) claimed by taxpayers in cases where the registration of their suppliers has been retrospectively cancelled. These inquiries have resulted in demand notices being issued, proposing the recovery of ITC, along with interest and penalties. This article examines the background of this issue and the views surrounding it.

Eligibility for Input Tax Credit:

Section 16 of the CGST Act outlines the conditions for the eligibility of ITC. Under Section 16(2)(c) of the CGST Act, the payment of tax is an essential condition for the availment of ITC. However, it is crucial to note that the validity or cancellation of a supplier's registration is not an essential condition under the CGST Act for the availment of ITC.

Impact of Cancellation of Supplier's Registration:

Even where a supplier's registration has been cancelled due to reasons such as failure to file GSTR-3B, there is no mechanism available on the GST portal for taxpayers to determine whether their supplier has paid tax to the Government or not. In the absence of a stipulation for the validity of a supplier's registration, the ITC of bona-fide taxpayers cannot be faulted due to the retrospective cancellation of a supplier's registration where the recipient undertook due diligence, such as checking whether the supplier's registration was valid at the time of procurement.

Legal Views on the Issue:

In the cases of LGW Industries Limited v. UOI, 2021-VIL-868-CAL and Sanchita Kundu v. ACST, 2022-VIL-362-CAL, the Calcutta High Court held that ITC cannot be denied due to the cancellation of a vendor's registration where the transactions took place before the cancellation.

However, in the case of ECom Gill Coffee Trading Pvt, a company that deals in green coffee beans, the tax credit was denied despite the company presenting invoices, cheques and other particulars of the transaction. The company was denied tax credit on the ground that some of the sellers were de-registered and the others failed to file returns and taxes as required.

Conclusion:

Taxpayers should be aware of the impact of these developments as the issues and discussions revolving around the eligibility of input tax credit may further increase the woes of businesses that already find it onerous to claim it. It is crucial for taxpayers to undertake due diligence and check the validity of their supplier's registration at the time of procurement to avoid any retrospective cancellations impacting their eligibility for ITC