Tribunal blocks tax authorities from denying credit using supplier registration cancellations alone

The Goods and Services Tax Appellate Tribunal held that the retrospective cancellation of a supplier's tax registration does not automatically justify denying input tax credit to a recipient. Authorities are mandated to independently examine purchase records and verify compliance under Section 16 of the Central Goods and Services Tax Act and the corresponding State Goods and Services Tax Act rather than relying strictly on the vendor's canceled status. The ruling establishes that the burden of proving the non-genuineness of a transaction rests on a thorough departmental examination of actual purchases.

Input tax credit acts as a mechanism to eliminate the cascading effect of taxes by allowing businesses to offset taxes paid on inputs against output tax liability. Previously, tax authorities frequently targeted recipient taxpayers with credit denials simply because their supplying vendors faced retrospective registration cancellations, creating severe compliance hurdles for honest buyers. The new judicial stance clarifies that statutory compliance under Section 16 must be assessed based on verifiable purchase documentation rather than purely circumstantial vendor status. Tax professionals and corporate compliance teams must maintain comprehensive purchase records, e-way bills, and payment trails to substantiate the validity of their input tax claims during audits.

Practitioners should advise clients facing similar credit reversals to demand a detailed departmental inquiry into transaction genuineness instead of accepting arbitrary denials. Keep track of upcoming tribunal clarifications regarding vendor compliance, as this ruling provides a strong defense in ongoing litigation concerning credit reversals.