GST-ITC UPDATE

 GST-ITC update;

 

​1. In a landmark judgment protecting genuine buyers, the Hon'ble Punjab and Haryana High Court has laid down strict safeguards against mechanical denial or reversal of Input Tax Credit.

 

​2. CASE DETAILS:

•  Case Name: M/s Shaurya Alloys Pvt Ltd Vs State of Punjab and Anr
•  Citation: CWP No. 34296 of 2024 (O&M)
•  Court: Punjab and Haryana High Court​
•  Date of Order: 01-10-2026
•  Issue Involved: Input Tax Credit under Section 16(2)(c) of the CGST Act, 2017

 

​3. FACTS OF THE CASE

• A batch of writ petitions was filed before the High Court challenging denial or reversal of Input Tax Credit under Section 16(2)(c) of the CGST Act.
•  The petitioners were genuine purchasing dealers who had duly paid tax to their suppliers and possessed valid tax invoices.
•  Their suppliers had either failed to discharge their tax liability to the Government or their GST registrations were cancelled, including retrospective cancellations.
• The GST Department mechanically reversed the ITC of the buyers.
•  Petitioners challenged Section 16(2)(c) read with Section 155, alleging that it violated Articles 14 and 19 of the Constitution of India.

 

​4. KEY DECISION OF THE HON'BLE HIGH COURT:

•   Validity Upheld With Safeguards: The High Court upheld the constitutional validity of Section 16(2)(c), but imposed strict safeguards on its enforcement to prevent misuse against genuine buyers.

 

​5.  No Automatic ITC Denial:​ The Court held that retrospective cancellation of supplier's registration, short tax payment by supplier, or external alerts from Department system could ONLY trigger an inquiry. These factors alone cannot independently justify ITC denial or reversal.

 

​6.   Mandatory Pre-Conditions Before SCN:​ Before issuing a Show Cause Notice for ITC reversal, the Proper Officer MUST:

•      Examine all relevant material on record
•     Establish with evidence the supplier's default in payment of tax
•      Demonstrate a direct link / nexus between the purchaser and supplier's fraud or default
•      Prove that the purchaser had colluded or was not a genuine buyer

 

​7.  Protection to Genuine Buyers:​  The burden cannot be shifted to the purchasing dealer if he has proved genuineness of transaction, payment through banking channel and possession of valid tax invoice.

 

​8. IMPACT OF THIS JUDGMENT:

• Huge relief for genuine buyers facing ITC reversal due to supplier's fault.
• The Department cannot mechanically reverse ITC based on GSTR-2A/2B mismatch or retrospective cancellation.
• A proper inquiry and application of mind is mandatory.
• This judgment will have persuasive value across India for similar cases pending under Section 16(2)(c).

Source:CA  Dr.Raj Chawla