No ITC would be admissible to purchaser where supplier GSTIN is already cancelled before the date of purchase.

Case Title: Jai Balaji Paper Cones v. Assistant Commissioner Sales Tax

Court: High Court of Madras

Petition Number: W.P. No. 6780 of 2020 & W.M.P. No. 8073 of 2020

Category of Dispute: Input Tax Credit

Date of Judgement: July 3, 2023

Relevant Sections: Section 16(2)(c) of the CGST Act, 2017; Rule 36(4) of CGST Rules

Facts of the Case

1. The petitioner, Jai Balaji Paper Cones, purchased goods from a supplier (second respondent) in Andhra Pradesh under three invoices dated 23.11.2018. [Para 1]
2. The petitioner paid the full invoice value, including GST amounting to ₹4,14,000, to the supplier. [Para 2]
3. However, the GST registration of the second respondent was cancelled earlier on 31.10.2018, prior to the date of these invoices. [Para 1]

Question(s) in Consideration

• Whether the petitioner can claim Input Tax Credit (ITC) on invoices issued by a supplier whose registration was already cancelled at the time of supply. [Para 3]

Observation of Court

1. The court noted that under Section 16(2)(c) of the CGST Act, 2017, input tax credit is available only if the tax charged in respect of the supply has actually been paid to the government. [Para 5]
2. Since the supplier’s registration was cancelled before issuing the invoices, it was clear that no tax could have been remitted by the supplier to the government. [Para 6]
3. Therefore, the petitioner cannot claim ITC and no writ of mandamus can be issued against the department to allow such credit, as it would be contrary to statutory provisions. [Para 6]

Judgement of the Court

• The writ petition was dismissed.
• The court stated that the petitioner may initiate recovery proceedings against the supplier to reclaim the GST component paid. [Para 7]

Between Fine Lines

• A buyer cannot claim ITC if the supplier was unregistered at the time of supply.
• ITC is allowed only when the tax is actually paid to the government.
• The department is not bound to honour ITC claims against fake or post-cancellation invoices.
• Buyers must verify supplier registration status before transacting.
• Legal remedy lies against the supplier, not the tax department.

Summary of Referred Cases

No specific precedent cases were referred or cited in the judgment.