Delhi High Court rules on GST Input Tax Credit and supplier defaults

The Delhi High Court has ruled that a supplier's failure to pay tax or the retrospective cancellation of their registration is not sufficient evidence to deny a purchaser Input Tax Credit (ITC) under Section 16(2)(c) of the CGST Act, 2017.

In the case of Treco Wire India Private Limited v. Additional Commissioner, the court held that the tax department must provide specific evidence, including identified suppliers, disputed invoices, and credit amounts, rather than relying on general allegations. The court emphasized that to invoke Section 74, the department must demonstrate facts showing fraud, willful misstatement, or suppression of facts by the purchaser with the intent to evade tax. A disputed credit claim alone does not constitute proof of fraud.

The petitioner, a copper-wire manufacturer, challenged an adjudication order that sought to recover over Rs. 3.34 crore in ITC, along with interest and penalties, following a GST audit. The manufacturer maintained that its purchases were genuine and that supplier registrations were active at the time of the transactions.