P&H HC: Supplier’s GST default cannot trigger automatic ITC denial; lays down strict safeguards for Section 16(2)(c)
Punjab & Haryana HC upholds the constitutional validity of Section 16(2)(c) of the CGST Act, however holds that the provision cannot be invoked mechanically merely because the supplier fails to deposit tax or its registration is subsequently cancelled. HC directs the proper officer to establish a direct link between the purchasing dealer and the supplier’s default, examine the genuineness of the transaction and consider proceedings against the defaulting supplier before denying or reversing ITC. Further mandating that SCNs disclose the foundational facts and supporting material, particularly where fraud, wilful misstatement or suppression is alleged, HC holds that fraud of the supplier cannot automatically be attributed to the purchasing dealer. Also directs authorities to apply the statutory framework applicable to the relevant tax period.