--- title: "GST Input Tax Credit (ITC) Denial: Punjab and Haryana High Court Issues Guidelines for Buyers " date: 2026-10-12 author: "Vipin Upadhyay" url: https://ksandk.com/newsletter/gst-input-tax-credit-itc-denial-punjab-and-haryana-high-court-issues-guidelines-for-buyers/ --- # GST Input Tax Credit (ITC) Denial: Punjab and Haryana High Court Issues Guidelines for Buyers  Posted On - 12 October, 2026 • By - Vipin Upadhyay ## **Introduction** The denial or reversal of input tax credit (ITC) under the Central Goods and Services Tax Act, 2017 (CGST Act) remains a significant compliance concern for businesses, particularly where suppliers fail to deposit tax, file returns correctly or have their GST registrations cancelled. In *Shaurya Alloys Pvt. Ltd. v. State of Punjab and Another*, decided on 1 October 2026, the Punjab and Haryana High Court upheld the statutory framework governing ITC entitlement while laying down procedural safeguards for authorities dealing with disputes arising from supplier-side defaults.  The judgment is significant for businesses seeking to understand the extent of their obligations under Section 16(2)(c), read with Section 155 of the CGST Act, and the circumstances in which ITC may be denied.  ## **Background of the Dispute** The High Court considered a batch of 424 writ petitions challenging the denial or reversal of ITC under Section 16(2)(c), read with Section 155 of the CGST Act. The purchasing dealers had paid tax to their suppliers but faced ITC disputes because the suppliers allegedly failed to deposit the tax, filed nil or short returns, or had their registrations cancelled, including retrospectively.  The petitioners challenged the statutory framework on the ground that it imposed an unreasonable burden on purchasers who might have fulfilled their own compliance obligations but could not control the conduct of their suppliers.  Following the Supreme Court’s decision in *Bhandari Scrap Traders*, which approved the approach in *Maruti Enterprises*, the High Court declined to strike down or read down Section 16(2)(c), read with Section 155. However, it clarified that these provisions cannot be applied mechanically or in isolation from the facts of the transaction.  ## **Key Findings of the High Court** ### **1. Supplier default does not automatically justify ITC reversal** The Court clarified that a supplier’s failure to deposit tax, a departmental alert or the retrospective cancellation of a supplier’s GST registration cannot, by itself, justify the denial or reversal of ITC. The authorities must examine the circumstances of the transaction and establish the relevant connection with the purchasing dealer.  Similarly, the supplier’s alleged fraud cannot automatically be attributed to the purchaser without material linking the purchaser to the alleged wrongdoing.  ### **2. Tax authorities must establish a factual basis for the proposed denial** Before issuing a show-cause notice (SCN), the proper officer must record satisfaction regarding the supplier, invoices, relevant tax periods, ITC amount, nature of the default and recovery action against the supplier. The notice must disclose the material relied upon and establish a direct nexus with the purchaser.  Where proceedings are initiated under Section 74 or Section 74A, the notice must set out the facts linking the purchaser to the alleged fraud. A supplier’s conduct, without more, is insufficient to establish the purchaser’s involvement.  ### **3. Purchasers may rely on transaction records to establish genuine purchases** The Court recognised that the purchaser’s burden under Section 155 may be discharged through relevant documentary evidence, including tax invoices, e-way bills, transport receipts, weighbridge slips, and stock and consumption records.  Where a supplier’s registration has been cancelled retrospectively, the authorities must examine the reasons for cancellation, the period from which it operates and its relevance to the particular supply. The Court also directed that double recovery be avoided and that the possibility of re-availment under Section 41(2) and Rule 37A be considered where applicable.  ### **4. Procedural safeguards must be followed** The Court laid down additional safeguards for ITC proceedings. These include applying the law applicable to the relevant tax period, not cancelling a purchaser’s registration merely because the supplier’s registration has been cancelled, providing a personal hearing, and deciding requests for cross-examination through a reasoned order.  The final adjudication order must be a speaking order. A payment made through Form GST DRC-03 does not cure a defective show-cause notice. The guidelines apply to pending and future proceedings.  ## **Practical Implications for Businesses** The judgment reinforces the importance of maintaining contemporaneous evidence of genuine purchases and the movement and receipt of goods. Businesses should maintain reconciled purchase records, tax invoices, e-way bills, transport documents, inventory records and proof of payment, while undertaking appropriate supplier due diligence.  Where ITC is proposed to be denied because of supplier-side non-compliance, businesses should examine whether the SCN identifies the relevant transactions, discloses the supporting material and establishes a factual connection between the alleged default and the purchaser. Any response should address the specific allegations and be supported by transaction-level documentation.  ## **Conclusion** The Punjab and Haryana High Court has upheld the statutory conditions governing ITC while clarifying that supplier default cannot automatically result in ITC reversal. The decision underscores the need for fact-specific assessment, reasoned adjudication and procedural fairness in GST disputes.  For businesses facing ITC denial or reversal, the judgment highlights the importance of maintaining robust transaction records and examining the legal and factual basis of the department’s allegations before responding to a demand.  **Practical takeaway:** Businesses should preserve evidence of genuine purchases and review any proposed ITC reversal against the specific statutory requirements, transaction records and safeguards laid down by the Court.  *Last Updated on 12 October, 2026* Get King Stubb & Kasiva’s legal updates in your Google feed[![Add King Stubb & Kasiva as a preferred source on Google](https://ksandk.com/wp-content/uploads/google_preferred_source_badge_light_en@2x.png)](https://www.google.com/preferences/source?q=https://ksandk.com/) --- ## Office Locations - [New Delhi](https://ksandk.com/locations/top-corporate-law-firm-in-delhi/) (HQ): +91-11-41318190 | info@ksandk.com - [Mumbai](https://ksandk.com/locations/top-corporate-law-firm-in-mumbai/): 3 offices (Nariman Point, Lower Parel, Andheri) | mumbai@ksandk.com - [Bangalore](https://ksandk.com/locations/top-corporate-law-firm-in-bangalore/): bangalore@ksandk.com - [Chennai](https://ksandk.com/locations/chennai/): chennai@ksandk.com - [Hyderabad](https://ksandk.com/locations/hyderabad/): hyderabad@ksandk.com - [Pune](https://ksandk.com/locations/pune/): pune@ksandk.com - [Kochi](https://ksandk.com/locations/kochi/): kochi@ksandk.com ## Contact - [Contact Page](https://ksandk.com/contact-us/) - General: info@ksandk.com | +91-11-41318190 - WhatsApp: +91-7428567444 - [Privacy Statement](https://ksandk.com/privacy-statement/) - [Terms of Use](https://ksandk.com/terms-of-use/)