Calcutta High Court Overturns GST Appellate Order: Retrospective Cancellation Can't Solely Deny Input Tax Credit

Introduction

The Calcutta High Court, in a ruling delivered by Justice Hiranmay Bhattacharyya on November 4, 2025, set aside an appellate order under the WEST BENGAL GOODS AND SERVICES TAX ACT , 2017 (WBGST Act), affirming that retrospective cancellation of a supplier's GST registration cannot be the sole basis for denying Input Tax Credit (ITC) to a bona fide purchaser without proper examination of supporting documents. The case, WPA 2192 of 2025, involved petitioner Shyamalmay Paul challenging decisions by the Assistant Commissioner of State Goods and Services Tax (SGST), Siliguri Charge, and the Joint Commissioner of the State Goods and Services Tax Appellate Authority, Siliguri Circle. This decision underscores the need for tax authorities to scrutinize evidence of transaction genuineness rather than relying mechanically on registration status changes.

Case Background

Shyamalmay Paul, a registered taxpayer under the WBGST Act, faced a show-cause notice under Section 73(1) for discrepancies in his GST returns for the financial year 2019-2020. The notice highlighted four issues, including one (discrepancy no. 3) alleging that Paul had availed ITC on supplies from a supplier, Arijit Dey, whose GST registration was cancelled retrospectively from October 12, 2018. Paul responded with documents like tax invoices, e-way bills, transport records, bank statements, and party ledgers to prove the transactions were genuine, involved physical movement of goods, and occurred when the supplier's registration was active. The supplier's invoices were issued after the retrospective cancellation date but before the actual cancellation order.

The Assistant Commissioner, as adjudicating authority, accepted Paul's explanations for three discrepancies but denied ITC for discrepancy no. 3 under Section 73(9), citing failure to prove transaction genuineness. Paul appealed under Section 107 , but the appellate authority dismissed it on May 16, 2025, affirming the denial primarily on the ground of post-cancellation invoice dates. Paul then filed this writ petition under Article 226 of the Constitution, seeking to challenge only the ruling on discrepancy no. 3. The timeline began with the show-cause notice in 2024, leading to adjudication on August 29, 2024, appeal dismissal in May 2025, and the High Court hearing in November 2025.

The core legal questions were: Can retrospective cancellation of a supplier's registration alone justify denying ITC under Section 16 of the CGST/WBGST Acts? And did the appellate authority adequately review the petitioner's documentary evidence?

Arguments Presented

The petitioner, represented by advocate Mr. Bhattacharyya, argued that the transactions were bona fide, supported by comprehensive documents demonstrating payment via banking channels, physical goods movement, and compliance with ITC conditions under —namely, that the supplier's registration was valid at the time of supply, goods were used in business, and returns were filed. He contended that the appellate authority failed to analyze these documents, mechanically affirming the lower order based solely on retrospective cancellation, which is not a valid ground per settled law. Paul relied on a prior Calcutta High Court order in WPA 708 of 2025 (Shyamalmay Paul v. Assistant Commissioner of State Tax), involving similar facts, where an order was set aside for lack of evidence review. He explained his absence from the appellate hearing as an inadvertent oversight amid multiple proceedings but emphasized that documents were on record for consideration.

The respondents, represented by the Additional Advocate General, maintained that the burden under lies on the ITC claimant to prove transaction authenticity and goods movement through material evidence. They highlighted Paul's non-attendance at multiple appellate hearings despite opportunities, arguing this justified the authority's reliance on the adjudicating order. The Revenue asserted that the appellate authority's detailed order, considering submitted documents like invoices and e-way bills, warranted no judicial interference, as retrospective cancellation indicated invalid supplies. They disputed the validity of Paul's evidence without specific rebuttals to its contents.

Legal Analysis

The court meticulously reviewed the appellate order and found it deficient, describing it as a "non-speaking order" for failing to address why the petitioner's documents—tax invoices, e-way bills, transport documents, bank statements, and ledgers—did not establish a bona fide transaction or physical goods movement. Justice Bhattacharyya emphasized that under , ITC eligibility requires the recipient to prove receipt of goods/services, tax payment by supplier, and business use, but retrospective cancellation alone does not negate this if the registration was active at supply time.

The court drew on the principle that "retrospective cancellation of registration of the supplier cannot be the sole ground for denying the Input Tax Credit to the purchaser," a well-settled position in GST jurisprudence. It distinguished this from cases of outright fraudulent registrations, noting no such allegation here beyond the cancellation. The ruling directly applied the precedent from Shyamalmay Paul v. Assistant Commissioner of State Tax (WPA 708 of 2025, decided April 8, 2025), where identical facts led to setting aside an order for ignoring documents on goods movement and statutory compliance. The court rejected the Revenue's procedural argument on hearing absence, holding that authorities must still evaluate on-record evidence and return reasoned findings on its relevancy. This aligns with broader judicial review standards under Article 226, preventing mechanical affirmances in tax disputes.

Key Observations

• "It is now well-settled that retrospective cancellation of registration of the supplier, cannot be the sole ground for denying the Input Tax Credit to the purchaser."
• "After noting the contentions raised by the petitioner, the appellate authority took note of the finding of the adjudicating authority and without assigning any reason as to why the documents produced by the petitioner cannot be accepted as a proof that the transaction was a bona fide and genuine one... affirmed the order of the adjudicating authority only on the ground that the invoices issued by the supplier... were found to have been issued after the date of cancellation of registration certificate."
• "Even if the contention of the Revenue is accepted that the petitioner failed to attend the personal hearing... it was incumbent upon the appellate authority to consider such documents available on record and return a finding on such documents as to why same is not acceptable."
• "In Shyamalmay Paul (supra) on more or less identical facts, this court had set aside the order of the authorities on the ground no finding was recorded on the document produced with regard to movement of goods and also whether the requirement of availing the ITC as prescribed under the statute was complied with or not."
• "The order passed by the appellate authority is a non-speaking order and only for such reason the same is liable to be set aside."

Court's Decision

The Calcutta High Court set aside the appellate authority's order dated May 16, 2025, solely concerning discrepancy no. 3, deeming it unreasoned and mechanically reliant on retrospective cancellation without evaluating evidence. The court directed the appellate authority to fix a new hearing date, serve advance notice to Paul, afford an opportunity for personal hearing (or to his representative), and pass a fresh reasoned order on discrepancy no. 3, communicating it immediately.

This ruling reinforces procedural fairness in GST appeals, compelling authorities to substantively engage with evidence rather than procedural defaults or singular grounds like retrospective cancellation. It benefits bona fide taxpayers by easing ITC denials in similar scenarios, potentially reducing litigation in retrospective registration cases. Future GST disputes may see heightened scrutiny on appellate reasoning, promoting compliance with natural justice principles and statutory ITC conditions under , while cautioning revenues against non-examination of documents.