Input tax credit and supplier non-payment: credit cannot be reversed mechanically without transaction scrutiny and supplier recovery review
Notes
GST
Section 16(2)(c) requires actual payment of tax to the Government and is not limited to fraud or collusion, but supplier default alone does not justify mechanical reversal of a recipient's input tax credit. Eligibility requires scrutiny of transaction evidence, the nature of the default, supplier recovery proceedings and the law applicable to the tax period. Supplier cancellation or fraud does not automatically establish recipient ineligibility or complicity. The recipient bears the burden of proving eligibility, while fraud allegations require supporting facts in the notice. Section 41 permits re-availment after supplier payment, and Rule 37A provides a reversal and re-availment mechanism for specified return defaults. Later conditions and mechanisms must not be applied to earlier periods.
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