Punjab And Haryana HC Issues Key Ruling On GST ITC Reversal, Covers 424 Petitions

Chandigarh, Oct 3 (KNN) The Punjab and Haryana High Court has ruled that a buyer’s Input Tax Credit (ITC) cannot be mechanically reversed merely because a supplier has failed to deposit GST with the government or because the supplier’s GST registration was subsequently cancelled.

Judgment Covers 424 Writ Petitions

A Division Bench of Chief Justice Ashwani Kumar Mishra and Justice Rohit Kapoor delivered the judgment on October 1, 2026, disposing of 424 writ petitions, including Shaurya Alloys Pvt. Ltd. v. State of Punjab and Another (CWP-34296-2024).

The cases involved purchasers who paid GST to suppliers and claimed ITC, but later faced denial or reversal after suppliers failed to deposit the tax or had their GST registrations cancelled.

The court upheld the constitutional validity of Section 16(2)(c) of the CGST Act, while clarifying that it cannot be applied in isolation or used to automatically reverse ITC.

Authorities Must Examine Each Transaction

The court held that authorities must assess each transaction individually, including its genuineness, actual receipt of goods or services and the purchaser’s role.

A supplier’s failure to deposit tax alone does not automatically justify reversal of the purchaser’s ITC.

The court also prescribed procedural safeguards: notices must disclose the relevant evidence, taxpayers must get a fair opportunity to respond and be heard, and orders must provide clear reasons based on the facts of each case.

Reconsideration Ordered in Existing ITC Cases

The court directed authorities to reconsider cases where ITC had been reversed or adjudication orders had already been passed, following the prescribed process and providing taxpayers an opportunity of personal hearing. 

It also directed that fresh coercive recovery be halted until such reconsideration, with adjustments or refunds to be made where warranted by the resulting decisions.

Statutory Tax-Payment Condition Remains

The judgment does not remove the statutory requirement under Section 16(2)(c) to pay tax to the government. Instead, it clarifies its application where the supplier defaults.

The department can continue proceedings against defaulting suppliers as per law. The ruling may provide relief in ITC disputes involving genuine purchases where other statutory conditions are met.

The judgment was delivered on October 1, 2026, in Shaurya Alloys Pvt. Ltd. v. State of Punjab and Another and connected matters, including CWP-34296-2024.

(KNN Bureau)