Your supplier's registration was cancelled retrospectively. What happens to your credit?
A cancellation order passed in 2025 is being used to deny credit taken in 2019, when the GSTIN was live on the portal you were told to check.
Retrospective cancellation of a supplier's registration does not by itself defeat the credit of a recipient who transacted when the registration was valid. Several High Courts have held that the recipient's claim must be examined on its own documents, and that a bona fide purchaser cannot be made to suffer for an order passed against the supplier long afterwards, particularly where the recipient had no notice of the proceeding. The department's contrary position rests on Section 16(2)(a) read with the definition of a registered person.
The department's argument, stated fairly
Credit requires a tax invoice issued by a supplier. Once a registration is cancelled with retrospective effect, the supplier is treated as unregistered for that period, and an invoice issued by an unregistered person is not a tax invoice.
That reasoning is textually available. Its weakness is that it visits the consequence of a cancellation on a person who was not party to the cancellation proceeding, who had no means of knowing that a future order would be passed, and who verified the only thing the system permitted him to verify.
The department also relies on the fact that the retrospective date is usually the date from which returns were not filed, and argues that the recipient should have noticed the non filing in its GSTR-2B.
How the courts have responded
In Gargo Traders the Calcutta High Court held that where the recipient had transacted while the supplier's registration was live, and had documents to support the purchase, the credit could not be denied merely on the ground of a subsequent retrospective cancellation, and directed the matter to be considered on the documents.
The Delhi High Court has repeatedly set aside retrospective cancellations themselves, on the ground that a cancellation with retrospective effect must be preceded by a notice that puts the taxpayer on notice of the proposed retrospectivity, and must record reasons. That line of cases is directly useful to a recipient, because the foundation of the denial disappears if the cancellation order is bad.
The consistent thread is that the recipient's entitlement is a separate enquiry on his own evidence, and cannot be decided by an order passed behind his back.
What to do with the notice you have received
Establish the timeline first. Date of supply, date of the invoice, registration status on that date with a dated portal extract if available, date of the cancellation order and the retrospective date it fixes.
Establish that the supply occurred, with the three layer file — movement, consumption and payment.
Take the point that the cancellation order was passed in a proceeding to which you were not a party, and that the department has not proceeded against the supplier for the tax collected.
Where the retrospective cancellation is itself defective, say so. A recipient can point to the defect even though he cannot appeal the order, because it is the foundation of the demand against him.
Authorities relied on
Credit could not be denied to a purchaser solely because the supplier's registration was cancelled with retrospective effect; the claim had to be examined on the documents.
The department must proceed against the supplier before reversing credit in the recipient's hands, absent exceptional circumstances.
Retrospective cancellation requires the show cause notice to disclose the proposed retrospectivity and the order to record reasons; illustrative of the line setting aside such cancellations.
What to do on Monday
Take and store a dated GSTIN status extract at the time of onboarding and at the first transaction with every material supplier.
Where a notice arrives, build the timeline table before drafting anything else.
Examine the cancellation order for the absence of proposed retrospectivity in the notice and for the absence of reasons.
Press the point that the department has not proceeded against the supplier who collected the tax.
This page states the general position. A reader with a specific question on their own facts may write to the GST practice at AMLEGALS.
Write to the GST practiceQuestions we are asked on this
Should we check GSTIN status for every purchase?
For material suppliers, yes, with a dated extract kept in the file. It is the cheapest evidence of diligence available and it is what these cases turn on.
Can we challenge the cancellation of our supplier's registration?
You have no locus in that proceeding, but you may rely on its defects in your own proceeding, because the demand against you is founded on it.
What if the supplier's registration was cancelled for non filing from a date before our purchase?
Then the diligence layer is weaker and the enquiry turns entirely on proving the supply. The movement and consumption records become decisive.
Does a retrospective cancellation affect the e-invoices already generated?
The invoice reference number remains a fact and is evidence that the invoice was reported at the time. It is a useful part of the diligence layer.
Is there any protection in the statute itself?
Not expressly, which is why the argument is built on the scheme of Sections 16, 155, 73, 74 and 79 and on the principle that a person cannot be prejudiced by an order in a proceeding to which he was not a party.
In this cluster
- Input tax credit under GST: the complete 2026 position
- Section 16(2)(c): can your ITC be denied because the supplier did not pay tax?
- Section 16(4) time limit for claiming ITC: what survives after the amnesty
- GSTR-2A and 2B mismatch notices: how to answer without conceding
- Blocked credits under Section 17(5): the clause by clause map
- Safari Retreats: what the Supreme Court decided on ITC for construction, and what Parliament then undid
- ITC on canteen, transport, insurance and other employee benefits
- ITC reversal under Rules 42 and 43: working the formula correctly
- Rule 37: ITC reversal when you do not pay your supplier within 180 days
- Rule 37A: reversal where your supplier did not file its GSTR-3B
GST Insights is published by AMLEGALS for general information. Law stated as on 3 September 2026. Not advice on any particular set of facts; not an advertisement or a solicitation under Rule 36 of the Bar Council of India Rules. Readers with a question on their own facts may write to the GST practice of their own accord.