On July 17, 2026, the Supreme Court dismissed the Revenue’s Special Leave Petition in Additional Commissioner Grade 2 & Anr. v. M/s Safecon Lifescience Private Limited [SLP (C) No. 23993 of 2026 dated July 17, 2026] upholding the Allahabad High Court’s ruling in favour of the pharma trading company. The petitioner had claimed ITC on purchases from a then-registered supplier, M/s Unimax Pharma Chem, backed by tax invoices, e-way bills, bank payments, and GST filings, but the department denied the credit and invoked Section 74 solely because the supplier’s registration was later cancelled and the purchases were found doubtful. The High Court found no finding at any stage that the petitioner’s supplier was itself involved in any irregularity, and relying on the CBIC Circular dated December 13, 2023, held that Section 74 proceedings require proof of fraud, wilful misstatement, or suppression of facts to evade tax and not mere default by someone further up the supply chain. The Court had criticised the revenue officers for acting “with closed eyes” without verifying the extensive documentary evidence on record, and allowed the writ petition, quashing both the adjudication and appellate orders.
1. Can the department deny ITC to a buyer merely because the supplier’s registration was cancelled retrospectively, without any finding against the buyer?
The ruling makes clear that proceedings under Section 74 can only be initiated where there is fraud, wilful misstatement, or suppression of facts to evade tax, not merely because a supplier’s registration was cancelled. As long as the buyer holds genuine tax invoices, e-way bills, proof of payment, and matching GST returns, and there is no specific finding that the buyer knew of or participated in any wrongdoing, ITC cannot be denied purely on the strength of the supplier’s later cancellation or upstream irregularities
2. Does this mean every ITC claim is now safe from denial due to supplier defaults?
No, this protection is conditional on the buyer being able to prove genuineness of the transaction and the absence of any fraud or collusion. The ruling turned heavily on the fact that the petitioner had furnished complete documentary evidence including purchase orders, invoices, e-way bills, transport records, and proof that GST returns were filed, none of which the department was able to rebut. If the department can show that the recipient knew the supplier was fictitious or complicit in tax evasion, or if the recipient’s own documentation is incomplete or inconsistent, Section 74 action and ITC denial can still be justified.
Disclaimer: This article provides general information existing at the time of preparation and we take no responsibility to update it with the subsequent changes in the law. The article is intended as a news update and Affluence Advisory neither assumes nor accepts any responsibility for any loss arising to any person acting or refraining from acting as a result of any material contained in this article. It is recommended that professional advice be taken based on specific facts and circumstances. This article does not substitute the need to refer to the original pronouncement.
