GST ITC Cannot Be Denied for Supplier’s Retrospective Cancellation: Calcutta HC’s Shyamalmay Paul Ruling

Shyamalmay Paul v. Assistant Commissioner, SGST — ITC Cannot Be Denied for Supplier’s Retrospective Registration Cancellation

By Rohit Agarwal — GST Practitioner, Kolkata

A Kolkata GST practitioner’s read of the Calcutta High Court’s December 2025 decision in Shyamalmay Paul — how the ruling fits within the broader Calcutta line on bona fide buyer protection, and what Bengal taxpayers should be doing to preserve ITC.

One of the most recurring compliance disputes I handle from my Kolkata desk is the same fact pattern, repeated across sectors — a Bengal buyer places an order, receives the goods, receives a tax invoice, pays the supplier in full including GST, files GSTR-3B, and claims Input Tax Credit. Twelve or eighteen months later, the department cancels the supplier’s GST registration retrospectively and issues the buyer a notice under Section 74 demanding reversal of the ITC. The buyer, who did nothing wrong, faces a demand for something the supplier failed to do.

The Calcutta High Court in Shyamalmay Paul v. Assistant Commissioner, SGST (December 2025) is the latest — and one of the most cleanly reasoned — decisions in a growing line that protects the bona fide purchaser in exactly this situation. For any Bengal GST practitioner, this is the case you cite first when defending an ITC denial that traces back to the supplier.

The Section 16(2) reading — what the buyer must satisfy

Section 16(2) of the CGST Act lays down the conditions for a buyer to claim ITC:

• Possession of a valid tax invoice.
• Receipt of the goods or services.
• Tax charged on the supply has been actually paid to the government (Section 16(2)(c)).
• Return filed under Section 39.

The friction point is Section 16(2)(c) — the requirement that tax has been actually paid to the government. The department has historically read this as a strict obligation on the buyer, notwithstanding that the buyer has no operational ability to compel the supplier to remit.

The Shyamalmay Paul reasoning

In Shyamalmay Paul, the buyer had received goods, paid the supplier including GST, and claimed ITC. The department subsequently cancelled the supplier’s registration with retrospective effect and denied the ITC on the ground that the supply itself was invalidated.

The Calcutta High Court reaffirmed the principle it has developed across several recent decisions — that once a purchaser has complied with the conditions in Section 16(2), the benefit of ITC cannot be denied unless collusion or fraud on the part of the purchaser is established. The Court noted that the retrospective cancellation of the supplier’s registration cannot be a ground for denial where the purchaser has fulfilled its own obligations and has no operational visibility into the supplier’s subsequent conduct.

The wider Calcutta line

Shyamalmay Paul does not stand alone. It builds on a coherent line of Calcutta High Court decisions through 2024 and 2025:

• The Court has consistently held that ITC is a vested right that cannot be taken away without procedural fairness.
• Denial of ITC solely for non-reflection of invoices in GSTR-2A, without investigating the supplier, has been ruled unsustainable.
• Where the buyer has satisfied Section 16(2) conditions, the burden shifts to the department to establish fraud or collusion.
• Retrospective cancellation of supplier registration cannot, by itself, extinguish the buyer’s ITC entitlement.

Documentation buyers should maintain from day one

The Court’s reasoning turns entirely on the buyer having satisfied the Section 16(2) conditions. That means the burden of proof, in practice, is on the buyer to demonstrate compliance. Every Bengal buyer should now maintain, at a minimum:

• Original tax invoice with GSTIN, HSN, tax breakup, and vendor signature.
• Proof of receipt of goods — delivery challan, transport documents, e-way bill acknowledgement, warehouse receipt.
• Bank statement showing payment to the supplier’s registered bank account, matched to the invoice value including tax.
• Vendor onboarding due diligence file — GSTIN verification, PAN verification, filing status snapshot at time of onboarding.
• Copy of relevant GSTR-1 filed by the supplier (if accessible).

Drafting the reply to an ITC denial notice

When the department issues a notice denying ITC on the ground that the supplier’s registration has been cancelled retrospectively, the defence I now draft draws on Shyamalmay Paul and the wider Calcutta line. The structure that has been working:

1. Establish that the buyer satisfied all four conditions under Section 16(2) — with contemporaneous documentation.
2. Cite the Calcutta HC line — Shyamalmay Paul as the most recent authoritative statement, supported by Suncraft Energy, LGW Industries, and related decisions.
3. Argue that the department has not established fraud or collusion on the part of the buyer — Section 16(2)(c) cannot be read to impose strict liability.
4. Point out that retrospective cancellation of registration is a departmental action against the supplier, not the buyer.
5. Request that the department, if it disputes the supplier’s tax deposit, proceed against the supplier under Section 79 recovery.

The practical reality for Bengal buyers

The department may still issue the notice. That is unchanged by any judgment. What changes is the strength of the buyer’s defence and, critically, the willingness of the appellate authority — and eventually the GSTAT — to grant relief. In 2026, with the Kolkata Bench of GSTAT now operational, the buyer’s appellate path is shorter and cleaner than it has been in years.

Closing action list for Bengal buyers

• Build a Section 16(2) documentation file for every invoice above a materiality threshold.
• Run vendor due diligence at onboarding, not after a notice.
• Pay via banking channels — cash payments materially weaken the defence.
• When a notice arrives, cite Shyamalmay Paul and the Calcutta line explicitly in the reply.
• If the adjudication order goes against you, escalate to appeal before GSTAT — the Bengal bona fide buyer line is now well settled and appellate authorities are increasingly following it.

For a Bengal buyer who has done everything Section 16(2) requires, ITC is not the department’s to take away. Shyamalmay Paul reaffirms what the Calcutta High Court has been saying consistently — the burden of the supplier’s conduct cannot be shifted to the innocent purchaser.