Received a GST Notice for Supplier’s Fault? Here’s Why You Shouldn’t Panic.
GST Notice Due to Supplier Default | ITC Protection Explained
One of the most frustrating scenarios for a business owner is paying GST to a vendor, only to have the Tax Department demand it back from you because the vendor didn’t pay the government. A recent ruling by the Himachal Pradesh High Court (Dec 2025) in Shivalik Containers Pvt. Ltd. offers a much-needed shield for honest taxpayers.
What Happened? The taxpayer was slapped with a demand notice under the harsh Section 74 (dealing with fraud and suppression) because their supplier hadn’t paid the tax. The Department treated the supplier’s default as the recipient’s “wrongful claim.”
The Relief During the legal proceedings, it was proven that the supplier eventually paid the tax and filed returns. The High Court ruled that filing returns and paying tax—even late—is sufficient to set aside the demand. The Court quashed the order, stating that the recipient cannot be penalized once the government has received its dues.
What This Means for Delhi NCR Entrepreneurs If you are facing an audit or scrutiny in Noida, Gurgaon, or Delhi regarding mismatched ITC (GSTR-2A vs 3B):
- Don’t Admit Guilt Immediately: A notice under Section 74 implies fraud. If the underlying tax has been paid by the supplier, the fraud charge may not stick.
- Track Supplier Compliance: Use the GST portal to check if your defaulting vendors have recently filed “Amnesty” or late returns.
- Representation Matters: A proper legal reply citing judgments like Shivalik Containers can save you from heavy penalties (100% of tax).
Bottom Line: Compliance is a two-way street. Ensure your vendors are compliant but know your rights if they slip up.
For expert assistance with GST litigation and ITC reconciliation in Noida and Delhi NCR, contact Kunal Kapoor & Associates.
