ITC denied because of your supplier? Defend, reverse, or pay — and at what price

Why the supplier's returns decide it. Since July 2026 a supplier who filed and paid and one who never paid fall under different law. So the page sorts your notice by what your supplier actually filed, not by what the notice says.

Back-dated cancellation. High Courts have upheld the buyer's credit where the supplier filed and paid and the buyer proves receipt, movement and payment. The Supreme Court left one such ruling standing without reasons, and a related appeal is pending there.

Supplier didn't pay, and getting the credit back. The Supreme Court (July 2026, as reported) upheld the rule that the supplier must have paid, with no exception for honest buyers. Reverse the credit now and claim it back when the supplier pays.

Fake supplier and the burden. You must prove the credit is genuine; invoices and bank payment alone are not enough. Proof that the goods moved is what courts accept.

The Punjab & Haryana guidelines. Shaurya Alloys (Oct 2026) bars mechanical reversal and needs reasons on each condition. It binds in Punjab, Haryana and Chandigarh and is persuasive elsewhere.Verify with CA

The penalty slabs.

	Before a show-cause	Within the show-cause window	At or after the order
No fraud (s.73 / s.74A)	Nil	Nil (30 / 60 days)	10% or ₹10,000, higher
Fraud (s.74 / s.74A)	15%	25% (30 / 60 days)	50% within 30 / 60 days of the order; 100% after

Interest only if you used the credit. 18% a year from the date you used the credit, simple, counted in days. Credit still sitting in the ledger carries no interest.

Lower penalties proposed by the Council aren't law yet. The 57th GST Council's proposed changes need an amendment, so this page uses the slabs above.

What this page doesn't do.

• Draft the DRC-06 reply.
• Compute time limits beyond FY 2022-23 and FY 2023-24.
• Judge whether a supplier is genuine — it shows which proof is missing.
• Handle blocked credit (Rule 86A), refunds, or the supplier's own case.