Short answer: The defence usually turns on evidence that goods or services were actually received and paid for, and on whether the notice states facts of fraud rather than relying only on a supplier being labelled bogus. GST tribunals have set aside demands where buyers produced e-way bills, transport, payment and stock records, and have refused to deny credit solely because a supplier’s registration was cancelled retrospectively.
How the Department frames these cases
CBIC Circular No. 171/03/2022-GST of 6 July 2022 sets out the Department’s approach. Where a person issues an invoice without any underlying supply, there is no “supply”, so no tax demand arises against the issuer, but penalty under Section 122(1)(ii) applies. A recipient who avails credit on such an invoice is treated as contravening Section 16(2)(b) and faces demand of the credit with interest and penalty under Section 74. Where credit is merely passed on through further invoices without supply, the circular says no separate demand is required for that onward chain.
For FY 2024-25 onwards, such demands are raised under Section 74A. In Neelkanth Entrepreneurs Pvt. Ltd. v. State of U.P., reported on 11 September 2026, the Allahabad High Court held that scrutiny of returns is not a precondition for a Section 74A notice, that an allegation of invoices built around fictitious firms is on its face a fraud allegation, and that whether the firms were bogus is a question of evidence for the adjudicating authority. The petitioner was given four weeks to reply.
Defences based on evidence of genuine supply
In Ashok Kumar Singh v. M/s Safecon Lifesciences Pvt. Ltd., reported on 20 October 2026, the GSTAT Agra Bench upheld the setting aside of a demand. The buyer had produced purchase orders, tax invoices, e-way bills, payment records, stock registers, consignment documents with vehicle particulars, and the supplier’s returns and tax payment records. The Tribunal held that the investigation report against the supplier “cannot be considered in isolation from the evidence produced by the recipient-taxpayer”, and noted that the supplier’s registration had been restored.
In Trivesh Enterprises LLP v. Joint Commissioner of State Tax (22 October 2026), GSTAT Thane held that “The Department cannot rely solely on the retrospective cancellation of the suppliers’ registrations”, and that the transactions must be verified independently.
Defences based on the notice itself
In Tata Steel Limited v. Union of India, reported on 26 August 2026, the Supreme Court held that the facts showing fraud or suppression “should be evident from the notice itself”, and that such words “are not to be mechanically recited”. CBIC Circular No. 258/04/2026-GST of 26 October 2026 adds that grounds and amounts must be separated where both Sections 73 and 74 are invoked.
Criminal exposure
Wrongful availment of credit on invoices without supply is an offence under Section 132(1). The 57th GST Council recommended on 8 October 2026 that clause (c) be confined to fraudulent availment without receipt of goods or services or without a valid invoice, and that the prosecution threshold be raised to Rs 5 crore. These are proposals and need legislation.
Related questions
My supplier’s registration was cancelled later. Will I lose the credit?
Not automatically. GSTAT Thane held in October 2026 that retrospective cancellation of a supplier’s registration cannot by itself justify denial of credit without verifying the transactions.
What documents help show the purchase was genuine?
Tribunals have relied on purchase orders, tax invoices, e-way bills, bank payments, stock registers, transport and vehicle details, and the supplier’s returns showing tax paid.
Is the person who issued invoices without supply liable for tax?
Under Circular 171/03/2022-GST, no tax demand arises against the issuer where there is no supply, but penalty under Section 122(1)(ii) applies.
Can my credit ledger be blocked while the case is pending?
Yes, under Rule 86A, but the Bombay High Court held in NZS Traders (April 2026) that the block cannot continue beyond one year.
Practical points
- Collect transport, e-way bill, receipt, stock and payment records for each disputed invoice.
- Obtain the supplier’s registration status and returns, and any order restoring registration.
- Read the notice for specific facts of fraud, not only general words.
- Reply in time with a transaction-wise reconciliation; do not wait for the hearing.
Sources: LiveLaw Biz, CBIC Circular 171/03/2022-GST, 7 July 2022; LiveLaw Biz, GSTAT Agra in Safecon Lifesciences, 20 October 2026; LiveLaw Biz, GSTAT Thane in Trivesh Enterprises, 26 October 2026; LiveLaw Biz, Allahabad HC on Section 74A, 11 September 2026.
For a confidential discussion on GST investigations, see GST Investigation, Summons and Arrest.
General legal information only; not legal advice or solicitation.
