Credit denied because your supplier did not file

The commonest demand under the GST law is not about classification, valuation or exemption. It is credit, denied because something on the supplier's side did not happen.

What the statute actually requires

Credit is available where the recipient holds the invoice, has received the goods or services, the tax has been paid to the Government, and the return has been filed Section 16(2), CGST Act 2017. The provision has been amended more than once, and further conditions tied to the auto populated statement have been added over time.

Two of those conditions are within the recipient's knowledge and control. Two are not. That asymmetry is the whole of the problem, and it is why this remains a live area rather than a settled one.

What a recipient can realistically prove

Where a supplier has not filed, the reply is built from what you can actually show.

• That the supply happened. Purchase order, invoice, transport document, gate entry, weighment, stock record, consumption or resale. The more of this chain that exists, the harder the transaction is to characterise as unreal.
• That you paid, including the tax. Bank statements matching invoice values, within the period the rules contemplate. Payment through banking channels is doing a great deal of work in this argument.
• That you checked. Registration status verified at the time, filing status checked, a documented supplier onboarding process. A recipient with a process is in a materially different position from one without.
• That you acted when the mismatch appeared. Correspondence with the supplier, follow up, and any recovery of the tax from them. Silence for two years is difficult to explain.

The time limit, and what changed

Credit for an invoice cannot be taken after the thirtieth of November following the end of the financial year, or the furnishing of the annual return, whichever is earlier Section 16(4), CGST Act 2017. That is a hard date and it is the reason a mismatch discovered late can be irrecoverable even where everything else is in order.

Later amendments relaxed the position for specified earlier years, and for cases where a cancelled registration was subsequently revoked. Demands raised before those amendments came in are worth revisiting on that footing rather than treated as closed. Confirm the position for the year in question.

Read the demand for double counting

Where the same credit is denied in one year and demanded in another, or where a reversal has already been made and is not accounted for in the notice, that has to be pointed out with the workings. It is more common than it should be, and it is rarely picked up by the department on its own. A schedule that reconciles the demand against what was actually availed and reversed is often the most useful document in the reply.

Answer the scrutiny stage properly

Most of these demands start life as a scrutiny notice comparing the return with the auto populated statement Rule 99, CGST Rules 2017, or as a pre-notice intimation Rule 142(1A), CGST Rules 2017. At that point the matter is a reconciliation. A month later it is a demand, and the same explanation costs an order of magnitude more to make.

An explanation filed with a reconciliation attached gives the officer something they can use to close the file. A bare denial does not, and it produces a notice.

The process worth putting in place

1. Reconcile the credit register against the auto populated statement monthly, not annually.
2. Set a threshold at which an unmatched invoice triggers contact with the supplier, and record that contact.
3. Hold the delivery evidence for every material supply as a matter of routine, not only for large ones.
4. Pay through banking channels, within the period the rules contemplate, and keep the mapping between payment and invoice.
5. Verify the supplier's registration and filing behaviour at onboarding and periodically after it.
6. Track the thirtieth of November for the previous financial year as a hard internal deadline, with a review a month before it.

If the demand has already come

1. Separate the demand into supplies you can evidence fully and those you cannot. They are different arguments.
2. Build the evidence pack per supplier rather than per invoice, since the department's case is usually per supplier.
3. Check the demand for double counting and for credit already reversed.
4. Check whether any of the later relaxations apply to the year in question.
5. Pay what is genuinely not defensible inside the reduced penalty window and contest the rest properly.

A recipient with a documented verification process, banking payments and delivery evidence is arguing a different matter from one with an invoice and a hope. The difference is created two years before the notice, not after it.