Calcutta High Court annuls GST registration suspension founded on unverified ITC discrepancy

1. Background of the writ petition

The Calcutta High Court, in Termico Engineers & Erectors Pvt. Ltd. Vs Deputy Commissioner of Revenue, examined the legality of proceedings initiated for cancellation of GST registration, where the assessee’s registration had also been kept under suspension. The impugned action stemmed from a show cause notice dated 22.05.2026 proposing cancellation of registration and recording that the assessee’s GST registration stood suspended with effect from 01.04.2023.

The assessee, Termico Engineers & Erectors Pvt. Ltd., is engaged in executing works contracts, including assembly and erection of pre-fabricated structures and other construction-related services, and is registered under the GST regime. In many of its projects, it functions either as a main contractor or as a sub-contractor for principal contractors executing Government works.

In this case, one such contractor, P.C.P. International Limited, had issued a letter of award dated 21.08.2021 in favour of the assessee for execution of specified works. Subsequently, the State tax authorities initiated proceedings based on an alleged mismatch in input tax credit (ITC) claimed by the assessee.

2. Origin of the dispute – alleged excess ITC

2.1 Initial notice on excess ITC

The State respondents issued a notice under Section 151 read with Rule 56(18) of the CGST Rules. In this notice, they pointed out discrepancies between the assessee’s returns and available records, particularly in GSTR-3B. The authorities alleged that the assessee had availed excess ITC of Rs. 8,04,31,198.54 for the financial years 2023-2024, 2024-2025 and 2025-2026.

The notice indicated that this ITC was viewed as inadmissible with reference to Section 16(2)(c) read with Section 41 of the CGST Act and the corresponding provisions under the WBGST Act, 2017.

2.2 Assessee’s initial response and production of supplier details

In response to this notice, the assessee submitted a detailed reply on 30.04.2026 and sought time for further clarification. Through its authorised representative, the assessee subsequently furnished supporting documents to the authorities, including:

  • particulars of suppliers,
  • relevant invoices, and
  • other records considered necessary for proper adjudication.

These materials were produced with the intent to enable the department to verify the genuineness of the transactions, the identity of the suppliers and the correctness of the ITC claimed.

3. Suspension and proposed cancellation of GST registration

Despite the ongoing process and before the alleged ITC discrepancy had been conclusively verified or quantified through adjudication, the State respondents issued a show cause notice dated 22.05.2026 for cancellation of the assessee’s GST registration. As a corollary, they also recorded that the GST registration stood suspended with effect from 01.04.2023.

The assessee challenged this show cause notice and the consequential suspension before the High Court in a writ petition.

3.1 Core grievance of the assessee

The principal objections raised by the assessee were:

  • It had already provided full particulars of all suppliers and relevant documents to the department.
  • The authorities, without verifying or concluding on the alleged ITC mismatch, had invoked drastic measures by suspending the registration and initiating cancellation proceedings.
  • Suspension of registration effectively paralysed its business operations, especially given its role in executing Government-related works contracts.
  • Such action, according to the assessee, was contrary to the statutory framework governing ITC verification and recovery and amounted to an arbitrary exercise of power.

The assessee submitted that any alleged excess ITC had to be properly verified and determined through adjudication. Only after such quantification, and following the procedure laid down by the law, could any adverse action be taken. Premature suspension of registration, it was argued, was not legally sustainable.

4. Judicial precedents relied upon

To support its challenge, the assessee relied heavily on three decisions: