Section 155, NGTP & Retrospective Cancellation: A Practical Defence Guide for Buyers

In current GST administration, departmental proceedings in alleged “fake ITC” or “NGTP” cases are driven by a recurring claim:

“Under Section 155, the entire burden is on you. Your supplier has been marked NGTP / registration cancelled, so you must reverse your ITC.”

On the surface, this appears consistent with the wording of Section 155. In practical terms, however, it is often used to compel bona fide recipients to establish facts that are outside their control, while the department frequently does not bring on record concrete evidence of non-genuine supplies or actual non-existence of the supplier.

This article recasts the debate around Section 155 by examining:

  • What Section 155 truly covers and what it does not empower officers to do
  • How NGTP tagging and retrospective cancellation are being leveraged to pressurise buyers
  • Why Section 76 is the appropriate statutory tool to deal with defaulting suppliers
  • How recent High Court rulings are rebalancing the rights of honest assessees
  • A practical, step-wise strategy for responding to notices which routinely invoke Section 155

Section 155 of the CGST Act provides:

“Where any person claims that he is eligible for input tax credit under this Act, the burden of proving such claim shall lie on such person.”

1.1 What Section 155 actually requires from the assessee

The section is an evidentiary rule. It simply states that when an assessee seeks to avail input tax credit (ITC), the assessee must substantiate that claim. In practice, this means the assessee must demonstrate, with documentary material, that:

  • A proper tax invoice has been received
  • Goods or services have actually been received
  • Consideration including GST has been paid, usually through banking channels
  • ITC has been claimed in returns in line with Section 16(2)

In other words, the assessee must prove its own side of the transaction.

1.2 What Section 155 does not say

The provision does not say that a recipient must:

  • Guarantee that the supplier will deposit GST in full, on time, and without future default
  • Ensure that the supplier’s registration will never be cancelled or flagged as NGTP
  • Automatically lose ITC if, at a later date, the supplier’s registration is cancelled with retrospective effect

A reasonable interpretation of Section 155 is that a genuine assessee is expected to keep and produce records that are within his knowledge and control. The law does not envisage the assessee becoming a de facto compliance officer for every entity in the supply chain.

Key Point: Section 155 shifts the onus of proving ITC eligibility, not the responsibility for monitoring post‑supply compliance behaviour of suppliers.

2. Misuse of Section 155 in NGTP & Retrospective Cancellation Matters

Ground-level practice in NGTP and retrospective cancellation cases frequently diverges from this balanced reading of Section 155.

2.1 Typical departmental pattern in NGTP cases

A common fact-pattern emerging across jurisdictions is:

On the supplier side:

  • Data analytics, risk parameters or DGGI alerts flag a supplier as “NGTP / non-existent / risky”
  • Registration is cancelled, very often with retrospective effect, using a brief order under Section 29(2)
  • The cancellation order is frequently non-speaking, with minimal reasons

On the buyer side:

  • Recipients who purchased from such suppliers and availed ITC receive notices in DRC-01 under Section 73 or Section 74
  • The show-cause notice generally alleges:
    • The supplier is NGTP / bogus / cancelled retrospectively
    • Therefore, ITC is inadmissible
    • Under Section 155, the recipient must reverse ITC, pay tax, interest and, in Section 74 cases, a penalty up to 100%

Documents often missing from the departmental file:

  • Inspection or survey reports relating to the supplier
  • Enquiry records to show that goods never moved or that services were never rendered
  • Any consignment-specific evidence challenging the movement of goods
  • Detailed, reasoned cancellation orders explaining how and why the supplier is non‑existent
  • A careful scrutiny of the buyer’s documents – invoices, e-way bills, lorry receipts, weighment slips, banking records, stock registers, etc.

In many such matters, the invocation of Section 155 becomes a slogan, used to claim that the entire evidentiary burden rests with the assessee, even where the department itself brings little or no material to support allegations of sham transactions.

2.2 Why such use of Section 155 is legally unsound

This approach is vulnerable on multiple legal grounds:

(a) Creating an impossible burden

An assessee can demonstrate:

  • Documentary trail of purchases
  • Receipt and use of goods or services
  • Accounting entries and stock records
  • Bank payments and return filings

However, the assessee cannot practically prove:

  • What the supplier did with the tax amount after collecting it
  • Whether the supplier would continue to comply or later default
  • Whether in future the supplier might be tagged NGTP or have its registration cancelled

Stretching Section 155 to require proof of these external, downstream facts converts the provision into an impracticable and unjust burden that the legislature did not intend.

(b) Ignoring the department’s parallel obligation of proof