ITC on the invoices issued by a GST Registered Supplier who files his return after two years

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Amit Kr Mishra (Querist)
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06 August 2024 This might sound very stupid question to ask but it underlines two primary concerns:
1. GST Department never waives tax liability once instated, sooner or later, they are to be paid
2. When such liabilities are recovered, does govt allow the related ITC to be claimed by the customers of the defaulting suppliers.
3. ABC Co bought goods from XYZ Co vide invoice dated 30.03.2022. As the later did not file its returns and did not pay the taxes, ABC Co couldn't claim ITC by 30.09.2022 for the said invoice. However, in July 2024 XYZ Co has paid all its taxes and filed the returns, will ABC Co be albe to claim ITC now? May be not. But CAN ABC Co, on the basis of the fact that XYZ Co is a defaulter, claim the GST Back from XYZ Co in a legal manner backed by GST Act.
4. Is there any measure in GST Act to safeguard the interests of the buyers so that they do not suffer from such ITC Losses

Please help

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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13 August 2025 1. Does the GST Department waive tax liability once imposed?
No. The tax liability on suppliers is not waived. They must pay their due taxes along with interest and penalty, if any.
2. Can buyers claim ITC if supplier has defaulted and filed returns late?
Under Section 16(2)(b) of the CGST Act, ITC can be claimed only if the supplier has paid the tax to the government.
Additionally, Rule 36(4) restricts ITC claims to invoices reflected in the supplier’s GSTR-1.
The time limit for claiming ITC is earlier of:
Filing of return for September of the following financial year or
Filing of annual return.
If ABC Co did not claim ITC by the due date (30.09.2022) because XYZ Co had not filed returns or paid taxes, the ITC claim was disallowed.
3. Can ABC Co claim ITC now after XYZ Co pays tax and files returns?
Unfortunately, no. The ITC claim period has expired for FY 2021-22.
ITC cannot be claimed retrospectively after the deadline even if the supplier later pays taxes.
However, ABC Co can:
Adjust this amount as input cost in their books (treat as cost increase).
Seek recovery from XYZ Co by other legal means (contractual claim), but not through GST credit mechanism.
4. Can ABC Co claim GST back legally from XYZ Co?
GST Act does not provide a direct remedy for buyers to claim GST from defaulting suppliers.
This is a contractual issue between buyer and supplier.
ABC Co may take recourse through:
Civil suit for recovery.
Arbitration or contractual remedies.
Any consumer forum or legal action.
5. Measures in GST Act to protect buyers from ITC loss due to supplier default?
The law has safeguards such as:
Section 16(2)(b): ITC only if tax is paid by supplier.
Time limits for claiming ITC to prevent indefinite claims.
Amendment rules to allow limited ITC claim based on GSTR-2A (Rule 36(4)).
However, there is no specific provision to compensate buyer for loss of ITC due to supplier default.

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