In this guide
Several important GST and income tax judgments have been delivered by the Supreme Court, High Courts and Income Tax Appellate Tribunal during 2026. These decisions provide practical relief in matters involving GST appeal pre-deposit, delayed appeals, input tax credit, retrospective cancellation of supplier registration and alleged bogus purchases.
However, every judgment must be applied according to its facts. A favourable order in one case does not automatically cancel every pending tax demand. Taxpayers should examine the notice, adjudication order, transaction documents and applicable legal provision before relying on any judgment.
| Issue | Practical judicial position |
|---|---|
| Pre-deposit in penalty-only GST appeals | Relief may be available in proceedings governed by the law before 1 October 2025 |
| Appeal delayed due to rectification | Time spent in a genuine rectification proceeding may be excluded |
| Supplier did not pay GST | Section 16(2)(c) requires actual payment of tax to the Government |
| Supplier registration cancelled retrospectively | ITC cannot be denied only because of later retrospective cancellation |
| Alleged bogus purchases under income tax | Addition cannot rest only on GST investigation where genuine evidence exists |
Relief From 10% Pre-Deposit in Penalty-Only GST Appeals
With effect from 1 October 2025, Section 107(6) of the CGST Act requires a taxpayer filing an appeal against a penalty-only order to deposit 10% of the disputed penalty.
The relevant provision states:
“Provided that in case of any order demanding penalty without involving demand of any tax, no appeal shall be filed against such order unless a sum equal to ten per cent of the said penalty has been paid by the appellant.”
Before this amendment, the normal pre-deposit provision referred to the amount of tax in dispute. Therefore, where an order involved only penalty and no disputed tax, there was no general statutory requirement to deposit 10% of the penalty.
Recent judicial proceedings have considered whether the new condition can be applied to disputes originating before 1 October 2025. Courts have recognised that the right of appeal may be a substantive right governed by the law applicable at the relevant stage. In appropriate cases, appeals relating to earlier penalty proceedings have been permitted without insisting on the newly introduced pre-deposit.
This is not a blanket exemption. The taxpayer must check:
- Date of the show-cause notice;
- Date of the penalty order;
- Date on which the appeal became available;
- Date of filing the appeal; and
- Whether the order involves tax, penalty or both.
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Time Spent in Rectification May Be Excluded From Appeal Limitation
A GST appeal under Section 107 is normally required to be filed within three months from the communication of the order. The Appellate Authority may allow one additional month where sufficient cause is established.
A practical problem arises where the taxpayer first files a rectification application under Section 161 and waits for its disposal. If the officer takes substantial time to decide the rectification, the appeal period may expire.
The Gauhati High Court has held that where a rectification application was filed within time and pursued honestly and with due diligence, the period during which that application remained pending could be excluded while calculating the appeal limitation. In that case, 48 days spent in the rectification proceeding were excluded.
The relief depends on the taxpayer proving that:
- The rectification application was filed within the prescribed period;
- The application concerned an apparent error;
- The proceeding was pursued in good faith;
- There was no deliberate delay; and
- The appeal was filed promptly after the rectification was rejected.
Taxpayers should not assume that filing a rectification application automatically extends the appeal deadline. Wherever possible, both remedies should be planned carefully.
Supreme Court Upholds Section 16(2)(c) of the CGST Act
Section 16(2)(c) provides that input tax credit is available only where the tax charged on the supply has actually been paid to the Government, either in cash or through eligible input tax credit.
In July 2026, the Supreme Court declined to interfere with the Gujarat High Court’s decision upholding the constitutional validity of this condition. The practical effect is that a genuine recipient may still face an ITC dispute if the supplier collects GST but fails to deposit it with the Government.
Businesses should therefore strengthen vendor compliance controls by checking:
- Supplier’s active GST registration;
- Invoice appearing in GSTR-2B;
- Filing of GSTR-1 by the supplier;
- Regular filing of GSTR-3B;
- Movement and receipt of goods;
- E-Way Bill and transport documents; and
- Payment through banking channels.
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Retrospective Cancellation Alone Cannot Deny Genuine ITC
Another important relief concerns cases where a supplier’s GST registration is cancelled retrospectively.
Suppose a purchaser bought goods when the supplier appeared as an active registered taxpayer. The purchaser possesses valid invoices, E-Way Bills, payment records and proof of receipt. Several years later, the department cancels the supplier’s registration with retrospective effect.
Courts have held that retrospective cancellation by itself cannot establish that the original purchase was bogus. The department must examine the actual transaction and evidence produced by the recipient.
The Supreme Court recently declined to interfere with an Allahabad High Court decision granting relief where ITC was denied mainly because of retrospective cancellation and unverified allegations against the supplier.
This judgment does not override Section 16(2)(c). The taxpayer must still establish the genuineness of the transaction and satisfy applicable ITC conditions.
Income Tax Addition Cannot Be Based Only on GST Investigation
Income tax assessments sometimes treat purchases as bogus merely because the GST Department has identified the supplier as suspicious or initiated an investigation.
The Income Tax Appellate Tribunal has held that purchase additions cannot be sustained only on suspicion where the taxpayer produces reliable evidence such as:
- Purchase invoices;
- E-Way Bills;
- Lorry receipts;
- Weighment slips;
- GST returns;
- Stock records;
- Bank-payment proof; and
- Corresponding sales accepted by the Assessing Officer.
Where the books are not rejected, sales are accepted and the complete documentary trail is available, the Assessing Officer must conduct an independent examination instead of relying only on GST intelligence or third-party statements.
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Other GST Compliance Updates for 2026
Taxpayers should also note the operational changes relating to GSTR-9 for FY 2025-26, completion of the AATO amendment window and the procedure applicable to orders passed by a Common Adjudicating Authority.
CBIC has issued guidance identifying the reviewing, revisional and appellate authorities for orders passed by Common Adjudicating Authorities in DGGI matters. Businesses receiving such an order should confirm the correct appellate jurisdiction before filing any appeal.
Frequently Asked Questions
Is 10% pre-deposit compulsory for every penalty-only GST appeal?
The requirement applies under the amended law from 1 October 2025. Relief may be available in certain earlier proceedings, depending on the relevant dates and judicial position.
Does filing a rectification application stop the GST appeal deadline?
Not automatically. A court may exclude the period where the rectification was timely, bona fide and diligently pursued.
Can ITC be claimed if the supplier has not paid GST?
Section 16(2)(c) requires the tax charged on the supply to have been paid to the Government.
Can ITC be denied only because the supplier’s registration was cancelled retrospectively?
Retrospective cancellation alone may not be sufficient where the purchaser proves that the transaction was genuine and properly documented.
Can income tax authorities disallow purchases based only on a GST investigation?
A disallowance should not be made merely on GST information where invoices, movement records, bank payments, books and corresponding sales support the purchases.
