What happens to my input tax if my supplier is suspended, blacklisted or found issuing fake invoices?

A wholesaler can do everything right on its own side and still lose input tax because of what its supplier did. The Sales Tax Act, 1990 links the buyer’s claim to the supplier’s standing in three places: suspension and blacklisting under section 21, the input tax bars in section 8, and joint liability under section 8A.

What does section 21 say about a suspended or blacklisted supplier?

Section 21(2) lets the Commissioner, where satisfied that a registered person issued fake invoices, did not comply with the real-time invoicing integration requirements in section 23(5) and (6) or the electronic monitoring and tracking provisions, or otherwise committed tax fraud, issue an order of suspension and blacklisting or suspend the registration, following the procedure the Board prescribes. The words on invoicing integration and monitoring were inserted by the Finance Act, 2026.

Section 21(2A), inserted by the Finance Act, 2025, requires the Commissioner to issue a show cause notice within ten days of the suspension order. After the reply and a hearing, the Commissioner may revoke the suspension or issue an appealable speaking order for blacklisting within thirty days of receiving the reply.

Section 21(3) sets out the effect on buyers:

• During suspension: invoices issued by the suspended person “shall not be entertained” for sales tax refund or input tax credit.
• After blacklisting: refund or input tax credit claimed against that person’s invoices, “whether prior or after such black listing”, shall be rejected through a self-speaking appealable order, after the person is given an opportunity of being heard.

Section 21(4) separately lets the Board, the Commissioner or an authorised officer, after recording reasons in writing, block refunds or input tax adjustments of a person believed to be issuing fake or flying invoices, claiming fraudulent input tax, or not physically existing.

How does section 8 apply?

Section 8(1) bars input tax on “fake invoices” (clause (d)), on goods or services where the supplier has not deposited the sales tax in the Government treasury (clause (ca)), and on purchases where CREST shows a discrepancy or the input tax is not verifiable in the supply chain (clause (caa)). These bars apply whether or not the supplier has been formally suspended.

Am I jointly liable for the supplier’s unpaid tax?

Section 8A makes a buyer jointly and severally liable with the supplier for unpaid tax only where the buyer “is in the knowledge or has reasonable grounds to suspect” that some or all of the tax on that supply, or any previous or subsequent supply of the goods, would go unpaid. Words added by the Finance Act, 2015 place “the burden to prove” on the department. The Board may exempt transactions by notification.

What procedure do the Sales Tax Rules set?

Rule 12 of the Sales Tax Rules, 2006 (as amended to 30 June 2025) sets the procedure:

1. The Commissioner may suspend through the system, without prior notice, on grounds including non-existence at the given address, refusal of access or records, and non-filing of returns for three consecutive months.
2. During suspension, no input tax adjustment or refund is allowed to any other registered person on the strength of invoices issued by the suspended person, whether issued before or after the suspension.
3. A blacklisting order must state the period for which input tax claimed on the blacklisted person’s invoices is inadmissible.
4. Offices circulate a system list of the blacklisted person’s invoices. The officer with jurisdiction over each buyer then issues a show cause notice under section 21(3) and decides by a self-speaking appealable order after a hearing.

Rule 12A adds that a non-active taxpayer cannot issue sales tax invoices or claim input tax, and a buyer entering such an invoice in its return sees a message that no input tax credit is admissible.

Worked example (illustrative figures)

Sadiq Distributors in Peshawar claimed input tax on invoices from Supplier X as follows. The amounts are invented.

Month	Supplier X status	Input tax claimed
January	Registered, active	Rs. 60,000
February	Registered, active	Rs. 40,000
March	Suspended from 5 March	Rs. 25,000

Supplier X is later blacklisted.

1. March claim: section 21(3) says invoices of a suspended person are not entertained during suspension, so Rs. 25,000 is not entertained.
2. January and February claims: once Supplier X is blacklisted, section 21(3) covers invoices “whether prior or after”, so Rs. 60,000 + Rs. 40,000 = Rs. 100,000 is open to rejection, but only through a self-speaking appealable order after Sadiq Distributors is heard.
3. Total exposed: Rs. 25,000 + Rs. 100,000 = Rs. 125,000.

What if the rules and the Act give different time limits?

They do. Rule 12(a)(vi) gives the Commissioner seven days after suspension to issue a show cause notice, and rule 12(b)(iii) allows ninety days from the notice of hearing for the blacklisting order. Section 21(2A) of the Act, inserted by the Finance Act, 2025, says ten days for the notice and thirty days from receipt of the reply for the order. The Act is the later and higher instrument, but this site does not resolve how the two are applied in practice.

Common mistakes

• Assuming old invoices are safe. Section 21(3) reaches invoices issued before blacklisting.
• Assuming rejection is automatic. Section 21(3) requires an appealable order after a hearing, so the buyer can respond and appeal.
• Assuming the buyer must prove innocence under section 8A. The Act places the burden on the department.

What to check in the official text

Read sections 8, 8A, 21 and 23 of the Sales Tax Act, 1990 as amended to 30 June 2026, and rules 12 and 12A of the Sales Tax Rules, 2006. Whether a supplier is currently active, suspended or blacklisted is shown in FBR’s systems, which are not part of the text held here.