2023 (3) TMI 1168 - HC - GST

GST Input Tax Credit Challenge Succeeds as Procedural Fairness Trumps Technical Compliance Under Section 16(2)(c)

Pinstar Automotive India Pvt. Ltd. Versus Additional Commissioner, Office of the Commissioner of GST and Central Excise Chennai

HC ruled on GST Input Tax Credit (ITC) dispute involving Section 16(2)(c). Court found procedural irregularities in the tax authority's order, ... Eligibility and conditions for taking Input Tax Credit (ITC) - Section 16(2)(c) of CGST Act - no tax had been remitted by the suppliers - HELD THAT:- There is a mandate cast upon the petitioner/claimant to ITC to ensure compliance with the provisions as, in the alternative and as a natural consequence of Section 16(2)(c), he would be entitled to ITC - No fault can be attributed to the Department in this regard, since three suppliers, Techno Rubber Plastic and Co., Techno Rubber and Plastic and M/s. Unique Autoplastics Private Limited had uploaded their invoices in GSTR -1, but no tax had been remitted by them, since GSTR 3B had not filed by them. The petitioner, as a consequence, suffered reversal of ITC, IGST, CGST and SGST. In the present case, the petitioner has chosen to seek rectification of order-in-original dated 29.07.2022 based upon the aforesaid decisions. The Court has no intention of intervening in the conclusion of the assessing authority on this aspect. However, the procedure followed by the authority is clearly contrary to the third proviso to Section 16 of the Act that necessitates that, where the authority proposes to take a view adverse to the applicant, due process must be followed - In this case, admittedly, there has been no opportunity granted to the petitioner prior to the passing of impugned order dated 20.01.2023 and this is a fatal flaw. Order dated 20.01.2023 is set aside. The petitioner shall be heard by issue of notice and orders passed on the Section 161 application within a period of four (4) weeks from today. This Writ Petition is allowed. Issues involved:The issues involved in this case are related to the invocation of Section 16(2)(c) of the Central Goods and Services Tax Act, 2017, concerning the eligibility and conditions for taking Input Tax Credit (ITC).Details of the Judgment:Issue 1 - Invocation of Section 16(2)(c) of the Act:The petitioner, an assessee under the Act, received a pre-assessment notice regarding the invocation of Section 16(2)(c). The respondent's case was based on supplies made to the petitioner by delinquent suppliers whose registrations were cancelled, resulting in non-remittance of tax to the Department.Issue 2 - Compliance with Section 16 for ITC eligibility:Section 16 mandates that tax charged for a supply must be actually paid to the Government for continuity of ITC. The petitioner was required to ensure compliance with this provision to be entitled to ITC.Issue 3 - Reversal of ITC due to non-remittance of tax by suppliers:Three suppliers failed to remit tax despite uploading invoices, leading to the petitioner's reversal of ITC. The petitioner contended that they fulfilled all statutory conditions for ITC eligibility, but the respondent rejected their claim, resulting in a demand confirmed by an order-in-original.Issue 4 - Application for rectification under Section 161:The petitioner sought rectification of errors in the order-in-original, citing relevant decisions not considered by the respondent. The Court acknowledged the strict observance of Section 16 provisions to safeguard revenue interests, emphasizing the supplier's primary liability over the purchaser's protective liability.Issue 5 - Procedural irregularity and remedy:The Court found a fatal flaw in the procedure followed by the assessing authority, as the petitioner was not granted an opportunity before the adverse order was passed. Consequently, the impugned order was set aside, and the petitioner was directed to be heard within four weeks on the Section 161 application.The judgment allowed the Writ Petition, highlighting the importance of due process and adherence to statutory provisions in matters concerning tax liability and ITC eligibility under the Central Goods and Services Tax Act, 2017.