Input tax credit denied due to supplier missing GSTR-1 entry; reversal set aside when buyer had invoices, payment proof

Input tax credit was denied under s.16(2) WBGST Act solely because the supplier's outward supply was not reflected in the supplier's GSTR-1, implying non-payment of tax to the Government. The HC held that the show cause notice did not dispute that the purchaser possessed a valid tax invoice, had received the goods/services, and had paid the consideration and tax to the supplier, which was substantiated by invoices and bank statements; denial of credit without proceeding against the defaulting supplier was arbitrary. The proper course was to act against the supplier, and reversal could be directed against the purchaser only in exceptional contingencies such as collusion, missing/closed supplier, or absence of recoverable assets. The demand was set aside and the appeal was allowed, with directions to decide in line with the CBIC circular.

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Issues Involved:
1. Reversal of Input Tax Credit (ITC) by the Assistant Commissioner of State Tax.
2. Compliance with conditions under Section 16(2) of the WBGST Act.
3. Validity of the demand raised based on discrepancies in GSTR-2A and GSTR-3B.
4. Justification for proceeding against the appellant without action against the supplier.

Summary:

Reversal of Input Tax Credit (ITC) by the Assistant Commissioner of State Tax:
The intra-Court appeal was filed against the order dated 21.06.2023, which reversed the ITC availed by the appellant under the WBGST Act, 2017. The appellant challenged the order by the Assistant Commissioner of State Tax, Ballygunge Charge, dated 20.02.2023, which reversed the ITC due to certain invoices not being reflected in the GSTR-2A for the Financial Year 2017-18.

Compliance with conditions under Section 16(2) of the WBGST Act:
The appellant contended that they had fulfilled all conditions under Section 16(2) of the Act, including possession of a valid tax invoice, receipt of goods/services, payment of tax to the supplier, and furnishing the return under Section 39. The appellant argued that the reversal of ITC was erroneous as they had complied with all statutory requirements.

Validity of the demand raised based on discrepancies in GSTR-2A and GSTR-3B:
The demand for payment of tax along with interest and penalty was based on discrepancies between GSTR-2A and GSTR-3B. The appellant argued that the discrepancy arose due to the supplier not reflecting the invoices in their GSTR-1, but the appellant had valid tax invoices and had made payments. The appellant relied on the Supreme Court's decision in Union of India (UOI) vs. Bharti Airtel Ltd. and Ors., and press releases by the Central Board of Indirect Tax and Customs, which clarified that ITC should not be automatically reversed due to non-payment of tax by the supplier.

Justification for proceeding against the appellant without action against the supplier:
The Court noted that the first respondent did not conduct any enquiry on the supplier (fourth respondent) and directly proceeded against the appellant. The Court emphasized that action should first be taken against the supplier, and only in exceptional circumstances, such as collusion or the supplier being untraceable, should proceedings be initiated against the appellant. The Court found the first respondent's action arbitrary and set aside the demand raised on the appellant.

Conclusion:
The appeal was allowed, and the orders passed in the writ petition and by the Assistant Commissioner were set aside. The authorities were directed to first proceed against the supplier and only under exceptional circumstances proceed against the appellant. The Court concluded that the demand raised on the appellant was not sustainable.

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