2023 (8) TMI 174 - HC - GST

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 ... Entitlement to input tax credit under Section 16(2) - Self-assessment basis for availing ITC - Form GSTR-2A as a facilitative document - Non-automatic reversal of ITC on seller's non-payment - Revenue's obligation to proceed against defaulting supplier before denying buyer's ITC - Exceptional circumstances permitting reversal of buyer's ITCEntitlement to input tax credit under Section 16(2) - Form GSTR-2A as a facilitative document - Self-assessment basis for availing ITC - Whether the appellant was entitled to retain the input tax credit where the conditions of Section 16(2) were satisfied even though corresponding entries did not appear in the supplier's Form GSTR-1/GSTR-2A. - HELD THAT: - The Court held that entitlement to ITC is governed by the conditions set out in Section 16(2) and that Form GSTR-2A is only a facilitative document to assist self-assessment. Where the purchaser is in possession of a tax invoice issued by a registered supplier, has received the goods or services, has made payment of tax to the supplier and has filed returns, mere non-reflection of the supplier's outward details in GSTR-1/GSTR-2A does not, by itself, defeat the purchaser's entitlement to ITC. The Court noted the CBIC clarifications that furnishing of outward details in Form GSTR-1 and viewing in Form GSTR-2A does not impact the taxpayer's ability to avail ITC on self-assessment and that reversal of ITC is not automatic on supplier's non-payment; reversal is limited to exceptional situations. Applying these principles to the facts, the appellant produced tax invoices and bank statements proving payment and receipt of services, and there was no adjudged failure to satisfy the statutory conditions in Section 16(2). Accordingly, the demand premised solely on mismatch between GSTR-2A and GSTR-3B was unsustainable. [Paras 4, 5, 6, 7, 8]The appellant was entitled to retain the ITC claimed for Financial Year 2017-18 because the statutory conditions in Section 16(2) were satisfied and non-reflection in GSTR-2A alone did not disentitle the appellant to ITC.Revenue's obligation to proceed against defaulting supplier before denying buyer's ITC - Non-automatic reversal of ITC on seller's non-payment - Exceptional circumstances permitting reversal of buyer's ITC - Whether the revenue was justified in reversing the appellant's ITC and recovering tax from the appellant without first proceeding against the supplier. - HELD THAT: - The Court found that the assessing authority proceeded to reverse the appellant's ITC without conducting any enquiry or initiating action against the supplier. The Court observed the CBIC press releases and judicial precedent emphasising that in case of seller's default the primary remedy is to proceed against the defaulting seller, and reversal of buyer's ITC is permissible only in exceptional circumstances such as missing dealer, closure of business, lack of assets, or where collusion is established. Absent any finding or material showing collusion or one of the exceptional contingencies, the authority's summary reversal and demand against the appellant was arbitrary. The Court therefore set aside the demand and directed that the appropriate authorities must first proceed against the supplier and may initiate proceedings against the buyer only if exceptional circumstances as clarified by CBIC are made out. [Paras 5, 8, 9, 10]The demand against the appellant was unsustainable; the revenue must first proceed against the supplier and may invoke reversal against the buyer only upon establishment of exceptional circumstances.Final Conclusion: The appeal is allowed; the order dated 20.02.2023 reversing ITC is set aside for Financial Year 2017-18 and the authorities are directed to proceed against the supplier first, reserving action against the appellant only if exceptional circumstances or collusion are established. 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.