2024 (5) TMI 362 - HC - GST

Tax authority cannot reverse input tax credit without proper verification from supplier or due process

LOKENATH CONSTRUCTION PRIVATE LIMITED Versus TAX/REVENUE GOVERNMENT OF WEST BENGAL AND OTHERS And LOKENATH CONSTRUCTION PRIVATE LIMITED Versus JOINT COMMISSIONER OF STATE TAX/ REVENUE, LARGE TAX PAYERS UNIT AND OTHERS

The Calcutta HC set aside an order directing the appellant to reverse input tax credit (ITC) without proper verification from the supplier. The court held ... Reversal of ITC - notice has been issued without causing any verification from the supplier’s end and denying credit to the appellant - violation of principles of natural justice - HELD THAT:- The effect and purport of Form GSTR-2A was explained by the Hon'ble Supreme Court in Bharti Airtel Ltd [2021 (11) TMI 109 - SUPREME COURT]. It was held that Form GSTR-2A is only a facilitator for taking a confirm decision while doing such self-assessment. Non-performance or nonoperability of Form GSTR-2A or for that matter, other forms will be of no avail because the dispensation stipulated at the relevant time obliged the registered persons to submit return on the basis of such self-assessment in Form GSTR-3B manually on electronic platform. The first respondent without resorting to any action against the fourth respondent who is the selling dealer has ignored the tax invoices produced by the appellant as well as the bank statement to substantiate that they have paid the price for the goods and services rendered as well as the tax payable there on, the action of the first respondent has to be branded as arbitrarily. Therefore, before directing the appellant to reverse the input tax credit and remit the same to the government, the first respondent ought to have taken action against the fourth respondent the selling dealer and unless and until the first respondent is able to bring out the exceptional case where there has been collusion between the appellant and the fourth respondent or where the fourth respondent is missing or the fourth respondent has closed down its business or the fourth respondent does not have any assets and such other contingencies, straight away the first respondent was not justified in directing the appellant to reverse the input tax credit availed by them. The orders passed in the writ petition is set aside and the order passed by the first respondent namely the Assistant Commissioner, State Tax, Ballygunge Charge, is set aside - Appeal allowed. Issues Involved:1. Jurisdiction and validity of the show-cause notice issued by WBGST Authorities.2. Adjudication of the show-cause notice and findings beyond its scope.3. Compliance with Section 16(2) of the CGST Act, 2017.4. Precedent applicability from the Suncraft Energy Private Limited case.Summary:Issue 1: Jurisdiction and Validity of Show-Cause NoticeMAT No. 2459 of 2023 challenged the order dated 04.12.2023 in WPA 2544 of 2023, where the appellant contested a show-cause notice dated 22nd August, 2023 issued by WBGST Authorities. The appellant argued that the notice was issued without verification from the supplier's end, denying credit to the appellant. The Writ Court directed the appellant to file an objection to the show-cause notice and ordered that no coercive action be taken until the objection was disposed of.Issue 2: Adjudication of Show-Cause Notice and Findings Beyond ScopeThe adjudicating authority confirmed the demand in the show-cause notice through an order dated 28.12.2023. The Court found that certain findings in the adjudication order were outside the scope of the allegations in the show-cause notice, such as the appellant not proving actual availing of services and not producing specific documents. The adjudicating authority also rejected Chartered Accountant certificates without seeking clarification from the appellant, which the Court deemed improper.Issue 3: Compliance with Section 16(2) of the CGST Act, 2017The Court reiterated that for a dealer to be eligible to avail input tax credit (ITC), the conditions in Section 16(2) of the Act must be fulfilled, including possession of a tax invoice, receipt of goods/services, actual payment of tax to the Government, and furnishing of the return. The Court referred to press releases clarifying that ITC should not be automatically reversed from the buyer due to non-payment of tax by the seller, except in exceptional situations.Issue 4: Precedent Applicability from Suncraft Energy Private Limited CaseThe Court applied the decision in Suncraft Energy Private Limited, where it was held that the department must proceed against the defaulting seller before directing the buyer to reverse ITC. The Court found that the adjudicating authority in this case ignored tax invoices and Chartered Accountant certificates without taking action against the supplier, which was deemed arbitrary and without jurisdiction.Conclusion:The appeal was allowed, setting aside the order in the writ petition and the adjudication order dated 28.12.2023, as well as the show-cause notice dated 22.08.2023. The authorities were directed to first proceed against the supplier and only under exceptional circumstances initiate proceedings against the appellant.(T.S. SIVAGNANAM, CJ.)(HIRANMAY BHATTACHARYYA, J.)