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

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 that the tax authority acted arbitrarily by ignoring tax invoices and bank statements proving payment for goods/services and applicable taxes. Citing Bharti Airtel Ltd, the court emphasized that Form GSTR-2A is merely a facilitator for self-assessment decisions. The authority should have first taken action against the selling dealer unless exceptional circumstances like collusion, missing dealer, or business closure existed. The denial of credit without following due process violated natural justice principles.

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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 Notice

MAT 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 Scope

The 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, 2017

The 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 Case

The 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.)

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