Taxpayers Protected: GST Input Tax Credit Denial Requires Proportional Penalty, Not Full Disqualification Under Rule 96(4)

The SC examined a GST dispute involving ITC denial due to suppliers' return filing defaults. The court ruled that the appellant, having provided proper invoices and paid GST through banking channels, would only be required to deposit 10% of the demanded amount. The judgment emphasized that suppliers' return filing is their responsibility, and the appellant should not be wholly penalized for their non-compliance.

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Issues involved:
The issues involved in the judgment are related to the denial of Input Tax Credit (ITC) to the appellant due to the default of the suppliers in filing returns under section 74 of the Goods and Service Tax, 2017, and the appellant's contention regarding the payment of GST and proper documentation of transactions.

Summary:

Issue 1: Denial of ITC due to suppliers' default in filing returns
The appellant, engaged in the business of iron scrap and waste, had purchased goods with proper invoices and paid applicable GST through banking channels. The appellant rightfully availed the input tax credit for the tax period, but the suppliers failed to file returns. The question was whether the appellant could be held responsible for the suppliers' default. The demand amount was initially high but decreased in subsequent notices. The appellant argued that proceedings under section 74 cannot be initiated against them for availing ITC in a fraudulent manner.

Issue 2: Appellant's status as a supplier
The appellant, also acting as a supplier, had not paid tax or filed returns themselves. However, they had invoices of sales made to suppliers and payments were made based on these invoices. This fact was a key point in the appeal.

Judgment:
Considering section 107(6)(d) of the Uttarakhand Goods and Services Tax Act 2017, the court modified the order, stating that since the appellant had provided all invoices from the suppliers, and it was the suppliers' responsibility to file returns, the appellant would only need to deposit 10% of the demanded amount. The order was modified accordingly, and the appeal was disposed of.

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