Section 16 (2) (c)

[Komal Agarwal]

One of my client purchased goods and paid to supplier during FY 2018-19. Supplier filed GSTR-1 properly and filed GSTR-3B Nil. Later department cancelled supplier’s GST no with retrospectively. Now the SCN issued by department to us referring section 16(2)(c) of the CGST Act for payment of tax with interest as the supplier did not deposited the amount to department. What remedy available to us. Please refer case law also in tax payer’s favor.

[KASTURI SETHI]

Sh. Komal Agarwal Ji,

If the transactions of your client are genuine, contest the case legally on the following grounds :-

i. ITC was taken on valid and genuine invoices.

ii. ITC was taken before the cancellation of the Registration Certificate of the suppliers.

iii. Retrospective cancellation of GSTIN of the suppliers does not disentitle the buyer from taking ITC.

iv. Tax-paid character is not in dispute inasmuch as tax was paid to the registered supplier in pursuance of Section 9(1) of CGST Act. It was a statutory duty of the supplier to collect GST from the buyer and deposit into Govt. account and file GST returns.

v. The buyer of the goods or service should not suffer due to the supplier’s fault.

vi. Tax was paid to the registered supplier who was duly registered under Section 25 of CGST Act and the department itself issued registration certificate to the supplier.

vii. At the time of taking ITC, names of those suppliers as registered taxable person were available at the Government Common Portal System showing their registrations as valid and existing at the time of transactions in question

viii. GST was paid to the suppliers and services were duly received and accounted for in the books of accounts (by the buyer)

ix. A buyer of the goods or services has no control and supervision over the supplier of services or goods. Rather, Govt. has such control and supervision.

x. It is not possible to anticipate who will deposit into Govt. account and who will not deposit tax into Govt. account.

xi. Your client fulfills the conditions laid down under Sections 16 & 17 of CGST Act, 2017.

xii. Mention the date of insertion of 2 (c).

Case laws :

(i) LGW Industries Ltd. & Others reported as 2021 (12) TMI 834-CALCUTTA HIGH COURT

(ii) Gargo Traders reported as 2023 (6) TMI 533-CALCUTTA HIGH COURT.

There are so many case laws on this issue.

[Sadanand Bulbule]

Dear querist

I fully endorse the practical clarity and legal remedy given by Sethi Sir  ji.

[KASTURI SETHI]

Dear Sir, 

Your support signifies a deep message. A huge thanks.

[Shilpi Jain]

There are a number of High Court decisions which have held that retrospective cancellation of registration of the supplier cannot lead to denial of credit in the hands of the recipient.

Tvl. Cleon Optobiz  Ltd. - 2024 (1) TMI 1049 - MADRAS HIGH COURT is one such case.

[Shilpi Jain]

Also another aspect to note is that it is impossible to identify for the recipient to know whether the taxes have been paid by the supplier or not. The fact that it is disclosed in GSTR-1 and GSTR-3B is filed is sufficient to enable the recipient to take credit. This is also in line with the new rule 37A which requires the recipient to reverse credit by Sep next year only if the supplier has not filed GSTR-3B.

There is no condition that the reicpient has to find out whether the supplier has paid the taxes.

Once GSTR-1 is filed properly, it is upto the department to ensure that the self-assessed taxes have been paid by the supplier.

[Sadanand Bulbule]

 Sincere thanks to experts for their kind investment of time and energy to clarify any query in  an expanded version, as usual.

[Sadanand Bulbule]

Dear all,

For academic purpose, refer the following:

2024 (4) TMI 333 - KARNATAKA HIGH COURT - M/S. S.L.N. COFFEE PRIVATE LIMITED VERSUS STATE OF KARNATAKA

Reversal of Input Tax Credit - genuine transactions or not - deregistered firm or not - validity of assessment order.

Transactions not genuine - HELD THAT:- It is recorded that assessee, M/s. Chimco had declared purchase of coffee seeds from M/s.SLN Coffee Pvt. Ltd., and an output tax of Rs. 78,86,156/- has been paid. The assessment has been made by the Additional Commissioner of Commercial Taxes. The document speaks for itself that so far as petitioner was concerned, the tax amount was paid.

M/s. Chimco was deregistered - HELD THAT:- The document (Annexure-M) filed by the assessee shows that deregistration has been approved on 16.07.2011 and the effective date of deregistration mentioned therein is from 01.06.2006. The assessment year is 2009-10. As on that date, the said firm was not deregistered and it is only on 16.07.2011, deregistration has been retrospectively made.

Assessment order - M/s. Chimco does not exist - HELD THAT:- The assessment order and deregistration order clearly show that said private limited company was registered with Commercial Tax Department and the assessment has been made by an officer of the rank of Commercial Tax Officer.

Once movement of goods is accepted and in the assessment order of M/s. Chimco, the Assessing Officer has noted payment of output tax in a sum of Rs. 78,86,156/-, the contentions urged on behalf of the Revenue are untenable and liable to be rejected.

The order passed by the full Bench of the Karnataka Appellate Tribunal, Bengaluru, is set-aside - revision petition is allowed.

[KASTURI SETHI]

I have perused the case law as  pointed out by Madam Shilpi Jain.This  judgement is very very relevant. It is also meant for the cases where reply of the party is not considered  by  any  authority.

2024 (1) TMI 1049 - MADRAS HIGH COURT IN THE CASE  OF TVL. CLEON OPTOBIZ PVT. LTD., VERSUS THE ASSISTANT COMMISSIONER (ST) , CHENNAI.

 

[Alkesh Jani]

Shri

In agreement with the views of Experts, just to add that with your reply submit the documentary evidence to establish that the transaction is genuine, such as tax invoices, e-waybills, lorry receipts, delivery challans, proof for payment and the like. Merely relying on the case law will be of no help. While replying cogent submission Corroborated  with documentary evidence is required. 

Thanks

[KASTURI SETHI]

I concur with the views of Sh.Alkesh Jani Ji. His reply is full of substance and is icing on the cake. 

[Komal Agarwal]

Thanks a lot sir / mem

[Shilpi Jain]

Agree with Mr. Alkesh.

The replies that we give here are not complete professional advices. They may only be the starting point. Also I have used the word MAY and not WOULD.

Meaning that it may not be correct, whatever we reply here since we are not aware of full facts and have not seen any documents.

Thus, it is always advisable to consult a professional in this field to get a proper solution and way out and confirm the view given here.

[KASTURI SETHI]

It is implied. We lay only the foundation and the building (destination) is to be constructed (reached) by the querist himself/herself. Wherever legal material (force) is available we all share here in the interest of the querists and visitors of the TMI website.

This help is more than sufficient, especially, in view of the fact that nothing is free in this world and every service has its inherent cost. Credit goes to the TMI for providing free guidance and advice to the visitors of this site.

AI Summary

Input Tax Credit entitlement: bona fide recipients may retain credit where supplier registration later cancelled, subject to documentary proof.
Where a supplier's GST registration is retrospectively cancelled, a recipient who obtained genuine supplies, paid the supplier, filed ITC before cancellation, and whose supplier had filed GSTR-1 may contest demands under Section 16(2)(c). Key operative defences are proof of genuine transactions (invoices, e-waybills, payment proofs), evidence that ITC was availed prior to cancellation, and that the supplier was shown as registered on the portal at transaction time; recipient inability to monitor supplier deposit of tax shifts enforcement responsibility to the revenue.