Disallowance of input tax credit was challenged on the ground...

Disallowance of input tax credit was challenged on the ground that proceedings under Section 73 were initiated only against the recipient without first following the statutory mechanism under Section 42 against the suppliers. The Court held that Section 42(3) mandates issuance of a discrepancy notice to both supplier and recipient, and Section 42(5) permits fastening output tax liability on the recipient only if, after such communication, the supplier fails to rectify the discrepancy in the prescribed return. Since no proceedings/notices were initiated against the suppliers before issuing the show cause notice to the recipient, the notice was without jurisdiction and was quashed, with liberty to proceed against the suppliers. - HC