In a landmark judgment, the Calcutta High Court has ruled that input tax credit (ITC) under GST cannot be denied over a mismatch in GSTR-2A and GSTR-3B without any investigation into the supplier. The ruling provides massive relief to companies facing demand notices on account of non-reporting or non-payment of taxes by the supplier.
“There shall not be any automatic reversal of input tax credit from buyer on non-payment of tax by seller… In case of a default in payment of tax by the seller, recovery shall be made from the seller,” the Calcutta High Court said in a judgment dated August 2, 2023.
The judgment was delivered by a two-judge Bench comprising Calcutta HC Chief Justice T S Sivagnanam and Justice Hiranmay Bhattacharyya.
The court, however, said the reversal of GST input tax credit from the buyer shall also be an option available with the revenue authorities to address the “exceptional situations like missing dealer, closure of business by supplier or supplier not having adequate assets, etc”.
The court was hearing a ‘Suncraft Energy Private Ltd and Another Vs The Assistant Commissioner, State Tax, Ballygunge Charge and Others’ case.
In this case, a GST input tax credit was availed by Suncraft Energy for its purchases from a supplier. The ITC was later reversed by the revenue authority due to non-payment of taxes by the supplier, as some of the invoices of the said supplier were not reflected in the GSTR 2A of Suncraft Energy for the financial year 2017-18.
In the latest judgment, putting reliance on the Supreme Court’s previous judgments in Bharti Airtel as well as Arise India Ltd cases, the Calcutta High Court set aside orders of the Assistant Commissioner, State Tax, Ballygaunge.
Niraj Bagri, partner at Dhruva Advisors, said, “The Calcutta High Court has given a massive relief to the companies who have been receiving demand notices on account of non-reporting or non-payment of taxes by the supplier, even though the purchasing companies have paid the price of goods and the tax to the supplier.”
He added that the high court has held that without making appropriate enquiries at the supplier’s end or seeking to recover the tax dues from the supplier, demand notices cannot be issued to purchasing companies who have complied with the law.
“This will bring tremendous relief to the industries who have been receiving demand notices from several states on account of mismatch of tax credits even though the companies have made tax payment to the supplier,” Bagri said.
Last month, an advance ruling by Punjab AAR denied ITC to a taxpayer on account of default by its supplier. While the taxpayer had submitted that there is no mechanism available to him to ensure compliance by the preceding supplier, the authority proceeded to deny ITC by strictly interpreting Section 16(2)(c) of the CGST Act.
Abhishek Jain, partner and national head (indirect tax) at KPMG, said, “The principles upheld in this Ruling are quite a welcome one specifically initiation of recovery proceedings against defaulting supplier qua genuine recipients. Where the said principle is overall upheld, it would help truncate a multitude of litigations as enquiries would only be against the defaulting suppliers qua the numerous recipients.”
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