“Explore the recent ruling by the Hon’ble Calcutta High Court on the denial of Input Tax Credit (ITC) based on the retrospective cancellation of a supplier’s GST registration. Learn about the case of M/s Gargo Traders, where the HC set aside the order and directed the department to consider the petitioner’s claim afresh. Understand the key issues involved, facts of the case, and contentions of both the applicant and the department. Gain insights into the observations and decision of the HC, emphasizing the importance of verifying supporting documents. Stay informed for a comprehensive understanding of ITC-related issues.”
The Hon’ble Calcutta High Court (‘HC’) in the case of M/s Gargo Traders, “the petitioner,” has set aside the order passed by the Joint Commissioner (State Tax), directing the department to pass a reasoned and speaking order after considering the submitted documents. The captioned ruling has been analyzed in this update.
A. ISSUE INVOLVED
Whether the claim of Input Tax Credit of a registered taxable person can solely be denied based on the retrospective cancellation of the GST Registration of the supplier without considering the documents produced and the validity of the GST registration at the time of the transaction?
B. FACTS OF THE CASE
The petitioner, a registered taxable person, claimed credit of input tax against inward supplies. The petitioner made payments to the supplier through banking channels. The petitioner has submitted the tax invoice, e-Way Bill, transportation bill, and bank statement reflecting the payment made to the supplier. The GST registration of the supplier was valid and reflected on the Government portal on the date of the transaction.
C. CONTENTION OF THE APPLICANT
The authorities have not considered the submitted documents, which clearly indicate that the petitioner purchased goods from the supplier, transported the goods, and made the payment through the bank to the supplier. The petitioner relied upon an unreported judgment passed by the Principal Bench of this Court in WPA 23512 of 2019 (M/s. LGW Industries Limited) and the Judgment reported in 2023 SCC OnLine Del 1412 (Balaji Exim). The petitioner submitted that the allegation of fake credit availed by the supplier cannot be a ground for rejecting the petitioner’s refund application unless it is established that the petitioner has not received the goods or paid for them. The transactions in question are genuine and valid. The petitioner, with due diligence, has verified the genuineness and identity of the supplier by relying on all the supporting relevant documents required by law. The name of the supplier, as a registered taxable person, was available on the Government Portal, showing its valid registration at the time of the transaction.
D. CONTENTION OF THE DEPARTMENT
The supplier is fake and non-existent, and the bank accounts opened by the supplier are based on fake documents. The claim of the petitioner for Input Tax Credit is not supported by any relevant document. The petitioner has not verified the genuineness and identity of the supplier as a registered taxable person (RTP) before entering into any transaction with the supplier. The GST registration has already been cancelled with retrospective effect, covering the transaction period. The judgments relied upon by the petitioner are distinguishable from this case, as in the present case, the cancellation of the supplier has been given retrospective effect, and the supplier has accepted the same.
E. OBSERVATION AND DECISION BY HC
Observations of HC
The name of the supplier, as a registered taxable person, was already available in the Government record, and the petitioner has paid the amount for the purchased articles as well as the tax on the same through bank transactions, not in cash. The department has not alleged any collusion between the petitioner and the supplier. Without proper verification, it cannot be said that there was any failure on the part of the petitioner to comply with any obligation required under the statute before entering into the transactions in question. The department rejected the petitioner’s claim without considering the documents relied upon by the petitioner, based on the retrospective cancellation of the supplier’s registration.
Decision of Hon’ble HC
√ In view of the above, the impugned orders are set aside.
√ The department is directed to consider the petitioner’s grievance afresh by taking into consideration the documents that the petitioner intends to rely on in support of their claim.
√ The department shall dispose of the petitioner’s claim by passing a reasoned and speaking order after giving an opportunity of hearing to the petitioner within a period of eight weeks from the date of receipt of a copy of this order.
F. Our comments
In the captioned decision, the Hon’ble Calcutta High Court has once again come to the rescue of the taxpayer by following its judgment in LGW Industries Limited. It has directed the department to verify the supporting documents submitted by the taxpayer and then pass a reasoned and speaking order. Retrospective cancellation of the GST registration of the supplier cannot be the sole ground for denial of Input Tax Credit in the hands of the recipient, especially in cases where the recipient has produced documents demonstrating compliance with the obligations imposed under Section 16(2) of the GST Act.
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(Author can be reached at dinesh.singhal@snr.company or cadineshsinghal@gmail.com).
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Author Bio
SIR RETROSPECTIVE CANCELECON OF M VAT CAN EFFECT IN ITC CLAIMED MATTER OF 2007-08 PENDING WITHE TRIBUNAL IF PLEAS SUPPORT ANY SC JUDJMENT EXCEPT OF SURESH TRADING COMPANY