ITC cannot be denied to recipient without due investigation of supplier: Calcutta HC

The Calcutta High Court recently delivered a significant ruling in the case of Suncraft Energy Private Limited and Another vs. Assistant Commissioner, State Tax. The court addressed the issue of denial of Input Tax Credit (ITC) to the recipient without conducting a proper investigation of the supplier. The ruling emphasizes the need for a thorough examination of the supplier’s actions before reversing ITC claims.

Background: The dispute centered around the denial of ITC availed by Suncraft Energy Private Limited under the provisions of the West Bengal Goods and Services Tax Act, 2017 (WBGST Act). The Assistant Commissioner of State Tax issued a demand notice to Suncraft Energy based on discrepancies between their GSTR 2A and GSTR 3B ITC. However, the court found that no investigation was carried out against the supplier, leading to an arbitrary decision.

Court’s Verdict: The Calcutta High Court ruled that the demand notice issued to Suncraft Energy for reversing the input tax credit availed could not be sustained without proper inquiry into the supplier’s actions. The court referred to the judgments of the Hon’ble Supreme Court in Bharti Airtel and Arise India Ltd., emphasizing that Form GSTR-2A should only serve as a facilitator for self-assessment and not as a conclusive basis for denial of ITC.

The court stated that before directing the recipient to reverse the input tax credit and remit the amount to the government, the tax authorities must investigate the actions of the supplier. Only in exceptional cases, such as collusion between the recipient and the supplier or the supplier’s absence or closure of business, can proceedings be initiated against the recipient.

Conclusion: The Calcutta High Court’s ruling provides clarity on the denial of Input Tax Credit without proper investigation. It highlights the need for tax authorities to conduct thorough inquiries into supplier actions before taking action against recipients.