Abstract: This article examines whether Input Tax Credit (ITC) can be denied to recipients without conducting a thorough investigation of suppliers. It analyzes a High Court case involving ITC reversal based on the alleged non-payment of tax by the supplier.
Introduction: The article discusses a scenario where a registered person faces a show cause notice for excess ITC claimed due to a difference in GSTR-2A and GSTR-3B. The dispute centers on the supplier’s failure to show the bill in GSTR-1, leading to the denial of ITC under Section 16(2). The recipient argues that all conditions under Section 16(2) were met, and payment was made to the supplier on time.
A Show Cause Notice was issued to the registered person proposing a demand as to the excess ITC claimed by the them on the basis of the difference of the amount of ITC in Form GSTR-2A and Form GSTR-3B with respect to the purchase transaction made by them with their supplier. In the said show cause notice the allegation was that they had submitted that the supplier has not shown the Bill in GSTR 1 and hence they are not eligible to avail the credit of the input tax as per Section 16(2) as the tax charged in respect of such supply has not been actually paid to the Government.
It is the case of the registered person that they have fulfilled all the conditions as stipulated under Sub-section (2) of Section 16 and they also paid the tax to the the supplier and a valid tax invoice has been issued by the supplier for installation and commission services and they had made payment to the supplier within the time stipulated under the provisions of the Act. Thus, grievance of the registered person is that despite having fulfilled all the conditions as has been enumerated under Section 16(2), the assistant commissioner erred in reversing the credit availed and directing them to deposit the tax which has already been paid to the supplier at the time of availing the goods/ services.
The Hon’ble High Court of Calcutta in the matter Suncraft energy Private Limited and another vs. the Assistant Commissioner, State Tax, Ballygunge Charge and Others (02.08.2023), observed that the first respondent (i.e. Assistant Commissioner) without resorting to any action against the fourth respondent (i.e. supplier) who is the selling dealer has ignored the tax invoices produced by the appellant as well as the bank statement to substantiate that they have paid the price for the goods and services rendered as well as the tax payable there on, the action of the first respondent has to be branded as arbitrarily. Therefore, before directing the appellant to reverse the input tax credit and remit the same to the government, the first respondent ought to have taken action against the fourth respondent the selling dealer and unless and until the first respondent is able to bring out the exceptional case where there has been collusion between the appellant and the fourth respondent or where the fourth respondent is missing or the fourth respondent has closed down its business or the fourth respondent does not have any assets and such other contingencies, straight away the first respondent was not justified in directing the appellant to reverse the input tax credit availed by them. Therefore, we are of the view that the demand raised on the appellant dated 20.02.2023 is not sustainable.
Conclusion: The article concludes that a proper investigation of the supplier is essential before denying ITC to the recipient. Blindly reversing ITC without establishing exceptional circumstances may lead to unjust outcomes for registered persons.
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Sir, I have few doubts
1. If the suppliers gstn is cancelled before issuing the gst invoice to the customer (appellant in this case) but still he issues gstn invoice to the customer what will happen, will it be customer fault as he did not performed his due diligence ?
2. Same question as above excep gstn of supplier is cancelled after issuing the above invoice and rendering of services ?
3. if in the above case scenario published by you, there would have been transaction of goods instead of services then just invoices and bank st would have been enough to prove the txn genuine or burden to prove physical movement of goods by customer would have been necessary.
4. action against supplier is necessary means what , assessment against supplier ?
5. suppose supplier filed gstr-1 correctly within due date , but did not deposited the tax in gstr-3b , and the dealer claimed itc as per gstr-2A/2B, what will happen in this case.
6. which one a dealer should be check to avail itc gstr-2A/ gstr-2B. ?
is there any case law for any of the answers please mention it
you can reach me out at +91 9438027980 for discussion, I will be highly obliged if you will clear my doubts.