The recent judgment by the Calcutta High Court in the case of Suncraft Energy Private Limited versus the Assistant Commissioner of State Tax highlights a crucial aspect of Input Tax Credit (ITC) denial in the realm of GST. The court ruled that ITC of the recipient cannot be denied without proper due diligence of the supplier. This decision has far-reaching implications for businesses and tax authorities alike.
Background:
1. The Appellant, Suncraft Energy Ltd., challenged an order by the Assistant Commissioner of State Tax in West Bengal, where the respondent reversed Input Tax Credit availed by the Appellant.
2. The Appellant had purchased goods and services from the fourth respondent, a supplier, and had paid the tax along with value of goods and services to them at the time of purchase.
3. However, some invoices from the supplier were not reflected in the appellant’s return (GSTR 2A) for the Financial Year 2017-18.
4. The Respondent issued notices for recovery of Input Tax Credit from the Appellant, herein grievance being without conducting any enquiry on the Supplier.
5. The Appellant appealed the order, stating they fulfilled all conditions to avail input tax credit under Section 16(2) of the Act.
Arguments of Petitioner :
1. Despite having fulfilled all the conditions of Section 16(2) the first respondent erred in reversing the credit availed and directing the appellant to deposit the tax which has already been paid to the fourth respondent at the time of availing the goods/ services.
2. Press release dated 18.10.2018 clarified that Form GSTR-2A is in the nature of taxpayer facilitation and does not impact the ability of the taxpayer to avail ITC on self- assessment basis in consonance with the provisions of Section 16 of the Act.
3. Press release dated 04.05.2018 clarified that ITC would not be automatically reversed from the buyer in case of non-payment of tax by the seller. Recovery would be made from the seller, but reversal of credit from the buyer could be done in exceptional cases like missing dealers,
4. supplier closure, or lack of assets.
5. Reliance placed on the decision of the Hon’ble Supreme Court in Union of India (UOI) Versus Bharti Airtel Ltd. And Ors. wherein it was held that Form GSTR-2A is only a facilitator.
6. The Appellant also drew parallels to the Judgement of Arise India Limited v. Commissioner of Trade and Taxes, Delhi MANU/DE/3361/2017.
Judgement :
1. The SCN does not allege that the Appellant was not in possession of a tax invoice issued by the supplier registered under the Act. There is no denial of the fact that the Appellant has received the goods or services or both.
2. The first respondent without resorting to any action against the supplier have ignored the tax invoices, bank statement substantiating payment of taxes, hence the action of the first respondent has to be branded as arbitrarily.
3. Before directing the Appellant to reverse the ITC, action should have been taken against the selling dealer and unless there is an exceptional case of collusion between the Appellant and the selling dealer or where the selling dealer is missing or has closed down its business or does not have any assets, direct action against the Appellant is unjustified.
4. The Court held that the demand raised by the first respondent was unwarranted and directed authorities to first proceed against the supplier and only in established exceptional circumstances before proceed against the Appellant.
Conclusion:
The Calcutta High Court’s ruling in the Suncraft Energy case underscores the importance of due diligence on the part of tax authorities when denying Input Tax Credit to taxpayers. It clarifies that ITC cannot be denied arbitrarily without a thorough investigation into the supplier’s actions. This judgment provides a significant safeguard for businesses against unwarranted ITC denials and emphasizes a fair and just approach to tax matters. It serves as a valuable precedent for future cases involving ITC disputes.
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