Explore the recent Supreme Court judgment on ITC reversal in the Suncraft Energy case under the West Bengal Goods and Services Tax Act. This in-depth analysis covers the facts, the Calcutta High Court ruling, and the Supreme Court’s decision, highlighting key implications for assessees. Understand the conditions for availing ITC, the role of GSTR forms, and the precedents set by the judiciary. Learn why the Supreme Court’s dismissal of the appeal and the absence of a contradictory well-reasoned judgment strengthen the position in favor of the assessee.
Introduction: The recent judgment by the Hon. Supreme Court in the case of Suncraft Energy Pvt. Ltd. & Anr. has significant implications for the reversal of Input Tax Credit (ITC) under the West Bengal Goods and Services Tax Act, 2017. This article provides an in-depth analysis of the case, exploring the facts, the Calcutta High Court’s ruling, and the subsequent Supreme Court decision.
By a judgment dt. 14-12-2023 in Special Leave to Appeal (C) No(s).27827-27828/2023, Hon. Supreme Court has rejected the SLP by the Dept. in case of the final judgment and order dated 02-08-2023 in the case of Suncraft Energy Pvt. Ltd. (MAT No. 1218/2023 02-08-2023 in CAN No.1/2023) passed by the Calcutta High Court.
Question is whether the same is a binding precedent for all the assessees.
1. FACTS
The Assistant Commissioner of State (AC-SGST) reversed the input tax credit (ITC) availed by the appellant under the provisions of West Bengal Goods and Services Tax Act, 2017 (WBGST Act). The relevant ITC was on the supply of goods and services to the appellant who had made payment of tax to the said supplier at the time of such purchase along with the value of supply of goods/services.
However, ITC of some of the of the said suppliers was not reflected in the GSTR 2A of the appellant for the Financial Year 2017-18.
The AC-SGST issued notices for recovery of the ITC availed by the appellant and the grievance of the appellant is that without conducting any enquiry on the supplier namely, the fourth respondent and without effecting any recovery from the supplier, the Dept. was not justified in proceeding against the appellant. Scrutiny of the return submitted by the appellant was made under Section 61 of the Act for the Financial Year 2017-18 which was followed by a notice stating that certain discrepancies were noticed. The appellant submitted reply.
Thereafter the appellant was served with the show-cause notice proposing a demand as to the excess ITC claimed for the Financial Year 2017-18 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 the appellant with the supplier. The appellant filed detailed replies denying the allegations made in the SCN and among other things submitted that the appellant had made payment of tax to the supplier arising from the transaction and thereafter availed ITC on the said purchase. The SCN was adjudicated and by an order to demand for payment of tax of Rs. 6,50,511/- along with applicable interest and penalty was confirmed u/s 73(10) of the Act. Challenging the said order, the appellant had filed the writ petition. The learned Single Bench by the impugned order disposed of the writ petition by directing the appellant to prefer a statutory before the appellate authority after complying with the requisite formalities and the appellate authority was directed to dispose of the appeal without rejecting the same on the ground of limitation.
Aggrieved by the order, the appellant preferred the appeal before the division bench.
2. JUDGMENT BY HON. CALCUTTA HIGH COURT
Hon. court sited Sec. 16(2) and the conditions thereunder to avail ITC and observed that –
the appellant has fulfilled all the conditions under the same. Hon. Court analysed the decision of Hon. Delhi High Court in the case of On Quest Merchandising India Pvt. Ltd. (Arise India Ltd) vs. Govt. Of NCT Of Delhi, 2018 (10) G.S.T.L. 182 (Del.), in which the constitutional validity of the provisions under the Delhi Vat Act similar to Sec. 16(2) was upheld and not read down as appealed by the assessee.
However, it was further held that –
the result of such reading down would be that the department is precluded from invoking Section 9(2)(g) of DVAT Act to deny the ITC to the purchasing dealer who had bona fide entered into a purchase transaction with the registered selling dealer who had issued a tax invoice reflecting the TIN number and in the event that the selling dealer has failed to deposit the tax collected by him from the purchasing dealer, the remedy for the department would be to proceed against a defaulting selling dealer to recover such tax and not denying the purchasing dealer the ITC. It was further held that where however, the department is able to come across material to show that the purchasing dealer and the selling dealer acted in collusion then the department can proceed under Section 40A of the DVAT Act.
With the above conclusion, the default assessment orders of tax interest and penalty were set aside. The decision in Arise India Limited was challenged before the Hon’ble Supreme Court by the Government in Commissioner of Trade and Taxes, Delhi Versus Arise India Limited and the special leave petition was dismissed by judgment dated 10.01.2018. [2022 (60) G.S.T.L. 215 (S.C.)]
Hon. High Court further held that,
though the above decision arose under the provisions of the Delhi Value Added Act, the scheme of availment of Input Tax Credit continues to remain the same even under the GST regime though certain procedural modification and statutory forms have been made mandatory.
The allegation in the SCN was not that the appellant does not possess the tax invoice nor that the goods/services were not received.
The reason for denying the ITC by the Dept. was on the ground that the detail of the supplier is not reflected in GSTR 1 of the supplier.
The court observed that –
What we find is that the first respondent has not conducted any enquiry on the fourth respondent supplier more particularly when clarification has been issued where furnishing of outward details in Form GSTR 1 by a corresponding supplier and the facility to view the same in Form GSTR 2A by the recipient is in the nature of tax payer facilitation and does not impact the ability of the tax payers to avail input tax credit on self-assessment basis in consonance with the provisions of Section 16 of the Act. Furthermore, it was clarified that there shall not be any automatic reversal of input tax credit from buyer on non-payment of tax by seller.
Further it is clarified that in case of default in payment of tax by the seller, recovery shall be made from the seller however, reversal of credit from the buyer shall also be an option available with revenue to address the exceptional situations like missing dealer, closure of business by supplier or supplier not having adequate assets etc.
Hon. Court finally held that,
the AC-SGST without resorting to any action against 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 arbitrary. Therefore, before directing the appellant to reverse the input tax credit and remit the same to the government, the AC-SGST ought to have taken action against the selling dealer and unless and until the Dept. is able to bring out the exceptional case where there has been collusion between the appellant and the supplier or where the supplier is missing or the supplier has closed down its business or the supplier does not have any assets and such other contingencies, straight away the AC-SGST 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 is not sustainable with a direction to the appropriate authorities to first proceed against the selling dealer and only under exceptional circumstance as clarified in the press release issued by the Central Board of Indirect Taxes and Customs (CBIC), then and then only proceedings can be initiated against the appellant.
3. RULING OF THE HIGH COURT
In this case the Dept.’s objection for not allowing the ITC was that the transaction is not reflected in GSTR 1 and that the tax charged in respect of such supply has not been actually paid to the Government. Hon. Calcutta high court has ruled that-
1) If the selling dealer has not paid the tax to the revenue, ITC cannot be straight away denied and in that event the Dept. has to first proceed against the selling dealer to recover the tax due.
2) As long as the Purchasing dealer has complied with the conditions for availing ITC i.e. possession of tax invoice, payment through bank, receipt of the goods/services etc. the ITC cannot be denied.
3) In only the exceptional circumstances i.e. collusion between the parties, the tax due cannot be recovered from the selling dealer even from selling his assets etc. or he is missing then and only then the reversal of ITC can be forced on the purchasing dealer.
4) Thus, it is settled that before the ITC can be asked to reverse, the Dept. has to first exhaust all the methods and means to recover the tax due from the selling dealer and only after that the purchasing dealer can be asked to reverse the ITC.
It may not out of place to mention here Hon. Madras High Court judgment in the case of D.Y. Beathel Enterprises vs. State Tax Officer, 2022 (58) G.S.T.L. 269 (Mad.), dt. 24-02-2021 (single member bench) has held that – when it has come out that the seller has collected tax from the purchasing dealers, the omission on the part of the seller to remit the tax in question must have been viewed very seriously and strict action ought to have been initiated against him.
In this case, the order of the lower authorities was quashed on two major grounds i.e. a) Non-examination of seller in the enquiry, and b) Non-initiation of recovery action against seller in the first place.
Thus, Hon. Calcutta high court has further fortified this stand. The High Court has accepted the appellants’ reliance on press release dt. 4-5-2018 and 18-10-2018.
It may carefully be noted that in both these cases press release dt. 4-5-2018 is relied upon and Hon. High Courts and have accepted such reliance by the purchasing dealers.
Hon. Calcutta high court has discussed the cases of UoI vs Bharti Airtel Ltd. 2021 (54) G.S.T.L. 257 (S.C.) dt. 28-10-2021 and Quest Merchandising India Pvt. Ltd. (Arise India Ltd.) v. Government of NCT of Delhi — 2018 (10) G.S.T.L. 182 (Del.) which is affirmed by Hon. SC in Commissioner of Trade & Taxes, Delhi vs Arise India Ltd. 2022 (60) G.S.T.L. 215 (S.C.).
The case of Bharati Airtel is discussed fully by Hon. Supreme court and the SLP in case of Arise India is dismissed after hearing where the Apex court has stated after hearing specifically that, “we are not inclined to interfere with the impugned order.”
In both these cases the principle is settled that direct action against the purchasing dealer cannot be taken unless all remedies to recover from the selling dealer are exhausted.
4. SUPREME COURT’s verdict in the SLP
The Calcutta high court’s judgment was challenged by the Dept. under the SLP which is dismissed with the following order-
Having regard to the facts and circumstances of this case(s) and the extent of demand being on the lower side, we are not inclined to interfere in these matters in exercise of our powers under Article 136 of the Constitution of India.
The SC has disposed of the appeals as an effect of increase in monetary limits. (The said limits are raised by the Revenue vide C.B.I. & C. in its Instruction F. No. 390/Misc/116/2017-JC, dated 22-8-2019 and F. No. 390/Misc/30/2023-JC, dt. 02-11-2023.)
Thus, the case is disposed due to demand being on lower side and the leave to appeal was not accepted. Question is whether this judgment can be said to be binding under Article 141?
5. BINDING PRECEDENT OF THE DISMISSAL OF APPEAL BY HON. SUPREME COURT
Hon. Supreme Court had an occasion to decide the binding precedent in case of dismissal of SLP and an appeal before it, and it has finally decided that –
(vi) Once leave to appeal has been granted and appellate jurisdiction of Supreme Court has been invoked the order passed in appeal would attract the doctrine of merger; the order may be of reversal, modification or merely affirmation.
(vii) On an appeal having been preferred or a petition seeking leave to appeal having been converted into an appeal before Supreme Court the jurisdiction of High Court to entertain a review petition is lost thereafter as provided by sub-rule (1) of Rule (1) of Order 47 of the C.P.C. (Para 36)
34. Once a special leave petition has been granted, the doors for the exercise of appellate jurisdiction of this Court have been let open. The order impugned before the Supreme Court becomes an order appealed against. Any order passed thereafter would be an appellate order and would attract the applicability of doctrine of merger. It would not make a difference whether the order is one of reversal or of modification or of dismissal affirming the order appealed against. It would also not make any difference if the order is a speaking or non-speaking one. Whenever this Court has felt inclined to apply its mind to the merits of the order put in issue before it though it may be inclined to affirm the same, it is customary with this Court to grant leave to appeal and thereafter dismiss the appeal itself (and not merely the petition for special leave) though at times the orders granting leave to appeal and dismissing the appeal are contained in the same order and at times the orders are quite brief. Nevertheless, the order shows the exercise of appellate jurisdiction and therein the merits of the order impugned having been subjected to judicial scrutiny of this Court. (Para 34) – Kunhayammed and Others vs. State of Kerala and Another (2000) 245 ITR 0360 (SC) (Three judges bench)
Hon. Supreme Court has affirmed the above decision after thorough analysis in – Khoday Distilleries Ltd. & Ors. ss. Sri Mahadeshwara Sahakara Sakkare Karkhane Ltd. (Under Liquidation) Represented by The Liquidator, (2019) 308 CTR 0001 (SC) (Three judges bench)
Thus, after the analysis of the Civil Procedure Code and of all the judgments rendered in this behalf and after thorough analysis of the specific question to resolve the conflicting views on the issue and to decide the binding precedents in case of dismissal of appeal, it is conclusively decided by the Hon. Supreme Court that, once an appeal is admitted by the Apex Court against an order of Hon. High Court, the High Court order ceases to be open for review, and the dismissal by whatever way by the Apex Court is a binding judgment under Article 141, and that the order of the Hon. High Court merges with that of the Supreme Court.
In the present case under discussion (Suncraft) the appeal is not admitted and SLP is dismissed for lower effect of tax quantum.
This leads us to an inevitable conclusion that Hon. SC has not conclusively decided the matter.
However, that does not at all dilute the binding precedent of the Hon. High Court decision unless there is any contradictory decision by any other High court.
This compels us to examine contrary decision, if any, and the binding precedent of a High Court judgment.
6. CONTRARARY HIGH COURT JUDGMENT
Hon. Patna High Court has delivered a contrary judgment in the case of Aastha Enterprises through its Proprietor Sanjay Kumar vs State of Bihar, (DB) Civil Writ Jurisdiction Case No.10395 of 2023, dt. 18-08-2023.
However, with due respect, it is not a well-reasoned order. Not only this but, the press releases dt. 4-5-2018 and 18-10-2018 and Hon. Apex Court judgments referred to in case of Suncraft Energy were not brought to the notice of Hon. High Court.
7. BINDING PRECEDENT OF A HIGH COURT JUDGMENT
If the Revenue has not challenged the correctness of the law laid down by the High Court and has accepted it in the case of one assessee, then it is not open to the Revenue to challenge its correctness in the case of other assessee without just cause – Berger Paints India Ltd. vs. CIT Calcutta (2004) 266 ITR 99.
In the present case the decision of Hon. Calcutta High Court itself was challenged but not decided by Hon. SC in addition to a contrary judgment by Hon. Patna High Court.
Where the earlier decision of another High Court is sub silentio, per incuriam, obiter dicta or based on a concession or takes a view which it is impossible to arrive at etc., the High Court would be justified in taking its own view and not just follow the precedent which may otherwise have a persuasive value- N.R. PAPER & BOARD LTD. & ORS. vs. DCIT, (1998) 234 ITR 0733.
In Pierce Leslie and Co. v. CIT (1995) 216 ITR (Mad. HC DB), it was observed that there should be uniformity in construction, and construction put by High Court/s should be accepted, unless there are compelling reasons to depart from the view. In Gurudev Overseas v. CCE (2008) 229 ELT 195 (P& H HC DB) same view is taken.
On the question whether the decision of one High Court is binding on tribunals and other quasi-judicial bodies in other States, in cases where there is no binding decision of High Court of the State where the tribunal or quasi-judicial body is situated, it is held that, decision of a High Court is not binding precedent on Courts or Tribunals outside the jurisdiction of that High Court. It has only persuasive effect on courts and tribunals situated outside the jurisdiction of that High court.
Please see – CIT v. Thana Electric Supply Ltd. (1994) 206 ITR 727 (Bom. HC DB); Consolidated Pneumatic Tool Co. (I) Ltd. v. CIT, (1994) 209 ITR 277 (Born. HC DB); CIT v. Highway Construction Co. Pvt. Ltd. (1999) 105 ELT 14 (Gau HC DB); Geoffrey Manners & Co. Ltd. v. CIT (1996) 221 ITR 695 (Bom. HC DB).
It is important to note in the present scenario that in the case of CIT v. Highway Construction Co. Pvt. Ltd. (1999) 105 ELT 14 (Gau HC DB) it is held that, though judgment of one High Court is not binding on Tribunal in other States, it is just and proper to follow the decision where there is no contrary decision of any other High Court.
8. CONCLUSION
The circulars setting monetary limits for appeal at various levels, clearly state that the decision to file appeals in cases having important matters is to be decided on merits irrespective of the amount involved.
The Board vide instructions dated 12.12.2013 reiterated that the Departmental Counsels and the DRs in the Tribunal must plead that a judgment accepted for reasons of low amount should not be relied upon by the appellate forum and that the Department is at liberty to agitate the issue in subsequent proceedings till the matter is settled on merits.
This means that except for the State of West Bengal and perhaps Tamil Nadu the Dept. will go on contesting the issue until it reaches finality before Hon. Supreme Court, subject of course to the monetary limits.
The contrary judgment of Hon. Patna High Court, with due respect, ignores the press releases and is not well-reasoned. Except this there are no contrary well-reasoned judgments.
But, now there are two High Court judgments favouring the assessee and there is no well-reasoned contrary judgment on the issue, the tilt is in favour of the assessee. Further in Bharti Airtel Ltd. 2021 (54) G.S.T.L. 257 (S.C.) and Commissioner of Trade & Taxes, Delhi vs Arise India Ltd. 2022 (60) G.S.T.L. 215 (S.C.) Hon. Supreme Court has settled the principle that direct action against the purchasing dealer cannot be taken unless all remedies to recover from the selling dealer are first exhausted.
The Dept. does not have any point to argue except that the ITC is not supported by GSTR-2A, which is certainly not sustainable.
Hence, in all the genuine cases although not binding, the Hon. Calcutta high court judgment backed by Hon. Supreme Court’s settled principle, reading together with Hon. Madras High court judgment, has strengthened the issue in favour of the assessee.
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