Situations in which ITC can be recovered from purchaser – Calcutta HC Ruling

[Dinesh Singhal]

Hon’ble Calcutta High Court (‘HC’) in the case of SUNCRAFT ENERGY PRIVATE LIMITED AND ANOTHER VERSUS THE ASSISTANT COMMISSIONER, STATE TAX, BALLYGUNGE CHARGE AND OTHERS - 2023 (8) TMI 174 - CALCUTTA HIGH COURT “the petitioner” has set aside the order passed by Asst. Commissioner (State Tax), directing the department to first proceed against the supplier and it could approach the recipient / purchaser only under specified exceptional circumstances. Captioned judgement has been analyzed in this update.

A. FACTS OF THE CASE

• The petitioner, a registered taxable person claimed credit of input tax against inward supplies.
• The petitioner made payment to supplier through banking channels including GST charged.
• That some of the invoices of supplier were not reflecting in GSTR 2A for 2017-18.
• That department issued notices for recovery of Input Tax Credit (ITC) claimed by petitioner on captioned invoices

B. CONTENTION OF THE APPLICANT 

• That they have fulfilled all the conditions as stipulated under Sub-section (2) of Section 16 of CGST Act, 2017 and they have also paid the tax to supplier
• That CBIC in Press release dated 4^th May 2018 has clarified that there shall not be any automatic reversal of input tax credit from buyer on non-payment of tax by the seller. In case of default in payment of tax by the seller, recovery shall be made from the seller, however, reversal of credit from buyer shall also be an option available with revenue authorities to address exceptional situations like missing dealer, closure of business by supplier or supplier not having adequate assets etc.
• That CBIC in Press Release dated 18^th October 2018 has clarified that Form GSTR 2A is in the nature of taxpayer facilitation and does not impact the ability of the taxpayer to avail the ITC.  
• That petitioner relied upon judgment of Hon’ble Delhi High Court in the matter of ON QUEST MERCHANDISING INDIA PVT. LTD., SUVASINI CHARITABLE TRUST, ARISE INDIA LIMITED, VINAYAK TREXIM, K.R. ANAND, APARICI CERAMICA, ARUN JAIN (HUF) , DAMSON TECHNOLOGIES PVT. LTD., SOLVOCHEM, M/S. MEENU TRADING CO., & MAHAN POLYMERS VERSUS GOVERNMENT OF NCT OF DELHI & ORS. & COMMISSIONER OF TRADE & TAXES, DELHI AND ORS. - 2017 (10) TMI 1020 - DELHI HIGH COURT (on validity of Section 9(2)(g) of DVAT Act) wherein it was held that bona fide purchaser cannot be included in the scope of this particular section and department can only invoke this section if it can show that purchasing dealer and the selling dealer acted in collusion with each other and not otherwise. Hon’ble Supreme Court has dismissed the SLP filed against this decision.
• That department has alleged that supplier has not shown the captioned invoice in GSTR-1 and it is not appearing in GSTR-2A and thus petitioner is not eligible for ITC credit. The Department has not raised any doubts regarding availability of tax invoice or receipt of goods/ services.

C. OBSERVATION AND DECISION BY HC 

Observations of HC

• The department has not taken any action against selling dealer and has ignored the tax invoices & bank statements reflecting payment of purchase consideration including GST to selling dealer. Thus, the action of the department has to be branded as arbitrary.
• That the department cannot proceed against purchaser unless and until, it is able to bring out the exceptional case of collusion between the parties or supplier is missing or supplier has closed down its business or does not have any assets etc.

Decision of Hon’ble HC

• In view of the above, the impugned orders are set aside.
• Department is directed to first proceed against the supplier and only under exceptional circumstance as clarified in the press release issued by CBIC, then and then only proceedings can be initiated against the purchaser.

D. Our comments 

This is a very important ruling from Hon’ble Calcutta High Court which shall be quite helpful in ongoing proceedings wherein difference in ITC appearing as per GSTR-2A and as claimed in GSTR-3B is sought to be demanded by GST authorities. CBIC has also come out with Circular 183/2022 (applicable for 2017-18 and 2018-19) and 193/2023 (applicable for the period from 1^st April 2019 to 31^st December 2021) wherein obligation to seek confirmation from supplier has been cast upon the purchaser itself.

Further, this ruling shall also be helpful in cases where the tax has not been deposited by supplier and thus department is applying section 16(2)(c) to seek reversal of ITC from purchaser. This condition of ensuring payment of tax by supplier is impossible to be complied with by purchaser as actions/ compliance by supplier is beyond his control. It should have been between the department and concerned supplier itself who is also a registered person. In most of these cases, the department has not been making efforts for recovery of tax or verifying whether tax has been paid by supplier or not. In case, purchaser submits the Tax invoice, proof of receipt of goods/ services and substantiates the payment of consideration to supplier, then the onus should be upon department to proceed against supplier for verification/ recovery of tax as has been directed by Hon’ble Calcutta High Court.

(Author can be reached at dinesh.singhal@snr.company or cadineshsinghal@gmail.com).