2022 (7) TMI 184 - HC - GST

Reversal of Input Tax Credit - proper verification of the transactions of selling/purchasing dealers to ensure that there is a match of the details of the transaction or not - HELD THAT - Section 42(5) of the CGST Act, in terms of which, a reversal of ITC should be a natural consequence in the event of any discrepancy in the claim. Evidently so. However, what is required is that in matters involving claim of ITC, it is incumbent upon the authority to conduct a proper verification of the transactions of selling/purchasing dealers to ensure that there is a match of the details of the transaction, at both ends. This is why Section 42(3) requires the officer to supply the details of the transaction to 'both such persons' to enable such cross-verification - reference may also be made to Circular No.5 of 2021 dated 24.02.2021 issued by the Principal Secretary/Commissioner of Commercial Taxes under the Value Added Tax regime, providing for the procedure to be followed in the case of verification of claims of ITC involving selling/purchasing dealers. The challenge to the notice fails and the petitioner is directed to file its reply to the show cause notice before the Assessing Authority, who, in turn, shall complete the proceedings - Petition disposed off.

Summary

Issues:
Challenge to show cause notice related to Input Tax Credit (ITC) under the Central Goods and Services Tax Act, 2017.

Analysis:
1. The High Court dealt with a challenge to a show cause notice dated 31.03.2022 regarding Input Tax Credit (ITC). The Court found no legal infirmity in the impugned order and declined to entertain the challenge.

2. Section 42 of the CGST Act addresses the matching, reversal, and reclaim of ITC. It mandates simultaneous investigation by the Officer with both the purchaser and the supplier to ensure proper examination of the transaction at both ends. Section 42(3) specifically requires communication of discrepancies to both parties.

3. The Court highlighted Section 42(5) of the CGST Act, emphasizing that a reversal of ITC should naturally occur in case of any discrepancy in the claim.

4. The judgment stressed the importance of proper verification of transactions involving ITC claims. It outlined the necessity for cross-verification by the authority to ensure alignment of transaction details at both ends, as mandated by Section 42(3).

5. Reference was made to Circular No.5 of 2021, which provided a procedure for verifying ITC claims involving selling/purchasing dealers. Paragraph 3.3.5 of the Circular outlined the process, emphasizing the principles of natural justice and completion of the assessment within 180 days.

6. The Court directed the petitioner to respond to the show cause notice before the Assessing Authority. It instructed the Authority to conduct proceedings in line with the observations made in the judgment and the spirit of the Circular. The Officer was mandated to adhere to the provisions of Section 42 of the CGST Act and conduct a thorough inquiry involving both parties for a comprehensive understanding of the transaction.

7. Ultimately, the Writ Petition was disposed of with no costs, and the connected Miscellaneous Petition was closed, concluding the legal proceedings.