ITC of recipient cannot denied without conducting due diligence of supplier

[CA Bimal Jain]

The Hon’ble Calcutta High Court in SUNCRAFT ENERGY PRIVATE LIMITED AND ANOTHER VERSUS THE ASSISTANT COMMISSIONER, STATE TAX, BALLYGUNGE CHARGE AND OTHERS [2023 (8) TMI 174 - CALCUTTA HIGH COURT]  set aside the order of reversing excess credit availed in Form GSTR-3B as compared to Form GSTR-2A and held that the demand notice issued to the assessee for reversing the ITC could not be sustained without proper inquiry into the supplier’s actions.

Facts:

M/s. Suncraft Energy Private Limited (“the Petitioner”) sells goods to the customers and charges GST from them and at the time of filing Form GSTR-3B avails ITC on inward supplies. However, some suppliers did not disclose the supplies in their Form GSTR-1 of the financial year 2017-18. Accordingly, such transactions never auto-populated in Form GSTR-2A of the Petitioner.

The Revenue Department (“the Respondent”) issued notice to the Petitioner based on mismatch of ITC between Form GSTR-2A and Form GSTR-3B.

A Show Cause Notice was issued to the Petitioner on December 06, 2022 (“the SCN”) demanding to reverse the excess ITC claimed by the Petitioner in the financial year 2017-18 on the basis of ITC mismatch in Form GSTR-3B and Form GSTR-2A.

The Petitioner filed the reply to the SCN on January 06, 2023 and January 11, 2023 respectively, denying the allegations made in the SCN and among other things submitted that the Petitioner has paid the taxes to the supplier pertaining to the transaction and only thereafter has availed the ITC on said inward supplies.

The Petitioner contended that despite having fulfilled all the conditions as enumerated under Section 16(2) of the Central Goods and Services Tax Act, 2017 (“the CGST Act”) the department erred in reversing the credit availed and has directed the Petitioner to deposit the tax that had already been paid to the supplier at the time of purchasing goods and services.

The Adjudicating Authority passed an order on February 20, 2023 (“the Impugned Order”) to demand for payment of tax of INR 6,50,511 along with applicable interest and penalty.

Aggrieved by the Impugned order, the Petitioner filed an appeal before the Hon’ble Calcutta High Court.

Issue:

Whether ITC can be denied to the recipient without conducting a proper investigation of the supplier?

Held:

The Hon’ble Calcutta High Court in SUNCRAFT ENERGY PRIVATE LIMITED AND ANOTHER VERSUS THE ASSISTANT COMMISSIONER, STATE TAX, BALLYGUNGE CHARGE AND OTHERS [2023 (8) TMI 174 - CALCUTTA HIGH COURT]  held as under:

• Observed that, the issuance of a demand notice on the recipient of service on account of a mismatch in Form GSTR-2A and Form GSTR-3B ITC cannot be sustained without any investigation being done at the end of the supplier whose invoices are not reflecting in Form GSTR-2A.
• Opined that, only in exceptional cases, such as collusion between the recipient and the supplier or the supplier’s absence or closure of business, proceedings can be initiated against the recipient.
• Relied upon the Judgement of the Hon’ble Supreme Court in UNION OF INDIA VERSUS BHARTI AIRTEL LTD. & ORS. - 2021 (11) TMI 109 - SUPREME COURT wherein the court held that, Form GSTR-2A is only a facilitator for taking a confirm decision while doing such self-assessment. Non-performance or non-operability of Form GSTR-2A or for that matter, other forms will be of no avail because the dispensation stipulated at the relevant time obliged the registered persons to submit return on the basis of such self-assessment in Form GSTR-3B manually on electronic platform.
• Clarified that, denial of ITC to the recipient cannot be made without any investigation of the supplier.
• Held that, the demand notice issued to the Petitioner for reversing the ITC availed could not be sustained without proper inquiry into the supplier’s actions.

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