2023 (8) TMI 174 - HC - GST

Reversal of Input Tax Credit - requirements of Section 16 (2) of WBGST Act fulfilled or not - Failure of the supplier to pay GST to the government - allegation was that the appellant had submitted that the fourth respondent has not shown the Bill in GSTR 1 and hence the appellant is not eligible to avail the credit of the input tax as per Section 16(2) of the WBGST Act, 2017 as the tax charged in respect of such supply has not been actually paid to the Government. HELD THAT - The show cause notice 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 - In the reply submitted by the appellant to the said show cause notice the appellant had clearly stated that they are in possession of the tax invoice, they had received the goods and services or both and the payment has been made to the supplier of the goods or services or both. The reason for denying the input tax credit is on the ground that the detail of the supplier is not reflecting in GSTR 1 of the supplier. The appellant had pointed out that they are in possession of a valid tax invoice and payment details to the supplier have been substantiated by producing the tax invoice and the bank statement. The first respondent without resorting to any action against the fourth respondent who is 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 arbitrarily. Therefore, before directing the appellant to reverse the input tax credit and remit the same to the government, the first respondent ought to have taken action against the fourth respondent the selling dealer and unless and until the first respondent is able to bring out the exceptional case where there has been collusion between the appellant and the fourth respondent or where the fourth respondent is missing or the fourth respondent has closed down its business or the fourth respondent does not have any assets and such other contingencies, straight away the first respondent was not justified in directing the appellant to reverse the input tax credit availed by them - the demand raised on the appellant is not sustainable. GST authorities directed to decide the matter in view of CBIC circular - Appeal allowed.

Summary

Issues Involved:
1. Reversal of Input Tax Credit (ITC) by the Assistant Commissioner of State Tax.
2. Compliance with conditions under Section 16(2) of the WBGST Act.
3. Validity of the demand raised based on discrepancies in GSTR-2A and GSTR-3B.
4. Justification for proceeding against the appellant without action against the supplier.

Summary:

Reversal of Input Tax Credit (ITC) by the Assistant Commissioner of State Tax:
The intra-Court appeal was filed against the order dated 21.06.2023, which reversed the ITC availed by the appellant under the WBGST Act, 2017. The appellant challenged the order by the Assistant Commissioner of State Tax, Ballygunge Charge, dated 20.02.2023, which reversed the ITC due to certain invoices not being reflected in the GSTR-2A for the Financial Year 2017-18.

Compliance with conditions under Section 16(2) of the WBGST Act:
The appellant contended that they had fulfilled all conditions under Section 16(2) of the Act, including possession of a valid tax invoice, receipt of goods/services, payment of tax to the supplier, and furnishing the return under Section 39. The appellant argued that the reversal of ITC was erroneous as they had complied with all statutory requirements.

Validity of the demand raised based on discrepancies in GSTR-2A and GSTR-3B:
The demand for payment of tax along with interest and penalty was based on discrepancies between GSTR-2A and GSTR-3B. The appellant argued that the discrepancy arose due to the supplier not reflecting the invoices in their GSTR-1, but the appellant had valid tax invoices and had made payments. The appellant relied on the Supreme Court's decision in Union of India (UOI) vs. Bharti Airtel Ltd. and Ors., and press releases by the Central Board of Indirect Tax and Customs, which clarified that ITC should not be automatically reversed due to non-payment of tax by the supplier.

Justification for proceeding against the appellant without action against the supplier:
The Court noted that the first respondent did not conduct any enquiry on the supplier (fourth respondent) and directly proceeded against the appellant. The Court emphasized that action should first be taken against the supplier, and only in exceptional circumstances, such as collusion or the supplier being untraceable, should proceedings be initiated against the appellant. The Court found the first respondent's action arbitrary and set aside the demand raised on the appellant.

Conclusion:
The appeal was allowed, and the orders passed in the writ petition and by the Assistant Commissioner were set aside. The authorities were directed to first proceed against the supplier and only under exceptional circumstances proceed against the appellant. The Court concluded that the demand raised on the appellant was not sustainable.