Denial of Input Tax Credit since the GST registration of the Supplier of Goods has been Cancelled with retrospective effect.

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2023 (6) TMI 533 - CALCUTTA HIGH COURT

Section 16 - Eligibility and conditions for taking input tax credit.

In the present case, the petitioner claimed input tax credit but was denied by the authorities and asked to pay penalties and interest under the GST Act.

The petitioner purchased goods from a supplier and made payment through bank to the supplier and transport of goods.

The authorities refused to grant the benefit of ITC on the following grounds:

The GST department discovered that the supplier from whom the petitioner claimed to have bought goods is fake and non-existing.
The department observed that the bank accounts open by the supplier is on the basis of fake document.
The Department further alleged that the petitioner did not verify the supplier's identity before the transaction.
Further, the registration of the supplier in question has already been cancelled with retrospective effect covering the transaction period of the petitioner.

The Petitioner M/S. GARGO TRADERS [2023 (6) TMI 533 - CALCUTTA HIGH COURT] approached the High Court

Discussions and Findings of the High Court

Admittedly at the time of transaction, the name of the supplier as registered taxable person was already available with the Government record and the petitioner has paid the amount of purchased articles as well as tax on the same through bank and not in cash.
It is not the case of the respondents that there is a collusion between the petitioner and supplier with regard to the transaction.
This Court finds that without proper verification, it cannot be said that there was any failure on the part of the petitioner in compliance of any obligation required under the statute before entering into the transactions in question.
The respondent authorities only taking into consideration of the cancellation of registation of the supplier with retrospective effect have rejected the claim of the petitioner without considering the documents relied by the petitioner.

Further, it is found that the decision in the matter of M/s LGW Industries Limited [2021 (12) TMI 834 - CALCUTTA HIGH COURT] is squarely applicable in the present case.

In this matter of M/s LGW Industries Limited [2021 (12) TMI 834 - CALCUTTA HIGH COURT] the High Court has observed that, “Considering the facts as recorded subject to further verification it cannot be said that that there was any failure on the part of the petitioners in compliance of any obligation required under the statute before entering the transactions in question or for verification of the genuineness of the suppliers in question.

Consequently, the high court remanded the matter back to the concerned adjudicating authority for reconsidering the matter and to adjudication the case fresh. The following directions were issued:

“If it is found upon considering the relevant documents that all the purchases and transactions in question are genuine and supported by valid documents and transactions in question were made before the cancellation of registration of those suppliers and after taking into consideration the judgments of the Supreme Court and various High Courts which have been referred in this order and in that event the petitioners shall be given the benefit of input tax credit in question.”

Following the ratio of the above decision in the case of M/s LGW Industries Limited in the present case also the matter remanded back to the Appellate Authority with the following directions:

The appellate authority is directed to consider the grievance of the petitioner afresh by taking into consideration of the documents which the petitioner intends to rely in support of his claim.
The appellate authority shall dispose of the claim of the petitioner by passing a reasoned and speaking order after giving an opportunity of hearing to the petitioner within a period of eight weeks from the date of receipt of copy of this order.

Final Take Away from the above decision:

The Hon’ble High Court has not granted the benefit of ITC directly to the assessee /petitioner, as demanded, but remanded back the matter to the appellate authority to adjudicate the issue of genuineness of transaction.

Since all the other facts are in favor of assessee / petitioner, once the appellate authority finds that the transactions, with supplier whose GST registration has been cancelled with retrospective effect, are genuine and bonafide, benefit of Input Tax Credit (ITC) is to be granted.