Tax Recovery| Purchasing dealer cannot be denied Input Tax Credit for selling dealer’s failure to deposit tax: Calcutta High Court

Calcutta High Court: While deciding an appeal challenging the reversal of input tax credit (ITC) availed under the West Bengal Goods and Services Tax Act, 2017 (WBGST Act), a Division bench comprising of T.S. Sivagnanam,* CJ., and Hiranmay Bhattacharyya, J., set aside the order passed by the Assistant Commissioner of State Tax and the directed the relevant authorities to prioritize taking action against the supplier. The Court further specified that any action against the appellants would only be permissible under extraordinary circumstances as outlined in the press release released by the Central Board of Indirect Taxes and Customs (CBIC).

Brief Facts

In the instant matter, the appellants filed an intra-court appeal against an order dated 20-02-2023 passed by the Assistant Commissioner of State Tax-respondent reversing the ITC availed by the appellants under the WBGST Act, on the ground that certain invoices from the supplier (respondent 4) were not reflected in the GSTR 2A of the appellants for the Financial Year 2017-18.

Contentions

The appellants contended that they had fulfilled all the conditions under Section 16(2) of the WBGST Act to avail ITC. They had received goods and services, paid the tax to the supplier, and possessed a valid tax invoice. However, the Assistant Commissioner of State Tax proceeded against the appellants without taking any action against the supplier, thereby making the demand for tax payment unjustified.

Moot Point

1. Whether the Assistant Commissioner of State Tax’s order to reverse the ITC availed by the appellants is valid?

2. Whether action should be taken against the supplier before proceeding against the appellants?

Court’s Observation

The Court observed that the Assistant Commissioner of State Tax had neither conducted any inquiry into the actions of the supplier nor taken any action against them. The Court emphasized that the revenue authorities could only resort to reversing the credit from the buyer in specific situations mentioned in the clarification, such as dealing with missing dealers, business closures by suppliers, or inadequate supplier assets.

The Court observed that without any valid reasons or evidence of collusion or exceptional circumstances, the Assistant Commissioner of State Tax had arbitrarily directed the appellants to reverse the ITC availed by them. The Court observed that “in the event that the selling dealer has failed to deposit the tax collected by him from the purchasing dealer, the remedy for the department would be to proceed against a defaulting selling dealer to recover such tax and not denying the purchasing dealer the ITC.”

The Court relied on Union of India v. Bharti Airtel Ltd., (2022) 4 SCC 328, where the Supreme Court clarified that Form GSTR-2A is a facilitator for taxpayer self-assessment and does not impact the ability of taxpayers to avail ITC. The Court also referred to the press releases issued by CBIC, which emphasized that reversal of ITC from the buyer could only be considered in exceptional situations.

Based on this reasoning, the Court held that the demand raised on the appellants was not sustainable, and the first respondent should first proceed against the supplier before initiating any proceedings against the appellants.

Court’s Verdict

While allowing the appeal, the Court set aside the impugned order of the Assistant Commissioner of State Tax and directed the authorities to proceed against the supplier before taking any action against the appellants. The Court emphasized that action against the appellants could only be considered under exceptional circumstances as clarified in the press release issued by CBIC.

[Suncraft Energy (P) Ltd. v. Assistant Commissioner, State Tax, 2023 SCC OnLine Cal 2226, order dated 02-08-2023]

*Judgment by Justice T.S. Sivagnanam

Advocates who appeared in this case :

Mr. Ankit Kanodia, Ms. Megha Agarwal, Mr. Jitesh Sah, Counsel for the Appellant;

Mr. Anirban Ray, Ld. Govt. Pleader, Md. T.M. Siddiqui, Learned A.G.P., Mr. S. Sanyal, Counsel for the Respondent/State.