In MAT 1218 of 2023 -CAL HC- Input Tax Credit cannot be reversed without taking action against supplier: Calcutta High Court rules in favour of appellant in GST dispute
Chief Justice T.S. Sivagnanam & Justice Hiranmay Bhattacharyya [02-08-2023]

Read Order: Suncraft Energy Private Limited and Another V. The Assistant Commissioner, State Tax, Ballygunge Charge and Others

Chahat Varma

New Delhi, August 11, 2023: The Calcutta High Court has ruled in favour of Suncraft Energy Private Limited (appellant), in a dispute over input tax credit (ITC) under the GST regime. The Court held that the Assistant Commissioner of State Tax had acted arbitrarily in reversing the ITC claimed by the appellant, without first taking action against the supplier.

Briefly stated, the appellant was aggrieved with the decision made by the Assistant Commissioner of State Tax, Ballygunge Charge, to reverse the ITC that the appellant had claimed under the West Bengal Goods and Services Tax Act, 2017. In response, the appellant had filed a writ petition challenging the order. The Single Bench's ruling on the writ petition directed the appellant to submit a statutory appeal to the appellate authority. Dissatisfied with this outcome, the appellant filed the present appeal.

The division bench of Chief Justice T.S. Sivagnanam and Justice Hiranmay Bhattacharyya reviewed two press releases issued by the Central Board of Indirect Tax and Customs. In the press release dated 18.10.2018, a clarification was provided, emphasizing that the act of furnishing outward details in Form GSTR-1 by corresponding suppliers and the subsequent viewing of these details in Form GSTR-2A by recipients are intended to facilitate taxpayers. This process does not hinder the taxpayer's ability to avail ITC based on self-assessment, in accordance with the provisions outlined in Section 16 of the Act. Further, the press release dated 04.05.2018, explicitly stated that there won't be an automatic reversal of ITC from a buyer due to the seller's failure to pay tax. Instead, in cases where the seller defaults in tax payment, recovery would be sought from the seller. However, the option to reverse credit from the buyer would also be available to revenue authorities, especially in exceptional circumstances

The bench held that the Assistant Commissioner of State Tax's actions were arbitrary since he had not taken any steps against the selling dealer or supplier, even though the appellant had provided tax invoices and bank statements as evidence of payment. The bench emphasized that before instructing the appellant to reverse the ITC and pay it back to the government, the Assistant Commissioner of State Tax should have initiated action against the selling dealer. The bench stated that the Assistant Commissioner should only resort to such measures in exceptional cases where collusion between the appellant and the seller is evident, or situations arise where the seller is missing, has ceased business operations, or lacks assets.

As a result, the order of the Assistant Commissioner of State Tax, was set aside. The Court directed the relevant authorities to prioritize taking action against the seller in question. Only under exceptional circumstances, as clarified in the press release by the Central Board of Indirect Taxes and Customs, should any proceedings be initiated against the appellant.