Show cause notice issued to the recipient of goods itself cam be treated as a communication intimating the mismatch in ITC between supplier and the recipient under section 42 of the CGST Act, 2017

Facts: The petitioner is a dealer under the GST regime. He has availed Input Tax Credit (ITC) for the Financial Year 2017-18 and 2018-19 from December 2017 to March 2019.

According to the Revenue, the ITC claimed by the petitioner was a wrong claim because, there was a complete mismatch between the supplier and the petitioner who was in the receiving end, as the supplier, in support of its outward tax has not paid the tax or not shown the same in their accounts, as if that they paid the tax. The revenue issued a show cause notice requiring the petitioner to explain the mismatch in ITC. However, considering the reply of petitioner, the Revenue passed the impugned order. 

Petitioner's contention: The petitioner contended that the revenue authorities have the obligation to first communicate the mismatch to both the supplier and the recipient. After such communication, there must be a procedure to be followed. Thus, show cause notice cannot be issued as a first communication. 

Revenue's contention: The Revenue submitted that SCN issued to the petitioner is itself a communication and reply could have been given with substantiated documents to show that the supplier has paid tax.

High Court Order: The High Court held that the revenue's contention is right and the petitioner would have done the rectification at the time of receipt of SCN. If the petitioner wanted to rectify the mismatch, it should have submitted the reply and the supporting documents to substantiate that the supplier has paid the outward tax at its end. However, the petitioner has failed to do so. Therefore, the High Court has held that SCN can be treated as a communication intimating the mismatch between the supplier and the petitioner. 

To read the complete judgment 2022 Taxo.online 479