18.12.2023: No Automatic Reversal Of ITC From The Buyer Upon Non-Payment By The Supplier – Supreme Court Upholds Calcutta High Court Order

A big relief to the industry, and more particularly to the Companies facing demand notices on account of non-payment of taxes by the supplier, has been rendered by the Hon’ble Supreme Court by affirming the decision of the Calcutta High Court in the matter of Suncraft Energy Private Limited – MAT 1218 of 2023 With I.A. No. CAN 1 of 2023 dated 02.08.2023, wherein the Hon’ble High Court held that Input Tax Credit cannot be denied to the Buyer under GST over a mismatch in GSTR – 2A and GSTR – 3B without any investigation into the supplier.  Earlier, the Hon’ble Calcutta High Court while allowing the Appeal of the Assessee held as under: –

‘8. 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 appellant also referred to the press release dated 18.10.2018. What we find is that the first respondent has not conducted any enquiry on the fourth respondent supplier more particularly when clarification has been issued where furnishing of outward details in Form GSTR 1 by a corresponding supplier and the facility to view the same in Form GSTR 2A by the recipient is in the nature of tax payer facilitation and does not impact the ability of the tax payers to avail input tax credit on self-assessment basis in consonance with the provisions of Section 16 of the Act. Furthermore, it was clarified that there shall not be any automatic reversal of input tax credit from buyer on non-payment of tax by seller. Further it is clarified that in case of default in payment of tax by the seller recovery shall be made from the seller however, reversal of credit from the buyer shall also be an option available with the revenue authorities to address the exceptional situations like missing dealer, closure of business by supplier or supplier not having adequate assets etc

‘9. 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. Therefore, we are of the view that the demand raised on the appellant dated 20.02.2023 is not sustainable.’

The Hon’ble Calcutta High Court with the above discussions and findings allowed the appeal filed by the assessee i.e., Suncraft Energy Private Limited, against the order passed in the Writ Petition – WPA 12153 of 2023 dated 21.06.2023.

Being aggrieved of the aforesaid order of the Hon’ble High Court the department/revenue challenged the order by preferring Special Leave to Appeal (C) No (s). – 27827 – 27828 of 2023 in The Assistant Commissioner of State Tax, Ballygunjge Charge & Ors. Vs. Suncraft Energy Private Limited & Ors. before the Hon’ble Supreme Court.

The Hon’ble Supreme Court after considering the submissions made, facts of the case and the demand involved in the matter, dismissed the Special Leave Petition filed by the revenue finding that ‘the extent of demand being on the lower side, we are not inclined to interfere in these matters in exercise of our powers under Article 136 of the Constitution of India.

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