21.12.2021- ITC cannot be disallowed if genuineness of transaction is established: Calcutta HC

ITC cannot be disallowed if genuineness of transaction is established: Calcutta HC

In a huge relief to businesses, the Calcutta High Court has ruled that taxpayers shouldn’t be denied the benefit of the input tax credit if one is able to establish the genuineness of the transaction through documentary evidence, and statutory obligations, where registration of suppliers from whom procurements have been made is cancelled after the execution of the transaction.

The Court was hearing a batch of four petitions where show-cause notices (SCN) were issued to the taxpayers by the Department, refusing the benefits of input tax credit where registration of their suppliers was cancelled. Petitioners also challenged the controversial Section 16 (c) 2 of the GST regulation which denies taxpayers benefits of the input tax credit if their suppliers fail to pay taxes for such transactions to the government. The Court did not consider deciding on this issue.

The ruling holds great significance for other High Courts where similar writ petitions have been placed, but yet to be disposed of. The business community has hailed this judgment.
The judgment is a silver lining for the honest and genuine taxpayers as it clearly brings out the distinction on how to deal with the cases where input tax credit has been availed on genuine supplies vis-à-vis credit availed on the basis of fake invoices.

“Though the onus continues to remain on the taxpayers to establish the genuineness of the transaction, yet if one co-operates with the Revenue Officers in establishing its genuineness, the entity may succeed in avoiding the brunt of denial of ITC along-with interest and penalty,” he said

Singhania though feared some fake taxpayers, too, could use this order to wrongfully claim the input tax credit, but he hoped taxmen would be able to distinguish between genuine and fake buyers.

Another expert Parag Mehta, Partner at NA Shah & Associates concurred. The order has clarified that authorities have to verify if all required documents are available and if at the time of the transaction the GST registration was not revoked, then the department cannot refuse the input tax credit to genuine buyers, Mehta said. “The Calcutta High Court has simply held that assessee cannot be penalized for vendor's default…This judgement should be accepted and made applicable to all in public interest instead of only the specific parties to the petition as if is in public interest,” he said.

Source- ET CFO.COM


Register Today