The Hon’ble Calcutta High Court in the captioned matter has held that action of department of penalizing the recipient by confirming reversal of the availed input credit without first conducting an inquiry against the defaulting supplier, is arbitrary. The ignorance of the invoices and Chartered Accountants issued certificates produced by the assess was held to be without jurisdiction.
In the present case the department had issued a show cause notice under Section 73(1) of the CGST/WBGST Act against the Appellant, proposing the reversal of allegedly availed excess input tax credit on the ground that the Appellant had failed to provide proof that its supplier had remitted the tax to the government. Consequently, the Appellant had challenged the adjudicated order in the present appeal on the basis of Suncraft Energy Private Limited.
The Hon’ble High Court observed that where the department has accepted the position that the assessee has made payment of the tax to the supplier against the transaction, then the elementary principle to be adopted is to cause enquiry with the supplier. Non-compliance of so to penalise the appellant is arbitrary. The Hon’ble Calcutta High Court set aside the order and provided clear directions to the department to first proceed against the supplier and only under exceptional circumstances proceedings can be initiated against the appellant as per the CBIC Press Release dated 18.10.2018.
W&B Comments: The present ruling reaffirms the legal position that in case of ITC availed in GSTR-3B but not being reflected in GSTR 2B/2A, the said ITC cannot be disallowed to a bonafide purchaser without undertaking inquiry /recovery against the defaulting supplier. This view has also been echoed by Hon’ble Madras High Court in D.Y. Beathel Enterprises & Hon’ble Kerala High Court in Diya Agencies. Given that a slew of summons/notices are being issued by the GST authorities across the country on account of ITC mismatch, it is critical for the assessees to put forth a strong legal defense to such demands and challenge them before the appropriately forum.