A demand order was served on the Appellant on account of reversal of ITC due to difference in ITC appearing in GSTR-2A and GSTR-3B. The Appellant was available with all tax invoices and payment is also made to the supplier for the value of supply along with taxes. Department denied the ITC on the mere ground that the same is not appearing in GSTR-2A.

Hon’ble Calcutta High court held that before directing the appellant to reverse the ITC, the Department ought should have taken an action against the supplier unless and until the department is able to bring out the exceptional case where there has been collusion between the supplier and respondent. The appropriate authorities to first required to proceed against the supplier and only under exceptional circumstance proceedings can be initiated against the appellant.

The Department filed the SLP against the order issued by Hon’ble High Court. However, SC has dismissed the SLP filed by the Department and therefore, upheld the order of Hon’ble Calcutta High Court.

1. Decision of Hon’ble Supreme Court

Hon’ble Supreme Court has dismissed the department’s Special Leave Petition (SLP) against the Calcutta High Court judgment in the case of Suncraft Energy Pvt. Ltd. Therefore, ITC of the purchasing dealer cannot be denied on the ground that the supplying dealer has not remitted the tax collected except in exceptional cases , such as the supplier going missing or a situation where it becomes impossible for the department to collect tax from the supplier. 

The order of the dismissal of the SLP and the affirmation of the Calcutta High Court judgment is a significant victory for honest taxpayers.

Order of Hon’ble Calcutta High Court is as follows:

2. Calcutta High Court Judgment in the matter of M/s Suncraft Energy Private Limited (MAT 1218 of 2023)

a. Brief facts of the case

• M/s Suncraft Energy Private Limited (“The Appellant) filed an appeal against the Impugned order wherein the Respondent reversed the input tax credit availed by the appellant.
• The appellant purchased goods and services from the supplier and made the corresponding payment of tax alongwith value of goods and services at the time of affecting purchase itself.
• However, some of the invoices were not reflecting in GSTR-2A of the appellant.
• A scrutiny of the return of the appellant was made under Section 61 of CGST Act and a show cause notice was issued proposing a demand on account of excess ITC claimed by the appellant for the Financial Year 2017-18. 
• Amount is determined on the basis of the difference of ITC in Form GSTR-2A and Form GSTR-3B.
• The appellant submitted a detailed reply and mentioned the appellant had made payment of tax to the supplier from the transaction and thereafter availed ITC on such invoices.
• However, The show-cause notice was adjudicated and a demand was confirmed for payment of tax alongwith interest and penalty.
• Aggrieved by such order, the appellant has preferred the present appeal.  

b. Relevant Legal Extract

Relevant extract of Section 16 of CGST Act is reiterated below for ready reference:

“ Section 16:  Eligibility and conditions for taking input tax credit.

…

(2) no registered person shall be entitled to credit of any input tax in respect of any supply of goods or services or both to him unless:

1. he is in possession of  tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed; 
2. he has received the goods or services or both; 
3. subject to the provisions of Section 41 or Section 43A, the tax charged in respect of such supply has been actually  paid to the Government, either in cash or through utilization of input tax credit admissible in respect of such supply; and 
4. (d) he has furnished the return under Section 39. “

c. Contention of the Appellant

The Appellant contended that:

• The respondent issued notices for recovery of the input tax credit availed by the appellant without conducting any enquiry on the supplier and without effecting any recovery from the supplier.
• The Appellant has fulfilled all the conditions given under Section 16(2) of CGST Act.
  • The appellant paid tax to the supplier and a valid tax invoice has been issued by the supplier for installation and commission services.
  • The appellant had made payment to the supplier within the time stipulated under CGST Act.

• The Appellant contended that despite having fulfilled all the conditions as given under Section 16(2) of CGST Act, the first respondent erred in reversing the ITC availed and directing the appellant to deposit the tax which has already been paid to the supplier at the time of purchase availing the goods/ services. 
• The Appellant placed reliance on the decision of the Hon’ble Supreme Court in the matter of “Union of India (UOI) Versus Bharti Airtel Ltd. And Ors” and press release dated 18.10.2018 and 04.05.2018 issued by the CBDT.
• In press release dated 18th October, 2018, CBDT issued following clarification:
  • Furnishing of outward details in Form GSTR-1 by the supplier and the facility to view the same in Form GSTR-2A by the recipient is in the nature of taxpayer facilitation. 
  • This process does not impact the ability of the taxpayer to avail ITC on self-assessment basis in accordance with Section 16 of CGST Act.
  • Further, it has been clarified that the apprehension that ITC can be availed only on the basis of reconciliation between Form GSTR-2B and Form GSTR-3B conducted before the due date for filing of the return in Form GSTR-3B for the month of September, 2018 is unfounded and the same exercise can be done thereafter also. 

• In the press release dated 4th May, 2018, CBDT clarified that:
  • There shall not be any automatic reversal of ITC from buyer on non-payment of tax by the seller. 
  • In case of default in payment of tax by the seller, recovery shall be made from the seller. 
  • However, reversal of ITC from the buyer can also be done in exceptional situations like missing dealer, closure of business by supplier or supplier not having adequate assets etc.

• In case of Bharti Airtel Limited, the Hon’ble Supreme court explained the effect and purpose of GSTR-2A. Hon’ble High Court held that:
  • Form GSTR-2A is only a facilitator for taking a confirmed decision while doing such self-assessment. 
  • Non-performance or non-operability of Form GSTR-2A will be of no avail because the dispensation stipulated at the relevant time obliged the registered persons to submit return on self-assessment basis in Form GSTR-3B manually on electronic platform. 
  • In the matter of Arise India Limited and Ors. Versus Commissioner of Trade and Taxes, Delhi and Ors.2, the challenge was to the constitutional validity of Section 9(2)(g) of the Delhi Value Added Tax Act, 2004 (DVAT Act) as being violative of Article 14 of 19(g) of the Constitution of India.
  • Section 9(2)(g) of the DVAT Act states that unless the tax paid by the purchasing dealer has actually been deposited with the Government or has been lawfully adjusted against output tax liability and correctly reflected in the return filed for the respective tax period, would not be eligible for claim of ITC.
  • The question that arose for consideration is whether for the default committed by the selling dealer can the purchasing dealer be made to bear the consequences of denying the ITC and whether it is in the violation of Article 14 of the Constitution. 
  • The expression “dealer or class of dealers” occurring in Section 9(2)(g) of the DVAT Act should be interpreted as not including a purchasing dealer who has bona fide entered into purchase transaction with validly registered selling dealer who have issued tax with DVAT Act and there is no mismatch of transactions in Annexures 2A and 2B.
  • In such cases, the remedy for the department would be to proceed against a defaulting selling dealer to recover such tax and not denying the purchasing dealer the ITC. 
  • However, where the purchasing dealer and the selling dealer acted in collusion then the department can proceed under Section 40A of the DVAT Act. Therefore, default assessment orders were set aside. 
  • The decision in Arise India Limited was challenged before the Hon’ble Supreme Court by the Government. However, the special leave petition was dismissed by judgment dated 10.01.2018.
  • Though the above decision arose under the provisions of the Delhi Value Added Tax Act, the scheme of availment of Input Tax Credit continues to remain the same even under the GST regime though certain procedural modification and statutory forms have been made mandatory. 

d. Contention of the Department

The Department contended that:

• The appellant had submitted that the supplier has not shown the Bill in GSTR 1 and hence the appellant is not eligible to avail the credit as the tax charged in respect of such supply has not been actually paid to the Government. 
• However, there is no denial of the fact that the appellant is in possession of a tax invoice and the appellant has received the goods or services or both.  
• The reason for denying the ITC is that the detail of the supplier are not reflecting in GSTR 1 of the supplier.

e. Findings of the Hon’ble High Court of Calcutta

The Hon’ble High court held that:

• The Department has not conducted any enquiry on the supplier more particularly when clarification has been issued that reflecting the ITC in GSTR 2A does not impact the ability of the taxpayers to avail the ITC on self-assessment basis.
• Furthermore, there shall not be any automatic reversal of ITC from the buyer on non-payment of tax by the seller. In case of default in payment of tax by the seller,  the recovery shall be made from the seller.
• however, reversal of ITC can be made when in exceptional situations like missing dealer, closure of business by supplier or supplier not having adequate assets etc.
• The Department ignored the submission made by the appellant without taking any action against the supplier.
• Therefore, before directing the appellant to reverse the ITC, the Department ought to have taken action against the supplier unless and until the department is able to bring out the exceptional case where there has been collusion between the supplier and respondent. 
• Therefore, Demand raised on the appellant is not sustainable. 

f. Decision of Hon’ble High Court

The Hon’ble High Court held that the impugned orders is set aside with a direction to the appropriate authorities to first proceed against the supplier and only under exceptional circumstance proceedings can be initiated against the appellant.