Buyer Not Liable For Seller's Default: Calcutta High Court Set Aside ITC Reversal Demand Against Buyer

The Calcutta High Court has held that before directing the recipient of service or buyer to reverse the input tax credit and remit it to the government, the department ought to have taken action against the selling dealer.

The bench of Chief Justice T.S. Sivagnanam and Justice Hiranmay Bhattacharyya has observed that the issuance of a demand notice on the recipient of service on account of a mismatch in GSTR 2A and GSTR 3B ITC cannot be sustained without any investigation being done at the end of the supplier whose invoices are not reflecting in GSTR 2A. The allegation of non-payment of tax by the supplier and denial of ITC cannot be made without any investigation of the supplier.

The appellant/buyer had challenged the order passed by the Assistant Commissioner of State Tax. The department reversed the input tax credit availed by the appellant under the provisions of the West Bengal Goods and Services Tax Act, 2017.

The supplier of the appellant provided goods and services to the appellant. The appellant made payment of tax to the supplier at the time of effecting the purchase, along with the value of the supply of goods or services.

However, some of the invoices of the supplier were not reflected in the GSTR 2A of the appellant for the Financial Year 2017-18. The department issued notices for the recovery of the input tax credit availed of by the appellant.

The grievance of the appellant was that without conducting any inquiry on the supplier and without affecting any recovery from the supplier, the department was not justified in proceeding against the appellant.

The appellant contended that despite having fulfilled all the conditions as enumerated under Section 16(2), the department erred in reversing the credit availed and directing the appellant to deposit the tax that had already been paid to the supplier at the time of availing the goods or services.

The court noted that in the event 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 department to address exceptional situations like missing dealers, closure of business by suppliers, suppliers not having adequate assets, etc.

The court stated that before directing the appellant to reverse the input tax credit, the department ought to have taken action against the supplier the selling dealer and unless and until the department is able to bring out the exceptional case where there has been collusion between the appellant and the supplier or where the supplier is missing or has closed down its business or does not have any assets and such other contingencies, straight away the appellant was not justified in directing the appellant to reverse the input tax credit availed by them.

Case Title: Suncraft Energy Private Limited And Another Versus Assistant Commissioner

Case No.: MAT 1218 OF 2023

Date: 02.08.2023

Counsel For Petitioner: Ankit Kanodia, Megha Agarwal, Jitesh Sah

Counsel For Respondent: Anirban Ray, Md. T.M. Siddiqui, S. Sanyal

Click Here To Read The Order