Service Recipient Not Liable For Seller's Default: Calcutta High Court Directs Dept. To 1st Proceed Against Supplier

The Calcutta High Court has held that the adjudicating authority, without resorting to any action against the supplier, who is the selling dealer, ignored the tax invoices produced by the appellant as well as the certificates issued by the Chartered Accountants, which are erroneous and wholly without jurisdiction.

The bench of Chief Justice T.S. Sivagnanam and Justice Hiranmay Bhattacharyya has observed that even in the show-cause notice, the authority has admitted that "it is true that the recipient has made payment of the element of tax to the supplier against such transaction, but the payment of such tax has not been reciprocated to the exchequer." If the authority has admitted the fact that the recipient, who is the appellant, has made payment of the tax to the supplier against the transaction, If it is the case of the department that such tax has not been remitted to the state exchequer, the elementary principle to be adopted is to cause an inquiry with the supplier, and without doing so to penalize the appellant, it would be arbitrary, illegal, and without jurisdiction.

The petitioner/assessee has challenged a show-cause notice issued by the WBGST authorities on the ground that the notice has been issued without causing any verification from the supplier's end and denying credit to the appellant. The Writ Court disposed of the writ petition by directing the appellant to file the objection to the show-cause notice, and the authority was directed to consider it and take note of the judgment relied on by the appellant.

The respondent department issued notice holding that the appellant had failed to produce any evidence from which it can be ascertained that the suppliers had paid tax to the government on those supplies. The appellant had availed and utilized input tax credit (ITC) in contravention of Section 16(2)(c). Therefore, it was proposed that the ITC of IGST be found reversible along with interest payable as per the provisions of Section 50 of the GST Acts.

The court held that the order impugned in the writ petition dated December 28, 2023, as well as the show-cause notice dated August 22, 2023, are set aside with a direction to the authorities to first proceed against the supplier and only under exceptional circumstances, as clarified in the press release issued by the Central Board of Indirect Taxes and Customs (CBIC), and then only proceedings can be initiated against the appellant.

Counsel For Petitioner: Arnab Chakraborty

Counsel For Respondent: Uday Shankar Bhattacharya

Case Title: Lokenath Construction Private Limited Versus Tax/Revenue Government Of West Bengal And Others

Case No.: MAT 2459 OF 2023 with IA NO. CAN 1 OF 2023

Click Here To Read The Order