The Calcutta High Court has held that the retrospective GST registration cancellation of supplier cannot absolve the buyer to verify input tax credit (ITC) claim authenticity.
The bench of Justice Rajarshi Bharadwaj has observed the retrospective cancellation of the suppliers’ GST registrations did not invalidate the transactions, nor did it absolve the petitioners of the need to verify the authenticity of their claims for ITC.
The Petitioners/assessee sought the direction to quash the Show Cause cum Demand Notice. The notice was issued under Section 74 of the CGST Act for the financial year 2023–2024 by the Deputy Commissioner, State Tax, Shibpur Charge, Howrah Commissionerate.
The SCN demands payment of ₹36,04,552, comprising ₹18,02,276/- as CGST and an equivalent amount as WBGST, along with applicable interest and penalties. The notice alleges wrongful availment of Input Tax Credit (ITC) by the Petitioners on inward supplies from suppliers allegedly found to be either unregistered, non-existent or not conducting business at their registered places.
The SCN blatantly disregards Section 16 of the CGST Act, 2017, which lays down the criteria for availing ITC. It ignores the Central Board of Indirect Taxes and Customs (CBIC) Press Release dated 04.05.2018, which clarifies that ITC reversal from buyers is not automatic and recovery of unpaid tax should be made from defaulting suppliers unless exceptional circumstances exist (e.g., missing dealer or closure of business).
The petitioners assert that all necessary criteria under Section 16 of the CGST/WBGST Act for availing ITC were met, including holding valid tax invoices and receiving goods from the suppliers. The alleged suppliers had also filed requisite returns, and their registrations were later cancelled retrospectively without the Petitioners having prior knowledge of such cancellations.
The petitioners/assessee highlight that they had submitted a detailed reply to the pre-show cause notice issued in Form GST DRC-01A, refuting the allegations. However, Deputy Commissioner, State Tax did not take any recovery action against the defaulting suppliers, which is a statutory prerequisite for demanding disputed ITC from the recipient and also failed to consider the submissions and issued the Impugned SCN without applying its mind, making the entire adjudication process a mere formality thereby leading to the preference of the present petition.
The petitioner submitted that Section 16 of the CGST/WBGST Act provides specific conditions for availing ITC, including possession of valid tax invoices, receipt of goods, and payment of taxes to the suppliers. The Petitioners contend that they have fulfilled all these conditions in good faith and availed ITC based on self-assessment of their books of accounts.
The petitioners emphasized that they, as buyers, have no mechanism to verify whether the suppliers have deposited the collected taxes with the government. Once the payment, including tax, is made to the suppliers, the Petitioners’ obligations are deemed fulfilled under the law.
The petitioners argued that the retrospective cancellation of GST registrations of the suppliers does not render the transactions invalid. The suppliers had filed all relevant returns for the period in question, and the Petitioners had no prior knowledge of the eventual cancellations.
The petitioners asserted that they had filed a comprehensive reply to the pre-show cause notice, substantiating their claims with judicial precedents and legal provisions. However, the Deputy Commissioner issued the SCN without addressing their submissions, violating the principles of natural justice.
The Petitioners relied on the CBIC Press Release dated 04.05.2018, which explicitly states that recovery of unpaid tax should primarily be made from defaulting suppliers. Reversal of ITC from buyers is permissible only in exceptional circumstances, none of which exist in the present case.
The department contended that it is a well-settled law that a writ petition is ordinarily not maintainable against a Show Cause Notice unless it is wholly without jurisdiction or ex-facie perverse. The petitioners have failed to demonstrate that the issuing authority acted beyond jurisdiction or that the Show Cause Notice is without jurisdiction or perverse.
The court noted that the Petitioners failed to demonstrate that the SCN lacked jurisdiction or was perverse in its issuance. It reiterated that procedural grievances, including alleged non-consideration of the reply to FORM GST-DRC-01A, could be effectively addressed during the adjudication process as per Section 74(9).
The Court emphasized that the statutory framework under the GST Acts provides sufficient opportunity for taxpayers to raise their defences during the adjudication process and bypassing this statutory mechanism through writ jurisdiction is impermissible.
The court found no merit in the allegations of jurisdictional error or procedural impropriety in the issuance of the show cause notice and dismissed the writ petition, reinforcing the need for taxpayers to adhere to the statutory adjudication process rather than seeking premature judicial intervention.
Case Details
Case Title: M/s Jyoti Tar Products Private Limited & Anr. Vs The Deputy Commissioner, State Tax, Shibpur, WBGST & Ors.
Case No.: W.P.A 22106 of 2024
Date: 13.12.2024
Counsel For Petitioner: Ankit Kanodia
Counsel For Respondent: A. Roy
