Introduction:

The recent writ application filed by a petitioner challenging an order passed by the Joint Commissioner, State Tax, West Bengal has shed light on the issue of Input Tax Credit (ITC) under the Goods and Services Tax (GST) regime. The petitioner, a registered taxable person (RTP), had claimed credit of input tax against a supplier but faced rejection and subsequent penalties. The case involves allegations of fake suppliers and non-compliance with verification procedures. After careful consideration of the arguments and supporting documents, the court has rendered a significant judgment that highlights the importance of due diligence in verifying suppliers and the applicability of previous judgments.

Background:

The petitioner, in this case, had claimed input tax credit based on a ledger account reflecting a purchase from a supplier, Global Bitumen. The petitioner provided a tax invoice cum chalan and a debit note issued to the transporter, International Transport Corporation, as evidence of the transaction. Additionally, the petitioner presented bank statements showing the payment made to Global Bitumen from their account. However, the respondent authorities contended that the supplier was fake, non-existing, and had their registration canceled with retrospective effect.

Arguments of the Petitioner and Respondents:

• The petitioner contended that they had fulfilled their obligations under the law by verifying the genuineness and identity of the supplier. They argued that the transactions were supported by relevant documents, and the allegation of fake credit availed by Global Bitumen should not be a ground for rejecting their refund application. The petitioner relied on previous judgments to support their case.
• The respondents, on the other hand, maintained that the cancellation of the supplier's registration had retrospective effect and had been accepted by the supplier. They argued that the judgments cited by the petitioner were not applicable to the present case due to the retrospective cancellation and acceptance by the supplier.

Court's Analysis and Judgment:

• After considering the arguments presented by both parties and reviewing the supporting documents, the court reached several important conclusions. The court noted that the petitioner had made the necessary verifications and had paid for the goods and associated taxes through a bank transaction. There was no evidence of collusion between the petitioner and the supplier, and the government records at the time of the transaction had reflected the supplier's valid and existing registration.
• The court emphasized that the rejection of the petitioner's claim was solely based on the retrospective cancellation of the supplier's registration. However, without proper verification, the court held that the petitioner could not be deemed to have failed in complying with statutory obligations before entering into the transaction.
• The court relied on an unreported judgment that directly addressed a similar issue and found it to be applicable in the present case. Based on this analysis, the court set aside the impugned orders and directed the respondent authorities to reconsider the petitioner's claim, taking into account the supporting documents provided. The authorities were instructed to pass a reasoned and speaking order after affording the petitioner an opportunity to be heard within eight weeks from the receipt of the court's order.

Conclusion:

The recent judgment highlights the significance of due diligence in verifying suppliers and the importance of examining supporting documents. It establishes that the cancellation of a supplier's registration with retrospective effect should not be the sole basis for rejecting an input tax credit claim. The court's decision emphasizes the need for a fair assessment of the facts and proper consideration of the documents provided by the petitioner. This ruling sets a precedent for similar cases and provides clarity on the treatment of input tax credit claims under the GST regime.

Case referred/cited :

1. M/s. LGW Industries Limited & Ors. –vs- Union of India & Ors.
2. Balaji Exim –vs- Commissioner, CGST & Ors.

Gargo Traders Versus The Joint Commissioner, Commercial Taxes (State Tax) and Ors

CALCUTTA HIGH COURT

Date of order: 12/06/2023

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