ITC claimed by the Recipient cannot be denied without conducting due diligence of Supplier

The Supreme Court has upheld a Calcutta High Court ruling stating that Input Tax Credit (ITC) cannot be denied to a recipient without proper investigation into the supplier's conduct. In this case, Suncraft Energy Pvt. Ltd. had claimed ITC, but the tax department sought to reverse it due to discrepancies between GSTR-2A and GSTR-3B. The court emphasised that the department must conduct due diligence on the supplier before demanding reversal of ITC from the recipient.

The Hon'ble Supreme Court in the case of the Assistant Commissioner of State Tax, Ballygunje and Others v. Suncraft Energy Pvt. Ltd. [Special Leave Petition (C) No. 27827-27828 of 2023 dated December 14, 2023] reaffirmed the order passed by the Hon'ble Calcutta High Court in the case of M/s.Suncraft Energy Private Limited and Another v. The Assistant Commissioner, State Tax [MAT 1218 of 2023 dated August 02, 2023] wherein the Court set aside the order of reversing excess credit availed in Form GSTR-3B as compared to Form GSTR-2A and held that the demand notice issued to the assessee for reversing the ITC could not be sustained without proper inquiry into the supplier's actions. 

Facts

M/s. Suncraft Energy Private Limited ("the Respondent") sells goods to the customers and charges GST from them and at the time of filing Form GSTR-3B avails ITC on inward supplies. However, some suppliers did not disclose the supplies in their Form GSTR-1 of the financial year 2017-18. Accordingly, such transactions never auto-populated in Form GSTR-2A of the Petitioner.

The Revenue Department ("the Petitioner") issued notice to the Petitioner based on mismatch of ITC between Form GSTR-2A and Form GSTR-3B.

A Show Cause Notice was issued to the Respondent on December 06, 2022 ("the SCN") demanding to reverse the excess ITC claimed by the Respondent in the financial year 2017-18 based on ITC mismatch in Form GSTR-3B and Form GSTR-2A.

The Respondent filed the reply to the SCN, interalia denying the allegations stated in the SCN and submitted that the Petitioner has paid the taxes to the supplierpertaining to the transaction and only thereafter has availed the ITC on said inward supplies.

The Respondent further contended that despite having fulfilled all the conditions as enumerated under Section 16(2) of the Central Goods and Services Tax Act, 2017 ("the CGST Act") the department erred in reversing the credit availed and has directed the Petitioner to deposit the tax that had already been paid to the supplier at the time of purchasing goods and services.

The Adjudicating Authority passed an order on February 20, 2023 ("the Order") to demand for payment of tax of INR 6,50,511 along with applicable interest and penalty.

Aggrieved by the Order, the Respondent filed an appeal before the Hon'ble Calcutta High Court.

The Hon'ble Calcutta High Court in the case of M/s.Suncraft Energy Private Limited and Another v. The Assistant Commissioner, State Tax [MAT 1218 of 2023 dated August 02, 2023] ("the Impugned Order")set aside the order of reversing excess credit availed in Form GSTR-3B as compared to Form GSTR-2A and held that the demand notice issued to the assessee for reversing the ITC could not be sustained without proper inquiry into the supplier's actions.

Aggrieved by the Impugned Order, the Petitioner filed a Special Leave Petition before the Hon'ble Supreme Court of India. 

Held

The Hon'ble Supreme Court in the case of SLP (C) No. 27827-27828 of 2023 dismissed the Special Leave Petition and reaffirmed the order passed by the Hon'ble Calcutta High Court in the aforementioned case.