SC quashes GST department's plea against HC order on ITC

Supreme Court Dismisses GST Department's Plea, Upholding High Court Ruling on Input Tax Credit

In a significant development, the Supreme Court has quashed a petition filed by authorities challenging a Calcutta High Court ruling. The High Court had determined that input tax credit (ITC) to a buyer should not be denied under the Goods and Services Tax (GST) regime solely on the grounds that the seller had not paid taxes, unless a thorough investigation had been conducted.

The Supreme Court's decision not to intervene in the matter has sparked a debate among experts about the potential precedent this could set for similar cases. The court, citing the relatively small amount of tax in dispute, stated, "Having regard to the facts and circumstances of this case(s) and the extent of demand being on the lower side, we are not inclined to interfere in these matters…"

The case in question involved a petition by the GST department against the High Court's ruling in a matter concerning Suncraft Energy Ltd. The disputed amount of tax was Rs 650,511, inclusive of interest and penalty.

The crux of the issue revolved around the department's demand to reverse ITC claimed by Suncraft Energy Ltd., as the GST payable by its supplier did not align with the relevant form. The High Court had emphasized that the denial of ITC to the company is not justified solely on the basis of the supplier's non-payment of tax unless there is a genuine difficulty in recovering taxes from the supplier.

The High Court ruled that before instructing the company to reverse ITC, GST authorities should have taken action against the supplier to ensure tax recovery.

In response to the GST department's special leave petition, the Supreme Court dismissed it, indicating a stance that the authorities must investigate the defaulting party before denying credit to the recipient of the supply. The Advocate handling similar cases in various courts noted that the fate of petitions akin to the GST department's would now hinge on individual facts and merits.

However, a dissenting expert contended that the Supreme Court refrained from commenting on the merits of the case and instead dismissed the appeal due to the relatively small disputed tax amount. This, according to the expert, limits the applicability of the judgment, conferring ITC exclusively to Suncraft Energy and refraining from establishing a broader precedent for other businesses grappling with similar issues.